Merry "Convergence Christmas"

This season's gizmos blur the boundaries of computers, electronics, and telecom

Pundits have long predicted an era of so-called convergence -- a cosmic collision of the computer, consumer-electronics, and telecom industries. Now, at last, that epoch is arriving. With just a few weeks to Christmas, newspaper circulars and store shelves across Europe are overflowing with snazzy electronic goodies that blur the lines between information, entertainment, and communication. "This is the first convergence Christmas," says consumer market analyst Jaap Favier of Forrester Research Inc. (FORR ) in Amsterdam.

The sheer variety of gizmos is dazzling. Royal Philips Electronics (PHG ) has teamed up with sporting goods maker Nike Inc. (NKE ) to market a $299 combo digital music player and pedometer called the MP3Run that gives distance updates and other data through the runner's earphones. Apple Computer Inc. (AAPL ) has rolled out its iPod Photo, which stores up to 15,000 songs and 25,000 digital photos, across Europe, where it sells for between $700 and $900. And Nokia Corp. (NOK ) is set to deliver a wide-screen phone dubbed the 7710 that has a built-in megapixel camera, FM radio, and MP3 player. "Consumers are becoming more comfortable with new combinations," says Lee Linthicum, a consumer-electronics analyst at market researcher Euromonitor PLC in London.

MULTITASKERS

There are hard data to confirm the extent of the shift. Sales of "smartphones" such as the palmOne (PALM ) Treo 650, which combine a mobile handset and handheld organizer, should be more than double those of plain old organizers this year. And while digital camera sales are still climbing, camera phones will outsell them by nearly 3 to 1 in 2005, says Strategy Analytics. One shopper at the FNAC electronics emporium on Paris' Champs-Elysées has caught the spirit. "If I had the budget, I'd buy all the latest hybrid gadgets," says Caroline Arnoux, 46.

For Europe's leading electronics makers, convergence brings new opportunities -- and big risks. Analysts say Asian producers lead the way in cramming features into smaller and cheaper devices. Americans excel at pioneering business models, such as Apple's success in selling legal music downloads through iTunes. European companies are out to conquer convergence through better aesthetics and user interfaces. Philips, for instance, recently unveiled a strategy that emphasizes ease of use. "Some Asian products suffer from being overly complex," says Gottfried Dutiné, CEO of Philips Consumer Electronics. "People are fed up and looking for something simpler."

No European maker is staking more on convergence than Nokia. It has created a division to sell "multimedia" devices such as camera phones, handsets with built-in music players, and phones that double as portable game consoles. The unit should book revenues of more than $5 billion this year, 13% of Nokia's total. While rivals are adding such features just as fast, Nokia CEO Jorma Ollila says his trump card is a better user experience. "Our edge is in software design," he says. Mobile phones is the area where convergence has shown the greatest consumer success so far.

Still, some analysts remain convergence skeptics. "The overwhelming lesson of the last 15 years is that the way people use TVs, PCs, phones, and games is totally different," says Adam Daum, an analyst at market researcher Gartner. He thinks consumers favor devices designed to do one thing well, though they increasingly will want them to communicate with one another, preferably wirelessly. The debate over convergence is bound to rage on for years. But that won't stop electronics makers from cross-breeding technologies until they find market winners.

By Andy Reinhardt in Paris

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