October 18, 2001 6:10 PM PDT

Intel axes its consumer electronics unit

Intel is winding down its consumer electronics division as the company continues its return to its core chip business.

The Santa Clara, Calif.-based chipmaker Thursday confirmed that its Connected Products Division, which specializes in digital cameras, digital-audio players and toys, is in the process of being phased out. The company will sell the existing inventory of these products, which should last through the first part of 2002. But further manufacturing will cease.

"The business didn't meet our requirements for long-term growth potential," an Intel spokesman said.

In addition, Intel will not come out with its Web Tablet Internet accessory, a prototype of which was shown at the Consumer Electronics Show in January. Similarly, the Dot.Station, a countertop Internet appliance, will fade out. The company shipped 250,000 of the devices to AOL Avant, an America Online joint venture in Spain, but there are no plans to manufacture more.

The representative, however, emphasized that Intel would continue to manufacture and sell its home networking products, which come out of a different division.

Consumer electronics is one in a series of Intel projects shut down this year. Starting in 1998, the company launched an ambitious program to create new businesses that would bring in revenue beyond PC processors.

Although some of these new efforts--such as Intel's push to sell more chips into the handheld computer market--have seen some success, many have not. In August, the company discontinued Rex, a personal organizer it acquired when it bought Xircom.

In February, the company shut down Intel Media Services, which planned to host streaming video events. Roughly 200 employees were redeployed after it was closed. Icat, an e-commerce hosting service, was also closed in February.

The company has also pared back investments and laid off employees in Intel Online Services, a Web services company that competes against Exodus Communications.

The employees from the Connected Products Division will be placed in the redeployment program. Under this program, the affected workers have an opportunity to seek new jobs within the company within a specified time period. If nothing turns up at the end of the period, severance packages are offered.

The division was meant to serve two purposes. It was supposed to eventually turn a profit and to develop products that would encourage consumers to think of the PC as a nerve center for digital entertainment.

Last year, companies such as Gateway and Compaq Computer, in coordination with Intel and Microsoft, began a push into consumer electronics. With music and video moving to digital formats, these companies believed that an opportunity existed for PC makers to develop products that would act almost like PC peripherals.

To date, the push hasn't met with expectations. Gateway has greatly pared back its efforts, while analysts report that the music players from PC manufacturers haven't been huge hits.

"Compaq has come out with its iPaq Music Center, and (Hewlett-Packard) has announced its digital living room, with all sorts of bells and whistles combined in their hard drives and the ability to upload and download MP3s," Stephen Baker, an analyst with NPD Intelect, said earlier this week. "Fact is, those haven't shown up at retail in significant numbers."

Dell Computer, which released a digital-audio player for the home, periodically gives the device away or offers it at a severe discount to consumers buying new PCs.

Meanwhile, Apple Computer plans to unveil a digital music player Tuesday, according to sources.

Among the products to be discontinued are the Intel wireless keyboard and mouse, the Personal Audio Player 3000, the IntelPlay Digital Movie Creator and its line of Pocket Digital PC cameras.

 

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