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Intel Looks to Break into Consumer Electronics Industry

Posted on: Sunday, 28 August 2005, 21:00 CDT

Aug. 29--Give Intel credit for persistence.

Time and again, the world's biggest semiconductor chip maker has made noble efforts to grab a share of the market for consumer electronics chips. But Intel has money to burn, and it's going to try to barge its way in once again.

This time, the chip giant is diving into the market for TV displays, providing chips from an Israeli company called Oplus that Intel acquired in April.

Intel's newest attempt comes after years of trying to establish the personal computer in the living room, with small success. The Santa Clara-based company faces a lot of entrenched competitors who already have chips in consumer electronics devices.

The reason Intel is trying to break in is that the consumer electronics industry is finally shifting to digital technologies and fully networked, Internet-connected devices that play to Intel's strengths.

"We're coming through the front door, loud and screaming that we're creating a new industry," said Don MacDonald, general manager of Intel's digital home group, in a press briefing this week at the company's Intel Developer Forum in San Francisco. "It's a positioning issue. I don't believe a PC belongs in the living room. But a digital video recorder with our chips belongs there. "

Intel faces what Harvard Business School professor Clay Christensen calls "The Innovator's Dilemma." The company already has 80 percent of the PC chip market, so it has to grow by moving into new markets.

Its PC chip business makes so much money that Intel measures the success of its expansion efforts by that standard. But MacDonald says that Intel's board understands that it won't have high profit margins in the consumer electronics chip business -- and will have to be patient.

Intel's Oplus chips hit the market this year. But next year, Intel will combine them with its own microprocessors on a single chip, known as a system on a chip (SOC).

Intel won't make full custom chips, but several versions of each SOC so that a customer could use them in a product line with low-end, mid-range and high-end versions.

But competitors are already there, some doing custom chips, such as Samsung, Sony, Texas Instruments, ST Microelectronics, Broadcom, Pixelworks, ATI Technologies, Zoran and other chip makers, said Jon Peddie, an analyst at Jon Peddie Research.

"Intel bought their way into the market with Oplus, but there's a passel of competitors," he said.

Intel's role in consumer electronics has a checkered history. The company started expanding in the late 1990s as it sought new sources of growth beyond the maturing PC business. It created its own consumer electronics gadgets, many with its own chips.

It added digital toys through a joint venture with Mattel, started making digital cameras and video phones, and even MP3 music players with Intel's own flash memory chips. But most of those efforts ended in the midst of the tech downturn in October 2001.

Microsoft bought microprocessors from Intel for its Xbox video game console launched in 2001, but in 2003 it chose IBM to design the microprocessor for the next-generation Xbox 360. Intel lost the deal, Microsoft said, because it wasn't flexible enough in allowing Microsoft to take ownership of the chip designs and govern the schedule for cost reductions.

As a result, the company has a lot of skeptics. Rob Enderle, an analyst at the Enderle Group, said that Intel embarrassed itself badly when then-President Paul Otellini announced at the Consumer Electronics Show in January 2004, that Intel would make a "liquid crystal on silicon" chip for rear-projection TV sets.

But the chip ran off schedule and Intel canceled it later in the year. Otellini said at the time that he went out on a limb announcing the effort early and that was a mistake.

"This showcased that they both were not well aligned with the TV industry and weren't aware how bad that problem was," Enderle said.

This time, Enderle says Intel's new approach with Oplus is impressive. But he added, "The fact that they abandoned LCOS so quickly will cause many to question whether they are fully committed this time."

MacDonald said he realized Intel couldn't do a one-size-fits-all chip for the consumer companies.

"You can't burden a consumer chip with anything that the customer doesn't want," he said. "You are going to have to mix and match."

Tom Halfhill, an analyst at the Microprocessor Report, said he was mystified why anyone would want a relatively bulky, high-power Intel microprocessor in a rock-bottom priced consumer electronics device. Intel has typically lost out to rivals such as Mips Technologies and ARM in this business.

"I don't understand why anyone would want Intel in their box," he said.

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Source: San Jose Mercury News

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