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ChangeWave Research: Consumer Electronics Industry Survey

ChangeWave Research Report:2006 – The Year of HDTVConsumer Electronics Industry Survey Shows Big Breakout in 2006 for HDTV; Media Centers Will Also See Growth

Overview

During the week of February 2 - 7, 2005, we surveyed Alliance members who work in or are knowledgeable about the Consumer Electronics industry. The focus was on current trends in the “digital living room.” A total of 365 Alliance members participated – including 113 who work directly for companies manufacturing component parts or selling consumer electronics products or services.

(A) High Definition Televisions 2006 – A Big Breakout Year for HDTV. Forty-seven percent (47%) of respondents

who work in the consumer electronics industry believe 2006 will be the year when HDTV attains critical mass market acceptance. Another 25% think it will be 2007.

New HDTV Content – The Key Accelerator for High Def TV Purchasing. Forty-four percent (44%) of industry respondents say the coming increase in HDTV content will significantly accelerate the purchasing of High Def TVs and Cable Boxes (i.e., HD hardware), though the effects will not be felt until 2006.

But High Def DVDs Will Also Drive Purchases of High Def TVs. Another one in five respondents (20%) think High Def DVDs will be the primary driver of High Def TV purchases.

A Year From Today – Which TV Will Lead? Industry Respondents think LCD Flat Panel TVs (34%) will lead a year from now both in overall picture quality & features and total unit sales. DLP-Based TVs (24%) and Plasma Flat Panel TVs (24%) are tied for second in terms of picture quality & features, although DLP leads Plasma by a two-to-one margin in terms of projected total unit sales (28% to 14%), due to the greater drop in prices expected for DLP sets in the next year.

Breaking the $2,000 Price Point. Two-in-five respondents (40%) working in the industry believe that Brand Name HDTVs will sell for under $2,000 by the Thanksgiving Holiday season (November 2005). Another 37% believe that “Private Label/Generic” models will sell for under $2,000 by Nov 2005 – but not Brand Names.

Types of HDTVs Breaking $2,000 by November 2005. “LCD Flat Panel TVs below 42” is the type of High Def TV that most respondents believe will be selling for under $2,000 by November 2005 – both among Brand Name (73%) and Private Label/Generic (71%) models.

Copyright ©2005 ChangeWave Research

All rights reserved.

February 25, 2005


Companies Best Positioned to Capitalize on Growing HDTV Demand. Silicon Image (18%) is seen as the company best positioned to capitalize on growing demand for HD hardware followed by Broadcom (11%).

HD DVD Race. While 59% say it is “Still Too Early to Tell” which format will win the High Def DVD race, Sony’s Blu-Ray format (19%) holds a clear early lead over Toshiba’s HD-DVD format (5%) among industry respondents.

(B) Media Center Devices

We define a "Media Center" as being a high powered device capable of managing digital content in the living room and/or around the home.

Media Center Devices – Not Quite Ready For Prime Time. A slight majority of industry respondents (51%) believe Media Center Devices will not have a big breakout year until 2007 or beyond. But 34% think Media Center devices will become a central feature of the digital living room by 2006.

Which Media Center Hardware Devices Will Lead? According to 22% of industry respondents, a “Personal Computer using a Windows Media Center Platform,” is the type of Media Center hardware device most likely to break out first. Another 19% chose a “DVR with TiVo like enhanced software to manage media content.”

Companies Likely to Benefit from a Media Center Device Breakout Year.

Microsoft (26%) is seen as the company most likely to benefit from a big breakout year for Media Center devices. Apple (12%) and HP (10%) also received double-digit mention. Industry respondent GEO5992 writes, "Microsoft -- they have the start of successful efforts on several fronts already, with Media Center and Xbox, as well as their Comcast MSTV deals.” But industry respondent DRP2747 believes it’s Apple: "I think their reputation for ease of use and quality and the momentum from the iPod will convince consumers to give it a try, especially if the cost is right… This might be one place where Macs are cheaper than PCs, and still easier to use.”

Consumer Friendly Interface is Most Important For Mass Market Acceptance. Nearly half (46%) of our industry respondents see a “Consumer Friendly Interface” as the most important reason why a Media Center will gain mass market acceptance – making this the number one key determinant of eventual success.

Windows XP Media Center Still Falls Short. Among industry respondents familiar with the Windows XP Media Center Platform, nearly two-thirds (64%) say it falls short and will have to struggle for market acceptance. We note, however, that 22% do think it provides “a very satisfactory consumer experience” and will win market acceptance.

