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Will Net appliances edge out PCs?

June 22, 1998
Web posted at: 1:30 PM EDT

by Kathleen Ohlson

(IDG) -- The dominance of the PC as an end-user access device will be over within six years as Internet appliances become the hot commodity in the United States, according to a study from International Data Corporation.

Internet appliances such as television set-top boxes, Web-enabled telephones, and video game consoles will gain popularity with the growth of the Internet and with customers' desire for more access, according to IDC.

The study looks at the PC and Internet appliance market from 1997 to 2002. Last year, PC shipments totaled 31.5 million units, for a 96 percent share of the access market, while shipments for Internet appliances totaled 1.4 million, IDC said. By 2002, PC shipments will grow to 56 million units, while Internet appliance shipments will leap to almost 42 million units, capturing almost 50 percent of the market.

IDC expects Internet appliance shipments to surpass PC shipments and account for the majority of the market by 2004 or 2005.

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Microsoft has been the company most responsive to the shifts in this field, according to IDC. However, it can't rely solely on its Windows CE operating system for handheld devices as an appliance software platform, but rather should develop a platform specifically for appliances, said Frank Gens, senior vice president of research and IDC's Internet director.

Intel is also expected to be at the forefront of the Internet appliance field, but has taken a less visible approach, Gens said. "There's no question they are thinking hard [about Internet devices], much of its own value is tied up with PCs," he said. "Perhaps some in the company imagine it's an either-or [situation]; either it's PCs or appliances. It's a myth--the Internet appliance market will explode but not be a replacement [for the PC]."

PC suppliers such as IBM, Compaq, and Hewlett-Packard are taking a reserved approach, according to Gens. The issue for these vendors is how to make a profit off a device that costs tens or hundreds of dollars, compared with a PC that costs $1000, he said.

The short-term outlook could spell trouble for these suppliers and give consumer electronics suppliers such as Sony, Nokia, and WebTV Networks an opportunity to enter the Internet appliances market. "These computer guys have a few things to learn," Gens said.

The expected boom in Internet appliances bodes well for Cyrix Systems, Texas Instruments, Advanced Micro Devices, and other chip and peripherals vendors. Appliances will need more memory and disk capacity, the study said. This market will also benefit vendors of modems, hard drives, displays, and printers.

Software suppliers such as Lotus face a dilemma with the appliance market and the new customer base. These vendors won't be able to charge high prices for software if an appliance costs between $20 and $200, Gens said.

The evolving market may cause some vendors to walk away because they will be unable to compete, Gens said. The Internet appliance market is "a developing new IT industry with unique rules," he said.

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