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Intel Bets Big on the Digital Home

For months, rumors have swirled that Intel's next research and development initiative would rival its 2002 effort to promote the wireless lifestyle. Turns out the rumors were true. On Jan. 7, the chipmaking giant is announcing that it will set up an investment fund to fuel the Digital Age's further advance into homes and people's everyday lives. Intel's vision is one of networked PCs, TVs, and consumer-electronics devices that allow for easy transfer of photos, video, and audio among the various components.

Intel (INTC) will create a $200 million Digital Home fund within its investing arm, Intel Capital, to support startups in the networked PCs and consumer-electronics market. Two years ago, it created a similar fund to support Wi-Fi technology, which allows for high-speed wireless network access. The fund's investments created a flurry of interest in Wi-Fi. Soon after, Intel came out with its own new chips that go into Wi-Fi-enabled laptops -- chips that ended 2003 as its hottest sellers. Indeed, Intel's involvement drastically sped up Wi-Fi's adoption and greatly expanded the market, say analysts.

Clearly, Intel hopes its winning streak will extend to the digital home, which is essentially an extension of its Wi-Fi push. While the concept is several years old, the involvement of the world's No. 1 chipmaker could make all the difference -- sooner rather than later. Analysts expect Intel to unveil a slew of new chips for digital TVs on Jan. 8 at the Consumer Electronics Show in Las Vegas. Already in the works is its Grantsdale chipset for desktop PCs. Due out later this year, it will link the PC's processor and other key chips and enable new built-in networking capabilities (see BW Online, 12/30/03, "Intel: King of the Wi-Fi Frontier?").

While Intel declined to discuss the details of its Jan. 8 plans, Scott Darling, vice-president for digital home and enterprise at Intel Capital, spoke with BusinessWeek Online reporter Olga Kharif on Jan. 6, prior to the official announcement, about the new fund, Intel's strategy, and its vision for the digital home. Edited excerpts of their conversation follow:

Q: Why did Intel decide to get into digital home now?

A: There's an interesting situation. On the one hand, consumer demand is already exploding -- people are buying digital cameras, MP3 players. The hottest thing for young people is to put hard disks into their cars to play MP3s -- one application of the digital home. But it's definitely not at the point yet where the concept is ready for the mass market, where someone who is not technically literate can go out and set this up. That's what this fund is about. It will encourage the creation of technologies that would enable everyone to do this.

Q: How do you imagine the digital home functioning?

A: What we want is to have these things be very simple to buy and very simple to install in your home. We want to use a lot of technology to automate things.

Q: Can you give me an example?

A: Say you were on your laptop at a Starbucks (SBUX) and downloaded some music. You come home, and your network senses that you downloaded some new music, then it automatically downloads the files onto your stereo as well as onto your car's music player.

We have a bunch of work ahead of us to get there, and that's why we're announcing the fund. We want to accelerate the pace at which this is happening, and we think there's a lot of good investment opportunities here.

Q: Isn't Intel late to the game? This area has been booming for the past year, thanks to PC makers and consumer-electronics giants.

A: Intel has been actively investing in this area and developing technology internally for over 10 years. We have already invested into three companies: BridgeCo, which designs chips used in adapters that link devices within the home; Entropic, which designs chips for networking over coaxial cable; and Musicmatch, which sells software for recording, organizing, and playing music.

What's really happening now is that, between the emergence of enough devices, such as digital cameras, and the spread of broadband -- thanks in part to our big push into wireless networking -- we are beginning to reach critical mass.

Q: In what areas do you see an investment opportunity?

A: In five areas: One, technology that will make the PC more consumer-electronics friendly, offering better video and graphics processing, better audio capabilities. Second is improving networking capabilities, which would allow for this communication between devices within a home. Third is improving networking software. No. 4 is improving the technology behind content -- things that can print, code, or transcribe content so it can be adjusted for different devices. Last is improving tools that would allow developers to create products for this market.

Q: Do your investments center mainly on PC-related technology? It seems like a lot of companies now are betting that the TV will be at the center of this digital home, but Intel's strength has historically been in PCs.

A: We surely believe that the PC is going to bring a lot of value to the digital home. You're going to want to store this stuff someplace, manage it. You'll be moving audio and video content around the house. The PC will certainly be an intricate part of this. But these markets always develop in ways that make sense for consumers, so stay tuned, because Intel will be making a lot of announcements soon, a lot of them on Jan. 8.

As the consumer-electronics industry goes digital, that plays to Intel's strengths. We know a lot about building digital circuits, and we think we can build all kinds of semiconductors, not just those for PCs. Intel will benefit from selling more chips -- new ones as well as PC processors, where we have more than 80% market share.

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