September 25, 2003 11:32 AM PDT

Dell opens its doors to home electronics

In another sign that Dell is growing beyond its PC roots, the computer maker announced details concerning its home entertainment products.

On Wednesday, Dell CEO Michael Dell spoke in general terms about his vision of the PC becoming the nerve center of home entertainment, but he was vague about how the company would realize that vision.

As expected, however, the Round Rock, Texas-based company hosted a conference call Thursday with reporters and provided some details, including the announcement of new products, on how it will realize that vision. Dell introduced a digital music player, an online music service, a multifunction LCD television and computer screen, and a projector, as well as a new handheld.

"We're here to confirm our entry into the consumer electronics category," Dell said as he kicked off the conference call. "We're expanding our lineup, even as our PC business is profitable in every segment."

Dell added that the move into the broader consumer electronics market is a natural fit for the company. Analysts, manufacturers and consumers have been waiting for the PC and consumer electronics markets to meet for some time, and the recent proliferation of digital media, due in part to the falling prices of products that can record and play digital content, is causing many companies to step up their efforts.

Many expect Dell to be a significant influence in the consumer electronics market because of its well-known direct business model, which tends to drive down margins and costs, to the benefit of consumers but the detriment of competitors.

Dell hinted at the company's plans to lower costs in the consumer electronics market, referring to "inefficiencies" in the retail model and consumer electronics business.

Building up steam
Analysts saw the Dell announcement as a precursor to an aggressive push later this year.

"I think the introduction of the Dell-brand TV is an early indicator that the company is looking to dominate all aspects of home technology, which would include home computing, entertainment and all the associated peripherals," said Brooks Gray, an analyst with Technology Business Research.

"I see this as just the beginning," he said. "I would expect the company to begin consolidating its marketing activity to offer very attractive bundled solutions in the November-to-December timeframe."

But Gray said Dell must be careful not to oversell one aspect of its consumer electronics strategy: the PC.

"Customers may instead choose what features they will purchase (in a PC) based on the capabilities of the display," Gray said. "I don't think anyone should be promoting the computer as more than a base system that pipes your content onto the display."

Dell would not discuss pricing or product features during the call but said that the products introduced Thursday would be available in the United States in time for the holidays. It added that the products would be available in other countries in the coming year.

The company also previewed a redesign of its Web site, expected to debut in mid-October, and demonstrated a new software application for digital media management called Dell Media Experience. The program will soon ship on all new Dimension PCs and will improve management of digital photos, music, videos and DVDs, Dell said.

Of the Dell Music Store, CEO Dell said that he expected pricing to be competitive with other such services and that the company has had discussions with a number of major music labels. Apple's iTunes Music Store charges 99 cents per song.

"There are no reasons why there won't be a broad selection of music," he said. "Within a short period of time, the labels will want to be on as many of these offerings (online music sites) as they can."

The service will allow customers to download music to a PC as well as the company's Dell Digital Jukebox portable player and will be able to analyze a customer's song-playing history to recommend new selections, according to the company.

Dell is also entering the LCD TV market with its 17-inch Dell W1700 LCD TV. The company is looking to capitalize on the recent interest in LCD TVs, which grew 223 percent--to 734,000 shipments worldwide--in the first quarter, according to market research firm DisplaySearch. Falling prices helped to spur the LCD TV growth, but the technology's share remains a small fraction of the overall TV market. About 170 million TVs are shipped annually, according to Ross Young, president of DisplaySearch. Still, the high growth rates are stimulating interest from PC and consumer electronics companies.

Dell also introduced its latest handheld, the X3, which is a thinner and lighter version of the currently available X5. The company is offering Wi-Fi capabilities as an option for the device. The company's upcoming projector will be called the Dell 2200MP Projector.

Getting into the home
Dell will be joining rivals such as Gateway, Hewlett-Packard, Sony Electronics and Apple Computer in trying to tap into the home electronics market.

Dell and Gateway are using a similar strategy, which uses the traditional direct PC model to get numerous third-party manufacturing partners to create Dell- or Gateway-branded gear according to the manufacturers' own specifications. Both companies are also working on strategies that would allow various home entertainment and computing devices to share data with a PC.

However, the companies are coming at the market from two somewhat different angles. While Dell's approach centers on the PC, such as its Dimension XPS desktop game system or its upcoming Media Center desktop, Gateway aims to attract customers with its flat-screen televisions. Gateway on Thursday announced that, according to the NPD Group, it is the top seller of plasma televisions at retail stores in the United States.

While Dell is looking at consumer electronics as one way to augment an already strong revenue stream and boost profitability, Gateway is betting that its move into the category will help rescue it from a string of quarterly financial losses.

HP, whose PCs, printers, cameras and other home electronics gear are also designed to share data easily, recently launched 160 new home products, including a Digital Media Receiver for sharing multimedia files between household electronic devices and a PC.

HP could also move deeper into the consumer electronics market using an approach similar to that of Dell and Gateway, one executive hinted during an interview at the recent TechXNY show. But the company has not yet made public any plans to do so.

 

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