Net gadgets: Down, but not yet out

With all the Internet appliances dotting the floor of last week's Computex trade show, one might think that the scaled-down computers are selling well. That would be a false impression.

TAIPEI--With all the Internet appliances dotting the floor of last week's Computex trade show, one might think that the scaled-down computers are selling well. That would be a false impression.

In fact, just 150,000 of the Web-surfing gadgets were sold in the United States last year, compared with more than 48 million PCs, according to market researcher IDC.

"We're still trying to find the market," said Chris Chuang, marketing manager for First International Computer's networking and information group. "Even our customers, they don't know where the market is."

But, despite complaints that there were few buyers, FIC and nearly all the major Taiwanese computer makers had prominently placed new Internet appliances in their booths at the giant Computex show here.

Monitor makers such as ViewSonic and motherboard makers such as Micro-Star International had prototype systems on display. Processor makers such as Via Technologies and National Semiconductor were touting the chips that power such devices. Even software vendors were on hand to offer browsers that could run on them.

That's despite the fact that many big-name companies that entered the market have now decided to retreat. 3Com pulled its Audrey appliance that was aimed to bring the Internet to the breakfast table. Gateway is rethinking its Net gadget strategy after launching one device in conjunction with America Online.

The market leader, Compaq Computer, last week cut the price of its two MSN-based Internet appliances.

IDC recently chopped its forecast for what it calls the Web terminal market. The market researcher now projects that 2.7 million units will ship by 2005, down from an earlier forecast that 5.5 million devices would ship in 2004.

So, if sales are so slow and the future so bleak, why are there so many new designs coming to market?

In many cases, it is just a way for computer makers to try to use up extra capacity in a slow PC market. Many Taiwanese component makers also are hoping that new business in devices such as Internet appliances can keep them going as much of the island's PC business moves to mainland China.

In addition, the US market may not be the best indicator of overall demand, say those who think Internet appliances may soon have their day. Developing nations appear to be a primary target.

Monitor maker MAG Innovision, which makes CRT-based Internet appliances, said it is looking to sell its products to Internet service providers and Net cafes in places like India and China, where PC ownership is low.

Even those skeptical of the market for such products are nonetheless doing work in that area, such as chipset maker Silicon Integrated Systems. "I personally don't think that the (Internet appliance) market is ready," said Shing Wong, senior vice president of the company's multimedia division and US operations.

Despite his skepticism, Wong backs the company's decision to develop a processor for such appliances that combine its chipset functions with a CPU from Rise Technology.

"Putting some investment and looking into it is the right thing to do," Wong said.