October 17, 2001 12:10 PM PDT

Apple to unveil digital music device

Apple Computer may be looking to trump Microsoft's Windows XP launch by unveiling a new product of its own.

As Microsoft prepares for the Oct. 25 liftoff ceremonies for its new operating system, Apple will gather journalists and industry analysts for "the unveiling of a breakthrough digital device," according to invitations received Wednesday.

As first reported by CNET News.com, Apple will unveil the new device--"hint: it's not a Mac," according to the invitation--during an Oct. 23 event at Apple's headquarters in Cupertino, Calif.

Sources say it is some type of digital music device.

"XP is going to take up a lot of the airwaves, given the $1 billion marketing budget," IDC analyst Roger Kay said. "It makes a lot of sense for Apple to drop something into the calm before the storm."

Apple spokeswoman Natalie Sequeira confirmed that the event was taking place but would not discuss the product.

Apple apparently is not planning to introduce a portable MP3 player, but something more sophisticated such as a component for a home digital stereo system, sources said.

The device would fit in with the company's message regarding the Mac OS X operating system, which is designed to act as a hub for what Apple CEO Steve Jobs calls the "digital lifestyle."

"It looks like Apple wants to create value in their desktops, operating system and digital hub marketing push by creating these devices," said Tim Deal, an analyst at Technology Business Research. "My question is: What kind of money is to be made in these products, or are they solely designed to create value in their other products?"

NPD Intelect analyst Stephen Baker praised Apple's efforts to expand its digital lifestyle marketing strategy.

"Apple needs to be looking to take advantage of what they do well, which is design, innovation, and try and take some leadership role in categories they can identify that they can impact," he said.

This isn't the first time that Apple has attempted to enter the living room. In 1998, the company reportedly was developing a set-top box/CD and DVD player, code-named Columbus. Apple later scrapped the plan after the success of the iMac.

Other PC makers have since begun similar efforts. Compaq Computer and Dell Computer, for example, offer digital music entertainment devices that work with either a television or a PC.

Compaq had actually embarked on a sophisticated device strategy, developing a variety of gadgets that attached to PCs. But in wake of its recent earnings woes and planned merger with Hewlett-Packard, that effort has run aground, analysts said.

"Compaq has come out with its iPaq Music Center, and HP 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," Baker said. "Fact is, those haven't shown up at retail in significant numbers."

For the most part, PC makers have struggled to find the right way to market digital products related to home stereos or to price them right. Compaq's product, for example, costs about $800--more than many PCs.

"The only place I have seen the iPaq device is the Home Shopping Network, which seems to indicate to me it hasn't done very well," Baker said.

But the device approach could make more sense for Apple, which is in a stronger position to differentiate its computers, operating systems and devices from those of PC makers more constrained by their use of the same microprocessors and the Windows operating systems. One of Apple's assets: its retail stores, which are expected to be a bright spot of Wednesday's fiscal fourth-quarter earnings announcement.

"This product puts some meat on the bones of Apple's whole consumer-retail strategy," Kay said. "It's very much a consumer play, and this device--if it is some kind of music jukebox--fits in with that."

Already, Apple's retail stores take a device-oriented approach to selling systems and software. The 13 retail stores opened so far this year are organized into sections, such as digital music and movie making, where consumers can see how to use Macs for video editing or burning CDs and DVDs.

The stores also hawk third-party devices such as digital cameras and camcorders, MP3 players and Palm OS-based handhelds. Apple's new product apparently does not conflict with these devices, sources said.

Deal isn't confident about the device approach, however, arguing that Apple should let other companies provide those products.

"It intellectually makes sense to create a new device to fit into their digital device strategy, but right now it's a tricky time to be introducing new hardware," he said.

Consumer PC sales are at record lows, with IDC forecasting in the fourth quarter a year-over-year decline of 31 percent.

"I think it's a time for Apple to be focusing on their core products, maintain their current product and marketing strategies, and keep focus on their retail strategy," Deal said. "They should rely more on partners to provide these devices, rather than dedicating resources to manufacturing and R&D."

Baker also cautioned that Apple shouldn't be too quick to dedicate resources to digital devices that have yet to find their footing in the consumer market.

"The problem with Apple doing that is it can take a lot of time and money to develop a category," Baker said. "This is a pretty category--something that everybody thinks at some point will be useful--but hasn't really developed yet."

 

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