Prospects for an Apple Media Center Product. Twenty-seven percent (27%) of industry respondents think Apple is likely to work with third parties to evolve the Mac mini (or another Apple product) into a Media Center in the next year. Another 16% say Apple is likely to create its own full blown Media Center in the next 12 months.

(C) Other Digital Living Room TrendsCopyright ©2005 ChangeWave Research

All rights reserved.2


Consumer Electronics Inventory. Cell Phones (+26), Digital Cameras (+23) and PDAs (+21) are the consumer electronics items showing the most signs of an inventory buildup (surplus). In contrast, iPods (-32) show the most signs of an inventory shortage.

Best Positioned to Capitalize on the Digital Living Room. Computer Companies (29%) and Consumer Electronics Companies (27%) are considered to be the market segments best positioned to capitalize on the future of the digital living room.

Companies to Watch – Apple Leads the Pack. Apple (23%) was mentioned most as being a “company involved in products and services for the digital living room that should be on our radar screen in the coming year.” Samsung (20%), Sony (19%), Microsoft (15%), Intel (15%) and Dell (10%) also garnered double-digit mentions.

Bottom Line: The survey results provide clear evidence that 2006 will be the year when HDTV attains critical mass market acceptance. Lower prices and a major increase in HDTV content from multiple sources will be the primary drivers of High Def TV sales for 2006, but the increased availability of High Def DVDs should also spur sales.

Industry Respondents believe LCD Flat Panel TVs will lead a year from now both in overall picture quality/features and total unit sales, with DLP and Plasma Flat Panel TVs in a close battle for second in the High Def TV marketplace.

The results also show that one-in-four industry respondents believe Media Center devices will have a big breakout year in 2006. However, a majority still believe that Media Center Devices will not breakout and become a central feature of the digital living room until 2007 or beyond – and a “consumer friendly interface” will be by far the most important determinant of eventual success.

In this regard, although the Windows XP Media Center is seen as the early leader, nearly two-thirds of respondents (64%) say it falls short either technically or in terms of user friendliness. Looking ahead, two-in-five respondents are bullish on the prospects of Apple developing a media center product within the next 12 months. And Apple received the most mentions (23%) for being the company “…involved in products and services for the digital living room that should be on our radar screen in the coming year.”

The ChangeWave Alliance is a group of 5,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™www.ChangeWave.com

Copyright ©2005 ChangeWave Research All rights reserved.

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Table of Contents

Summary of Key Findings.............................................................................................4

The Findings...................................................................................................................6

(A) High Definition Televisions..............................................................................6

(B) Media Center Devices...................................................................................12

(C) Digital Living Room Trends ...........................................................................17

ChangeWave Research Methodology........................................................................40

About ChangeWave Research....................................................................................41


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I. Summary of Key Findings

IntroductionDuring the week of February 2 - 7, 2005, we surveyed Alliance members who work in or are knowledgeable about the Consumer Electronics industry. The focus was on current trends in the “digital living room.” A total of 365 Alliance members participated – including 113 who work directly for companies manufacturing component parts or selling consumer electronics products or services. The report focuses on 3 key areas:

(A) High Definition Televisions (B) Media Center Devices


5

2006–The Breakout Year for HDTV 47% of respondents who

work in the consumer electronics industry believe 2006 is the year HDTV attains critical mass market acceptance

New HDTV Content is the Key Accelerator for High Def TV Purchasing

Increased availability of High Def DVDs also will propel High Def TV sales

A Year From Today Which TV Will Lead? Picture Quality & Features LCD Flat Panels (34%) DLP-Based TVs (24%) Plasma Flat Panels (24%)

Total Unit Sales LCD Flat Panels (35%) DLP-Based TVs (28%) Plasma Flat Panels (14%)

Best Positioned Companies for Capitalizing on HDTV Silicon Image (18%) Broadcom (11%)

Breaking Below $2,000 by Nov ‘05 40% say Brand name

High Def models will sell for under $2,000 by November ‘05

37% say Private Label/ Generic models will sell for under $2,000 by Nov ’05 – but not Brand Name models

73% say LCD Flat Panel TVs below 42” will sell for less than $2,000 by Nov ’05

HD DVD Format Race 59% think it is still too

early to tell which format will win the high definition DVD race,

But Blu-Ray (Sony; 19%) holds a clear early lead over HD-DVD (Toshiba; 5%)

Consumer Electronics InventorySigns of a Buildup Cell Phones (+26) Digital Cameras (+23) PDAs (+21)Signs of a Shortage iPods (-32)

Media Center Devices 51% of respondents think

Media Center devices will not be a central feature of the digital living room until 2007 or beyond;

