Jeff Bier’s Impulse Response—Watch Your Back

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Think you know who your competitors are? You’d better watch your back, because changes in end products are forcing processor vendors and equipment manufacturers to face unfamiliar new foes.

Convergence is the key trend causing new rivalries to arise. One of the most obvious examples of convergence is the cell phone. Cell phones are acquiring the functionality of PDAs, digital still cameras, and digital audio players. (Next year they’ll probably incorporate can openers and vacuum cleaners.) This merging of capabilities is pitting processor vendors with long histories in the cell phone market—think Texas Instruments—against companies that built their success in other applications—Intel being a prime example.

And more twists are coming. Handset developers are betting that integrating sophisticated 3D gaming into phones will provide differentiation and drive sales. Nokia has already announced its “N-Gage” gaming handset (which bears more resemblance to a Game Boy than a phone) and has purchased multiplayer gaming technology from Sega.

This focus on 3D graphics is reconfiguring the competitive field. For example, Texas Instruments licensed 3D accelerators from Imagination Technologies Group earlier this year, a move clearly intended to enable TI to offer cell-phone chips with 3D graphics capabilities. And last month NVIDIA, a vendor of graphics chips for PCs and game consoles, announced it would acquire MediaQ, a developer of processors for handsets and PDAs. The significance of these moves is clear: Texas Instruments and NVIDIA are about to become competitors.

Convergence is also creating new competitors in the world of consumer electronics. Game consoles, set-top boxes, personal video recorders, and DVD players are on a collision course. As these products merge, equipment manufacturers that have dominated particular product segments are coming under attack from unfamiliar directions. Similarly, the chip vendors who supply these equipment manufacturers are facing unsettling new competition.

Who will win these increasingly confusing contests? As convergence creates ever more complex systems and chips, superiority in any particular technology, such as wireless communications, is unlikely to be the decisive factor. Rather, victory will belong to the companies best able to quickly and effectively integrate the range of technologies needed for the emerging “über-boxes.”

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