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Intel seeks payoff in 2009 from push into TV products

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Bloomberg San Francisco
Last Updated : Jan 29 2013 | 3:33 AM IST

Intel Corp, resurrecting a stalled bid to make its chips the key component in home-entertainment devices, expects to make headway this year as consumers use their televisions to surf the Web, chat with friends and shop online.

Consumer-electronics makers will introduce cable and satellite boxes with Intel chips in 2009, said Eric Kim, who heads the company’s digital home unit. Intel plans to discuss the devices this week at the Consumer Electronics Show in Las Vegas.

Intel, the world’s largest chipmaker, is expanding into TV equipment to reduce its reliance on personal computers. The set- top box strategy is a shift from an earlier goal of getting more PCs into consumers’ living rooms. Still, Intel may struggle to unseat more-established competitors in home electronics, especially as the economy makes buyers more cautious.

“In a recession, semiconductor markets tend to favor the entrenched player,” said Shane Rau, an analyst for research firm IDC. He doesn’t expect Intel to win significant sales until after 2010, when it learns to make the chips more cheaply. “We’re not going to know about Intel’s strategy until well into the next decade, assuming that Intel is willing to stick with it.”

Intel, based in Santa Clara, California, gained 24 cents, or 1.6 per cent, to $15.15 on the Nasdaq Stock Market at 9:41 am New York time. The shares dropped 45 per cent last year.

Intel set out to conquer the home-entertainment market four years ago, developing technology called Viiv that let computers connect to televisions. The idea failed to catch on, and Intel now aims to bring Internet capabilities to TVs while keeping the devices easier to use than PCs.

“This whole ‘connected TV’ has been promised for a decade,” Intel’s Kim said in an interview. “2009 is clearly the year where specific devices and service will be available.”

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Intel faces competition from companies such as Broadcom Corp, which sells cheaper chips for set-top boxes. Intel’s product will cost about $30, as much as three times the price of rival offerings, according to Christopher Danely, an analyst at JPMorgan Chase & Co in San Francisco.

Intel’s chips already power an Apple Inc device called Apple TV, which lets users watch downloaded videos and other content on their televisions. Still, even Apple Chief Executive Officer Steve Jobs doesn’t expect computer functions to catch on with average TV viewers soon. Jobs has told analysts that the whole category of devices will remain a “hobby” through 2009.

A company like Apple could be key to making Internet features more popular on TVs, said Patrick Wang, an analyst at Wedbush Morgan Securities in Los Angeles. Consumers may be looking for the kind of ease of use found in Apple’s iPod music player or iPhone handset.

“It probably needs to be a souped-up version of the Apple TV,” said Wang, who advises buying Intel shares. “While there are tech junkies out there who will buy these things, until they show a compelling usage model I just don’t see it happening.”

Intel’s digital home group began in 2005 as an attempt by Chief Executive Officer Paul Otellini to break the company’s reliance on computers. Like Intel’s efforts in mobile phones and medical equipment, the business hasn’t had much of an impact on revenue.

Computing, which provides more than 90 per cent of Intel’s sales, is a shrinking part of the total chip market. It accounted for 37 per cent of the industry’s revenue last year, down from 43 per cent 10 years ago, according to El Segundo, California-based iSuppli Corp. Consumer electronics climbed to 20 percent in 2008, from 16 per cent in 1999.

PC shipment growth will slow to 3.8 per cent in 2009, and falling prices will push the total value of those computers down 5.3 per cent, Framingham, Massachusetts-based IDC said.

That’s putting a strain on Intel and Advanced Micro Devices Inc, the two main producers of PC processors, along with software maker Microsoft Corp. and computer manufacturers such as Hewlett- Packard Co and Dell Inc.

Intel is vying for the attention of retailers, consumers and companies at this week’s electronics show, which Intel also used to showcase its Viiv technology three years ago.

Intel engineers had to learn that computers and the Internet aren’t as important as TV to the average consumer, said Genevieve Bell, an Intel researcher who studies the way people use technology. When new features are added to televisions, they have to be simple and easy to use.

“We still in the US watch 10 to 15 times as much television as we spend time on the Internet,” said Bell, an Australian with a doctorate in anthropology. Now the company is “really committed to thinking about the television as a television, not as a PC waiting to happen.”

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First Published: Jan 07 2009 | 12:00 AM IST

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