January 15, 2002 4:20 PM PST

Xbox may spawn entertainment hub

Microsoft plans to transform its new Xbox game console into a general home device that handles everything from e-mail to video recording, according to analysts.

Prudential Securities analyst Hans Mosesmann, who covers graphics chip maker Nvidia, released a report Tuesday, stating that HomeStation, a multifunction consumer appliance that has been the subject of rumor and speculation for several months, is real and could dramatically change the PC market. Mosesmann argued that Nvidia, which provides chips for the Xbox, could be one of the companies to benefit from the Homestation.

Richard Doherty, president of research firm The Envisioneering Group, said in an interview that based on briefings with Microsoft and its suppliers, he believes a version of the HomeStation will be on the market by this fall.

"They were really supposed to announce this last week" at the Consumer Electronics Show, Doherty said, but manufacturing commitments must still be tied up.

Microsoft representatives declined to comment on the HomeStation reports.

Mosesmann said the HomeStation will be based on the Xbox design, which is similar to that of a PC and has standard PC components and features such as USB ports. Besides playing Xbox games, the HomeStation will act as a digital video recorder, similar to devices from TiVo and Sonicblue's ReplayTV, and will perform Internet functions such as e-mail and Web surfing.

The device will also play DVD movies and digital music tracks. The HomeStation would hook into Microsoft's .Net online strategy by serving as a conduit for services such as streaming media and online shopping, he said.

Most of those functions could be handled by the current Xbox with minimal retrofitting, Mosesmann said in an interview.

"It's basically a PC; it has DVD capability," he said. "You would just add some connectivity there, a bigger hard drive, some video recording software, some Bluetooth--and voila, you've got something that can be marketed as something else."

Based on unofficial discussions with Microsoft suppliers, Mosesmann said he expects Microsoft to announce the HomeStation late this year and have it on the market next year.

Doherty foresees a more accelerated time schedule, with some version of the HomeStation on the market this fall, thanks to competition from start-up Moxi Digital, which last week announced a similar home entertainment hub.

Doherty said Microsoft had hoped to license the HomeStation design to other manufacturers, with the most likely parties being PC makers such as Dell Computer. But the newly competitive field may force Microsoft to handle production on its own, as it has done--at great expense--with the Xbox.

"They were really trying to license, but they've also been running into Moxi as competition," Doherty said.

The HomeStation would fit into plans Microsoft announced last week that would turn PCs into digital entertainment jukeboxes for the home. Microsoft's Mira technology, for example, will allow display manufacturers to produce wireless, portable screens that can access information and media stored on the PC from anywhere in the home.

Meanwhile, Microsoft's Freestyle will expand the Windows XP operating system with functions for recording video, playing DVDs, and other entertainment tasks.

"They are different approaches that help the HomeStation do its media center job," Doherty said.

Where it hits home
Mosesmann said HomeStation could have a major effect on the PC market by drawing a sharp distinction between home PCs and business PCs.

"I think the consumer PC market becomes pretty tough if something like the HomeStation becomes real," he said. "Then it doesn't matter where you're located in the home. That's been the problem with getting the consumer PC to do more: It sits in your den, and nobody wants to watch movies in their den."

HomeStation could also give Microsoft a leg up in the game market by expanding the Xbox with functionality that console market leader Sony would be hard-pressed to match in its PlayStation 2, Mosesmann said.

"I think it would be difficult for Sony to meet this kind of dynamic," he said. "They're using these custom chips that are quite expensive and not easily transferable to other applications."

Sony last year announced hardware add-ons and content partnerships that would allow the PlayStation 2 to handle online tasks such as e-mail and streaming media.

Technology Business Research analyst Bob Sutherland said the HomeStation strategy makes sense given the design of the Xbox and Microsoft's consumer goals.

"Look what the Xbox has got on it," he said. "It has a hard drive, so why doesn't it become a TiVo? Why doesn't it become a computer? Why doesn't it become a home entertainment controller?...It can become all of that."

Other analysts were more skeptical, saying Microsoft still has plenty of work ahead just to establish the Xbox as a game format.

"There have always been conspiracy theories about what Microsoft's real intentions are for Xbox," said P.J. McNealy, research director at Gartner. "Microsoft is making some efforts to be a consumer electronics brand, but it's clearly something new for them."

Matt Rosoff, an analyst for research firm Directions on Microsoft, said the HomeStation doesn't match any Microsoft plans he knows of for the next 12 to 18 months and that it's futile to speculate beyond that.

"In the early days of the eHome division, there were some proposals for a device like this," Rosoff said. "But from what I know, the eHome division is no longer working on anything like this. We hear stuff all the time for projects that Microsoft is supposedly working on that never see the light of day."

Rosoff said Microsoft has its hands full with current Xbox plans.

"I don't think they're going to make any major revisions to the Xbox for the next 12 to 18 months, as far as a bigger hard drive or more memory," he said. "And I don't envision them putting out an entirely new product in the next few years--it just doesn't make sense. Beyond that point, there may be all sorts of things bubbling under the organization."

News.com's Joe Wilcox contributed to this report.

 

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