Converged Devices Bringing Electronics, Content Producers Together.

As personal computers and entertainment devices integrate each others’ functions, the companies that produce microprocessors and other electronic components are collaborating with service providers and content producers on the design of converged products.

“We’re seeing a lot of cooperation between companies that in the past never spoke to each other,” said Rudy Provoost, chief executive of Philips’ consumer electronics division, at the International Consumer Electronics Show in Las Vegas. “Customers want seamless interaction when they’re using these products, and that’s where we need to come together.”

Consumer electronics are presenting lucrative opportunities for technology companies, and instead of concentrating solely on marketing technical improvements to business customers, chipmakers are collaborating with companies outside their business on consumer-focused products.

Revenue from traditional PCs is essentially flat because falling prices have largely offset sales growth. Technology companies hope sales of consumer electronics products will play a more important — and more profitable — role in their success.

“Semiconductor companies have to prime the pump with reference designs and finished systems,” said Tim Bajarin, president of research firm Creative Strategies. “The old days of being a chipmaker and handing finished products to [PC manufacturers] are not here anymore. Semiconductor companies are in a different role today.”

Demand for electronics products shows little sign of abating. According to the Consumer Electronics Association, global factory sales of consumer electronics reached an estimated $126 billion in 2005, up from $113 billion in 2004 and $102 billion in 2003.

Some of the hottest product categories include LCD and plasma TVs, which increased to a combined $7.31 billion last year, compared to $3.93 billion in 2004. Portable MP3 music players increased from $1.3 billion in sales during 2004 to $3.8 billion last year.

In contrast, the $18.22 billion in factory sales of personal computers last year was a slight decrease from the $18.23 billion recorded in 2004. The number of units increased from 20 million to 22.2 million, but the average price fell from $912 in 2004 to $820 last year.

The technology industry’s shift from its traditional focus on business customers toward consumer electronics is also prompting chipmakers while in the earliest design stages to evaluate how their products will be used. Paul Otellini, president and CEO of Intel Corp., said his company has abandoned its emphasis on ever-faster processors in favor of smaller dual-core processors that use less power and generate less heat.

Otellini said Intel’s consumer products initiative is being led by products using technology the company has named Viiv (which rhymes with “five”), an which integrates a microprocessor, support chips, software and entertainment content. The dual-core Viiv PCs are designed to be easy to use, with features such as surround sound, being able to turn on instantly and distribute high-definition content to different screens in a home.

Intel has collaborated with more than 60 entertainment companies to develop content, such as sports clips and games, that will be formatted specifically to run on dual-core PCs.

“In our mind, it’s not a battle between various devices, it’s about making all of these devices work together in a very simple fashion,” Otellini said.

And as wireless carriers include drives into advanced cellphones, storage manufacturers are working with carriers and handset makers to reduce the thickness and power requirements of one-inch hard drives, according to Fadi Afa Al-Refaee, senior manager for business development in semiconductor producer Agere Systems’ storage group.

“We’re working on system-level design, instead of handing a [finished] drive to a handset manufacturer,” he said.

Similarly, producers of PCs and components are shifting how they view prospective markets, according to Rob Pait, director of global consumer electronics marketing for storage manufacturer Seagate Technology LLC.

Instead of concentrating its research efforts on the hard drives it sells to computer manufacturers, Seagate has developed smaller-capacity, portable drives with trendy designs that the company is marketing directly to consumers.

“We’re serving a different group of customers than we did five years ago,” Pait said. “Our customers are not just HP or Dell, but also consumers who want products and services that help them enjoy digital content.”

Satjiv Chahil, senior vice president of Hewlett-Packard’s personal systems group, said that because consumers want to connect devices to the Internet and to other devices, technology companies are looking for ways to make products easier to use.

For instance, Chahil noted laptops that display calendar information on a smaller screen embedded in the laptop’s case. This second screen remains visible when the computer is closed and turned off. Likewise, some new laptops allow consumers to play DVDs without having to boot the computer’s operating system.

Another factor driving companies in traditionally separate industries to work together is consumer demand for personalized entertainment like on-demand television broadcasts or digital recordings that may or may not be watched on a TV screen.

“Behaviors that customers are adopting are changing the needs of service providers,” said J.D. Zeeman, director of digital media worldwide for IBM Corp.

But the shift toward consumer products carries a number of challenges. For example, a hard drive embedded in a cell phone or music player has to tolerate greater swings in temperature and movement than a drive sitting in a PC stored in an air-conditioned office, said Andrei Khurshudov, senior manager of reliability technology for Samsung Information Systems America.

Another challenge is bringing together a number of products without diluting each function, or making a device too complicated for consumers.

“Just because you can put everything into one device doesn’t mean you should,” said David Edmondson, president and CEO of retailer RadioShack Corp. “There are a lot of products [that have been] optimized for specific behaviors. The problem with trying to converge everything is that you can wind up with a spork.”

By Dave Pelland, Managing Editor, Technology Insider
Courtesy of http://kpmginsiders.com