Monday, September 8, 2003		Feature

PC makers enter consumer electronics arena
Franklin Paul

THE consumer electronics market, where gadget lovers shop for everything from digital cameras and digital music players to big-screen TVs, is about to get a lot more crowded.

Now that the days of rapid growth are long gone for PC makers, popular brands such as Gateway Inc., Apple Computer Inc., and Dell are increasingly tossing their hats — and gadgets — into the market dominated by the likes of Panasonic, Sony Corp., Thomson’s RCA and Philips.

The lure is the goldmine of personal entertainment devices. Consumers continue to snap up items such as digital cameras, MP3 players, and high-definition TVs, key growth areas in the $100 billion consumer electronics, or the CE arena.

"It is a natural evolution for (PC makers) to move into the CE space, and the industry is not fighting it," says Matt Swanston of the Consumer Electronics Association. "PCs... are things that people feel they need. But TVs, stereos are things they want. There is plenty of room to sell in that market."

To be sure, success will be not be simple. The consumer electronics arena is no less cut-throat than the PC market, where competitors quickly introduce new models to trump rivals’ wares, or cut prices in hope to gain market share.

The advent of the connected home—where snapshots, home movies and video games can be linked or shared on devices around the house—also benefits PC makers who may see the gadgets as a kind of extension of their turf.

"They have the background in complex products and there is a little more room for innovation and profit margins than when you are entering a new market," says Swanston.

New products

PC makers have strategically targeted selected areas of the electronics market. Gateway Inc., which has turned to selling handheld computers, flat-screen monitors and TVs, last week unveiled four low-cost digital cameras sporting the Gateway brand, ranging from a 2-megapixel camera at $129 to a 4-megapixel unit for $200, and a 5-megapixel camera for about $300.

The portable digital music market has been transformed by Apple Computer Inc.’s iPod. Apple, in its most recent quarter, shipped some 3,00,000 units of the pocket-sized device, making it one of the best-selling single products.

Dell Inc. has done well with its Axim line of personal digital assistants and Dell-branded printers, which are manufactured by Lexmark International Inc. It recently started selling plasma televisions.

"We’ve been step-by-step introducing different products," Dell president Kevin Rollins said earlier this month. "We will not blurt onto the stage with 150 different products, but will add them case-by-case and profit pool by profit pool."

Challenges ahead

The PC makers’ advances are not seen disrupting operations of consumer electronics makers, who will continue to stock most of the shelf space in traditional retailers like Best Buy and Circuit City.

"There is no way the electronics guys can stop Dell or Hewlett-Packard Co. from getting in," says Steve Baker, research director for NPD Techworld. "But it is great for consumers ... who will see more features for less money."

The challenge for CE manufacturers will lie in developing captivating new products—such as smaller music players and pocket DVD viewers.

"(They may) offer sophisticated DVD players that have extra features or (other products) where the ‘secret sauce’ is in the software and the application that the device is running, and not the device itself," Yankee group analyst Ryan Jones asserts.