But 34% think they will by 2006

Companies Most Likely to Benefit From Breakout Microsoft (26%) Apple (12%) HP (10%) Consumer Friendly Interface Most Important 46% see “A Consumer

Friendly Interface” as most important for mass market acceptance

Windows XP Media Center Still Falls Short … 64% say it will struggle for

market acceptanceProspects for an Apple Media Center Product 27% think Apple is likely to

work with 3rd parties to evolve an existing product into a Media Center

16% say Apple will create its own new Media Center


(C) Digital Living Room TrendsII. The Findings

Total Respondents (n = 365) Respondents Who Work for a Company That Manufactures Component Parts or Sells

Consumer Electronics Products or Services (n=113) Respondents Knowledgeable About the Consumer Electronics Industry (n=252)

(A) High Definition Televisions

(1) Question Asked: Analysts are split on whether HDTV will attain critical mass market acceptance during 2005, 2006, or beyond. What about yourself? When do you believe HDTV will first attain critical mass market acceptance and have a big breakout year?

RespondentsWorking for aCompany That

Manufactures orSells Consumer

Electronics

RespondentsKnowledgeable

About theConsumerElectronics

Industry2005 10% 7%2006 47% 40%2007 25% 30%Beyond 2007 12% 17%HDTV Will Never Have a Huge Breakout Year 1% 2%Don't Know/No Answer 5% 5%

2006 – A Big Breakout Year for HDTV. Forty-seven percent (47%) of respondents who work in the consumer electronics industry believe 2006 will be the year when HDTV attains critical mass market acceptance and has a big breakout year. Another 25% think it will happen in 2007.


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(2) Question Asked: During the first half of 2005 there will be a huge increase in new HDTV content from multiple sources. Do you believe this new wave of HDTV content will significantly accelerate the purchasing of HD Hardware (i.e., High Def TVs, Cable Boxes) during 2005, or will it not have a significant impact on the purchasing of HD Hardware till 2006 or beyond?



Electronics



IndustryThe increase in HDTV content will significantly accelerate the purchasing of HD hardware during 2005

19% 19%

The increase in HDTV content will significantly accelerate the purchasing of HD hardware - but not until 2006

44% 47%

The increase in HDTV content will significantly accelerate the purchasing of HD hardware - but not until 2007 or beyond

24% 21%

The increase in HDTV content will not significantly accelerate the purchasing of HD hardware

7% 9%

Don't Know/No Answer 3% 4%

New HDTV Content – A Key Accelerator for High Def TV Purchases for 2006. Forty-four percent (44%) of industry respondents say the increase in HDTV content will significantly accelerate the purchasing of High Def TVs and Cable Boxes (i.e., HD hardware), though not till 2006. Another 24% believe HDTV content will not accelerate purchasing until 2007 or beyond.

(3A) Question Asked: Which of the following do you think will be the primary driver of purchases of HD Hardware over the next 12-24 months?



Electronics



IndustryAvailability of Content in High Def 56% 53%Availability of High Def DVDs 20% 8%Availability of High Def Gaming 5% 4%Don't Know/No Answer 6% 7%Other 12% 28%


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High Def DVDs – Will Also Drive Purchases of High Def TVs. While a majority (56%) of respondents think HDTV Content will be the primary driver of High Def TV purchases over the next two years, one in five (20%) think High Def DVDs will be the primary driver – a highly significant number.

(3B) Question Asked: One year from today, which of the following "types" of High Def televisions do you think will be the industry leader in terms of overall picture quality and features?



Electronics



IndustryLCD Flat Panel Televisions 34% 38%DLP-Based Televisions 24% 20%Plasma Flat Panel Televisions 24% 19%LCoS Televisions 1% 3%None of the Above 0% 2%Don't Know 16% 15%Other 2% 3%

(3C) Question Asked: And which of the following "types" of High Def televisions do you think will be the industry leader in terms of total unit sales for 2005?



Electronics



IndustryLCD Flat Panel Televisions 35% 42%DLP-Based Televisions 28% 21%Plasma Flat Panel Televisions 14% 17%LCoS Televisions 1% 1%None of the Above 0% 0%Don't Know 19% 16%Other 3% 3%

A Year From Today: Which TV Will Lead? Industry Respondents think LCD Flat Panel Televisions (34%) will be the leader a year from now both in overall picture quality & features and total unit sales. DLP-Based TVs (24%) and Plasma Flat Panel TVs (24%) are tied for second in terms of picture quality & features, but DLP leads Plasma by a two-to-one margin in terms of projected total unit sales (28% to 14%), due to the expected drop in prices for DLP sets over the next year.


