HP set to launch new Media Center PCs

Hewlett-Packard (HP) is clearing its shelves of old Media Center PCs ahead of the launch of a new generation of the systems, one of which turned up at a store owned by Circuit City Stores earlier this month.

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Retail and distribution sources have indicated that HP's m1270n and m1280n Media Center PCs are disappearing from store shelves and warehouses, and some retail outlets have discontinued those particular systems. But HP has no plans to exit what is one of the most promising categories of desktop PCs, having distributed the new m7060n Media Center PC to some retail partners ahead of its official launch, said Toni DuBoise, an analyst with Current Analysis Inc., in La Jolla, California.

The m7060n PC was found in a Massachusetts Circuit City store during a routine visit to the store by Current Analysis, DuBoise said. It costs an estimated $1,049 with Microsoft's Windows XP Media Center Edition operating system, Intel's Pentium 4 630 processor, 1G byte of memory, a 200G-byte hard drive, and a DVD+/-RW optical drive.

An HP spokeswoman declined to comment on unannounced products.

Most of the excitement -- and volume -- in the PC market over the last few years has stemmed from notebook PCs. Notebook prices have declined as system performance has increased, and new technologies such as wireless networks have inspired many PC users to replace old desktops with notebooks.

However, the desktop PC isn't dead yet. Shipments of Media Center PCs are steadily growing after a slow start, with Media Center sales meeting the growth expectations of several analyst companies, such as Current Analysis, IDC and NPD Techworld, during the fourth quarter of 2004.

Media Center PCs allow users to access movies, music, or television shows stored on their PC through a special user interface on their TVs. The PCs are designed to be used with a remote control, the so-called "10-foot interface," rather than requiring a keyboard or mouse to input data as in standard desktops. The idea is that a user can control the PC while sitting in a living room easy chair, 10 feet (about 3 meters) away from a large monitor or television.

Early Media Center desktop PCs did not register with the mass market, which was busy upgrading their old PCs to notebooks. But in October, Microsoft released an updated version of the operating system and prices of the PCs started to fall into the $1,000-to-$1,300 range, which made more sense for this type of product than did early prices that approached $1,500, DuBoise said. A few Media Center notebooks are available, but they are nowhere near as popular as Media Center desktops, she said.

HP was Microsoft's original partner for the Media Center launch but has lost ground to overall PC market share leader Dell in recent months, said Roger Kay, vice president of client computing with IDC. A fresh redesign might help HP regain some Media Center momentum, he said.

The Palo Alto, California, company hasn't updated its Media Center PCs since the October launch of Windows XP Media Center Edition 2005, said Stephen Baker, director of research at NPD Techworld.

While the PC industry is pushing Media Center PCs as a natural response to the surge in popularity of digital cameras and video, the systems also generate higher margins for PC makers, Baker said. Companies have a hard time selling low-end or mid-tier desktop PCs without slashing prices, because many users are realizing they can get comparable performance from notebooks for a similar or slightly higher price, he said.

This leads to extremely low margins on most desktop PCs, which is already a problem in the PC market, Baker said. However, Media Center PCs generally ship with high-end components that allow the PC industry to charge more for the product, he said.

While moving ahead with its Media Center PC lineup, HP has hit a supply snag with its Media Center Extender, a companion product that wirelessly links computers running Windows XP Media Center Edition to televisions. Because of a contractual issue with a manufacturer that came up about three weeks ago, HP's Media Center Extender is in short supply, said Pat Kinley, an HP spokeswoman.

"There is a shortage due to a manufacturing issue right now, and we're trying resolve it," she said. "At this point we're not changing manufacturers, but we're also not ruling it out." Kinley declined to name the manufacturer.

There are some HP Media Center Extender products still on store shelves and sales so far have been satisfactory, she said. HP introduced its extender product in October last year. The product is sold on the U.S. market only.

(Joris Evers in San Francisco contributed to this report.)