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FOCUS: CONSUMER ELECTRONICS

The semiconductor business is built on dreams, and right now nothing is more promising than digital consumer electronics. Marketers spin visions of an all-digital future, with scores of high-tech devices per home. Even economists throw around words like ''revolution.''

Chipmakers see next-generation consumer electronics and other non-PC products as their route to growth--especially as PC profits go increasingly to Intel Corp. and a few top-tier computer makers. ''Consumer electronics is opening up more and more to consumption of semiconductors,'' says Vladi Catto, chief economist for Texas Instruments Inc. ''There's enormous room for growth.''

One of the standouts: digital set-top boxes for cable and satellite TV. In-Stat Inc., a Scottsdale (Ariz.) market-research firm, projects that shipments of satellite decoders will climb 17% in 1997, to 3.6 million units. Another growth market is video-game consoles. Hambrecht & Quist pegs 1997 growth of chip-rich ''advanced'' models such as the Sony PlayStation and Nintendo 64 at 46%, to 8.2 million units.

The big kahuna is digital videodisk, or DVD, which could supplant audio CD players, CD-ROM drives, and VCRs with a single versatile machine. ''This is a product that's like a train coming,'' says Dataquest Inc. analyst Jonathan Cassell. Annual sales could reach 43 million units by the year 2000.

Most of these fabulous gadgets won't be here in time to propel 1997 chip growth to the 20% to 30% levels enjoyed a few years back. In the case of digital videodisk, for instance, Dataquest's Cassell predicts 1997 sales of just 1.5 million DVD movie players and 2.2 million DVD drives built into PCs, mostly high-end models. Even consumer products that are considered a smash success, such as the new pizza-size dishes for direct-broadcast-satellite television, still sell in volumes dwarfed by the PC juggernaut.

Consumer electronics could be a Faustian bargain for chipmakers. Profit margins are far thinner than on other electronic products. What's more, with each new product generation, more functions are crammed onto fewer chips. Some chip suppliers could get squeezed out of the picture. So while digital consumer electronics may be the hope of the future, for many chipmakers they won't be a dream come true.



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Updated June 24, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.
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