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(3D) Question Asked: Focusing on price points, do you believe that brand name High Def TVs will be selling for under $2,000 by the Thanksgiving Holiday season in November 2005?



Electronics



IndustryYes 40% 38%No, But "Private Label/Generic" brands will be selling for under $2,000 by Nov 2005

37% 38%

No, Neither "Brand Name" nor "Private Label/Generic" brands will be selling for under $2,000 by Nov 2005

13% 15%

Don't Know 10% 8%

Breaking the $2,000 Price Point. Two-in-five respondents (40%) working in the industry believe that Brand Name HDTVs will sell for under $2,000 by the Thanksgiving Holiday season (November 2005). Another 37% do not believe this regarding Brand Name TVs, but do believe “Private Label/Generic” models will be selling for under $2,000 by November 2005.

(3E) Question Asked: Which of the following "types" of High Def TVs will be selling for under $2,000 by the Thanksgiving Holiday season in November 2005?

Brand Name Models (e.g., Sony, Toshiba) (Check All That Apply)



Electronics



IndustryLCD Flat Panel Televisions Below 42" 73% 72%DLP-Based Televisions 47% 46%Plasma Flat Panel Televisions 36% 32%LCD Flat Panel Televisions 42" and Above 11% 8%LCoS Televisions 9% 11%None of the Above 0% 0%Don't Know 0% 0%Other 4% 5%


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Private Label/Generic Models (e.g., Maxtent, Sampo, etc.) (Check All That Apply)



Electronics



IndustryLCD Flat Panel Televisions Below 42" 71% 68%DLP-Based Televisions 37% 35%Plasma Flat Panel Televisions 37% 37%LCD Flat Panel Televisions 42" and Above 24% 21%LCoS Televisions 10% 13%None of the Above 0% 1%Don't Know 10% 10%

Types of HDTVs Breaking $2,000 by November 2005. “LCD Flat Panel TVs Below 42” is the type of High Def TV that most respondents believe will be selling for under $2,000 by November 2005 – both among Brand Name (73%) and Private Label/Generic (71%) models. In terms of other TVs breaking the $2,000 price point, 47% of respondents think Brand Name DLP models will and 37% Brand Name Plasma models will by Nov 2005.

(4) Question Asked: Which of the following companies do you believe is best positioned to capitalize on growing demand for HD Hardware (i.e., High Def TVs, Cable Boxes) during 2005?



Electronics



IndustrySilicon Image 18% 20%Broadcom 11% 6%Harmonic 4% 1%Zoran 4% 3%Digital Theater Systems 2% 3%SRS Labs 2% 1%Trident Microsystems 2% 0%Brillian 1% 0%Sigma Designs 1% 1%SpatiaLight 1% 0%Microtune 0% 0%None of the Above 2% 2%Don't Know 50% 58%

Which Company is Best Positioned to Capitalize on Growing HDTV Demand. Silicon Image (18%) is seen as the company best positioned to capitalize on growing demand for HD hardware followed by Broadcom (11%).


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(5) Question Asked: Some analysts believe the clarity of a 1920 x 1080p (i.e., not 1080i) resolution High Def TV picture is so extraordinary, that once consumers experience it they "…won't be able to live without it." Other analysts believe the high cost will continue to deter significant consumer demand for 1920 x 1080p resolution High Def TV. Which view comes closest to your own?



Electronics



IndustryOnce consumers experience 1920 x 1080p resolution High Def TV they "...won't be able to live without it." It will turn into a "must have" for consumers

8% 8%

The picture quality of 1920 x 1080p resolution High Def TV will have to get much better before it turns into a "must have" for consumers

9% 4%

High cost will continue to deter significant consumer demand for 1920 x 1080p resolution High Def TV

73% 80%

Don't Know 7% 6%Other 3% 2%

Still Early for Very High Resolution HDTV. Nearly three-quarters (73%) of respondents believe the high cost of a 1920 x 1080p resolution High Def TV will continue to deter significant consumer demand.

(5A) Question Asked: Focusing on High Def DVDs, which of the following formats do you think will win the High Definition DVD race?



Electronics



IndustryBlu-Ray (Sony) 19% 12%HD-DVD (Toshiba) 5% 10%Still Too Early to Tell 59% 52%There Will Never Be an Agreed Upon Standard for High Def DVDs

2% 3%

Don't Know 13% 19%Other 1% 3%

HD DVD Race. While it’s “Still Too Early to Tell” (59%) which format will win the High Def DVD race, Sony’s Blu-Ray (19%) holds a significant early lead over Toshiba’s HD-DVD format (5%) among industry respondents.


