Dell Computer Hedges Its Bets

Dell Inc. is entering the consumer electronics market with television sets, digital music players and an online music service, opening yet another front in its war with rivals Gateway Inc. and Apple Computer Inc.

"In extending into new categories, it gives us another opportunity to revolutionize products on behalf of our customers," CEO Michael Dell said Thursday at a news conference announcing the product expansion.

All of the products will be released this fall, in time for the holiday season, Dell said. The company would not release pricing or other details.

The shift is part of a broader strategy by Dell to expand its highly efficient, low-cost distribution model - which has consistently squeezed other personal-computer makers - into other markets, such as printers and servers. Gateway has also recently branched into consumer electronics after suffering brutal losses to Dell in the PC market.

Dell's flat panel TV will be launched Oct. 21. The Round Rock, Texas-based company also plans a liquid-crystal display screen that will let consumers watch TV and streaming video, play games and use PC applications. The wide format, 17-inch display can be used as either a TV or as a computer monitor and can handle high-definition TV.

"By introducing high-performing consumer electronics products that closely integrate with the computer, we are delivering what is most important to consumers - content and experience - at a better value than they're currently getting," Dell said.

The Dell Digital Jukebox, an MP3 player, will be released in conjunction with the Dell Music Store, an online music site where customers can download music. Dell refused to detail the storage capacity or battery life of the Digital Jukebox.

The Digital Jukebox takes aim at Apple's runaway success with its online iTunes Music Store and iPod digital music player. ITunes has sold more than 10 million songs at 99 cents each since its April 28 launch, and Apple has announced plans to release a version of iTunes for Windows before the end of the year.

"The fact that they've got their own MP3 player to go with it should help a lot," said Philip Leigh, an analyst with Inside Digital Media. "They can exercise control to make sure there's compatibility."

"That will enhance consumer acceptance of both."

Leigh said the timing of the move also will work to Dell's advantage as music labels struggle with the decline of the compact disc and the rise of Internet song services.

Dell's foray into the consumer electronics market will hurt Apple and Gateway the most, "since much of their recent momentum (and future strategies) have hinged on similar offerings," analyst Joel Wagonfeld of Banc of America Securities wrote in a note to clients.

A Gateway spokesman would not comment on Dell's announcement, but said retail stores have been a critical part of sales of Gateway's plasma television.

"Approximately three-fourths of the people who bought our plasma TV visited a Gateway store before they purchased," said Brad Williams, a Gateway spokesman.

Apple called Dell's digital music announcement unoriginal.

"Apple offers iTunes, the best and most popular online music store, and iPod, the best and most popular portable digital music player, an unbeatable combination that our competitors haven't even come close to," the company said in a statement.

Wagonfeld predicted that Dell's already large customer base, marketing machine and distribution model will boost the company's entry into consumer electronics.

"As we were developing over time, we asked our customers what they want and need from Dell," said Mike George, Dell's chief marketing officer. "What we heard was that when working with all these other consumer electronic providers it was too costly, they're not getting the service they want. We want to make sure they work simply and easily with the PC and make it easy to buy in one place."

Dell also will release a home projector and an upgraded Axim handheld computer, and try to develop other new devices as well.

"What we see happening is the wall between the PC and consumer electronic devices is getting torn down," George said. "That's our goal: to provide great consumer electronics as these markets standardize. We believe we can offer the absolute best value in the industry coupled with service and support consistent with values of our brand."

By April Castro