Intel Puts Its Money on the Connected Home

By Susan Kuchinskas

January 07, 2004

The chip-making giant will invest $200 million to get more of its chips into the digital home.

Intel Wednesday launched a new strategic investment fund worth $200 million to target your living room.

The Intel Digital Home Fund, to be managed by Intel Capital, will invest in companies developing hardware and software for consumer entertainment, such a enjoying and sharing digital music, photos and video on a variety of stationary and mobile devices.

"The Digital Home Fund is designed to complement Intel products and accelerate development of key technologies and content which enhance and simplify the digital home experience," Intel Capital president John Miner said in a statement.

Hitting home the message, Intel president and chief operating officer Paul Otellini is at the CES consumer trade show in Las Vegas this week to discuss technology trends, new products and key standards coming together to create a more advanced digital home experience.

Executives of Santa Clara, Calif.-based Intel were not available for comment, but a spokesperson said that the Digital Home Fund is intended simply to drive sales of Intel chips.

"The more PCs that are being used in more rooms in the home or for more purposes in the home, the better," he said.

Intel Capital manages two other funds: The Intel 64 Fund invests in companies developing products using the company's Itanium-based servers and workstations, and the Intel Communications Fund to support development of technologies complementary to Intel's Internet Exchange Architecture, CT Media software, Intel Personal Internet Client Architecture and Intel XScale Microarchitecture. Its scope has been expanded to include wireless and wireless LANs. In October 2002, the Communications Fund earmarked $150 million for investment in companies working on Wi-Fi . The idea was to create a market for the Centrino wireless-enabled laptop chip, introduced in March 2003.

Intel Capital already has invested in companies pursuing the digital home vision, including BridgeCo, which designs low-cost chips for digital media adapters that link home devices; Entropic, which designs chips for home networking over coaxial cabling; and MusicMatch, which sells software for recording, organizing and playing music.

Intel began beating the "digital home" drum in earnest at its Intel Developer Forum in September 2003, when Louis Burns, vice president and co-general manager of Intel's Desktop Platforms Group, showed the crowd the Intel 815 Digital Set Top Box reference design, the LCD Media Center, a product from Gateway that will serve as an all-in-one digital entertainment device powered by an Intel Pentium 4 processor, and a variety of next-generation Digital Media Adapters (DMAs) -- devices that wirelessly transfer personal digital video, photos, and music from a PC to a TV and a stereo.

The Intel Architecture Lab works to bring new kinds of content to devices with Intel chips. For example, in the late 1990s, it threw money at small content companies creating 3-D animations to be delivered via the Internet, in hopes that consumers would upgrade to Intel's hot new MMX multi-media chip. In 2000, it partnered with Macromedia to incorporate Intel's Internet 3D Graphics software technology into the Shockwave Player.

The difference this time, said industry analyst Rob Enderle, is that Intel and other manufacturers have finally taken into consideration what consumers want.

"The fundamental difference to this approach is that they're starting with the consumer: their solutions now better anticipate what consumes appear to want. In the past, companies wanted to move a technology, so they tried to wrap a story around it and get people to buy it. Now, it's, 'Let's build something that consumers want to buy."

The barrier to the digital home so far, according to Enderle, is that most things in the home are not digitally enabled, while those that are available are too hard to use, too complicated to connect to a network and too expensive. Enderle said that at the CES show, "You'll see a number of OEMs stand up and talk about what they're going to do in terms of creating peripheral devices that some kind of media server would be in center of."

Intel is rich enough to indulge in juicing the market. Its third-quarter revenue was $7.8 billion, up 15 percent from the previous quarter and up 20 percent year-over-year. But according to its November 2003 SEC filing, only Intel's architecture business is profitable; the wireless and communications groups lost money. Perhaps the company is counting on the Digital Home Fund to change that.



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