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(B) Media Center Devices

(6) Question Asked: We define "Media Center" as being any high powered device that is capable of managing digital content in the living room and/or around the home. The explosion in digital content has led many analysts to believe Media Center devices will be the next "new" product. When - if ever - do you think a Media Center device (or a similar competitive product) will have a big breakout year in the mass market and become a central feature of the digital living room?



Electronics



IndustryBy Year End 2005 6% 2%2006 28% 27%2007 24% 27%Beyond 2007 27% 30%Unlikely to Ever Break Out Into Mass Market Acceptance

8% 8%

Don't Know 6% 5%

Media Center Devices – Not Quite Ready For Prime Time. A slight majority of industry respondents (51%) believe Media Center Devices will not have a big breakout year until 2007 or beyond, though 34% think Media Center devices will become a central feature of the digital living room by 2006.

(6A) Question Asked: What kind of hardware device do you think will break out first?



Electronics



IndustryPersonal Computer using Windows Media Center Platform

21% 17%

A Cable Box running TV/cable guide software and functioning as a Media Center

19% 22%

DVR with TiVo like enhanced software to manage all media content

17% 25%

Dedicated device with Media Center software (i.e. Escient)

8% 10%

Mac or Mac Mini running Macintosh-based Media Center software

7% 5%

IP TV (Internet Protocol) Set Top Box 4% 5%


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Don’t Know 21% 13%Which Media Center Hardware Devices Will Lead? The type of Media Center hardware device seen as most likely to break out first is a “Personal Computer using a Windows Media Center Platform,” according to 22% of industry respondents.

Another 19% chose a “DVR with TiVo like enhanced software to manage all media content” (19%) and 17% a “Cable Box running TV/cable guide software and functioning as a Media Center.”

(6B) Question Asked: What company that manufactures or provides components and/or software for Media Centers would most likely benefit from a big breakout year for Media Center devices for the digital living room and why?



Electronics



IndustryMicrosoft 26% 26%Apple 12% 13%HP 10% 8%Sony 7% 10%Intel 7% 4%Broadcom 7% 0%Comcast 5% 6%Dell 2% 9%TiVo 2% 4%Scientific Atlanta 2% 5%Motorola 2% 3%Silicon Image 0% 5%Other 31% 23%

Companies Likely to Benefit From a Breakout Year for Media Center Devices. Microsoft (26%) is seen as the company most likely to benefit from a big breakout year for Media Center devices for the digital living room. Apple (12%) and HP (10%) also received double-digit mention.

As industry respondent GEO5992 puts it, "Microsoft -- they have the start of successful efforts on several fronts already, with Media Center and Xbox, as well as their Comcast MSTV deals.” But industry respondent DRP2747 believes the biggest beneficiary will be Apple: "I think their reputation for ease of use and quality and the momentum from the iPod will convince consumers to give it a try, especially if the cost is right… This might be one place where Macs are cheaper than PCs, and still easier to use.”


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Below are some examples of Alliance member responses to this question. A much larger sampling of member responses can be found in Appendix A on page 25.

(a) Microsoft

Industry Respondent DGD8508 writes, "Microsoft may already have a tremendous advantage because of the ubiquity of the OS that they can leverage if the trend goes to PC/Web/Media.”

Industry Respondent GEO5992 writes, "Microsoft -- they have the start of successful efforts on several fronts already, with Media Center and Xbox, as well as their Comcast MSTV deals.”

Industry Respondent COS2687 writes, "Microsoft - different software packages and hd-wmv format and potential Xbox2 media center device. Wireless LAN companies. Atheros, Broadcom, Airgo etc. Beyond 2006 maybe UWB companies.”

Industry Respondent HIT6378 writes, "Microsoft. Lock up the OS and you control the infrastructure, options and set the rules.”

PKO4842 writes, "Microsoft will extend digital information management competencies out of the office and into the family room."

EPA7603 writes, "Microsoft in 2005-6 because they supply the PC software. Various PC vendors will split the hardware market. Cable & TiVo like vendors may grab a chunk if they get the features & usability right."

(b) Apple

Industry Respondent DRP2747 writes, "Apple. I think their reputation for ease of use and quality and the momentum from the iPod will convince consumers to give it a try, especially if the cost is right. Most Microsoft Media Center PCs are much too expensive, powerful and complicated. This might be one place where Macs are cheaper than PCs, and still easier to use.”

Industry Respondent MIC9787 writes, "Apple, if Jobs were interested in solving the problem. With an increase in wireless network speed, my Media Center would simply be my iBook sitting on my living room coffee table. Currently it serves up my music wirelessly to my stereo and that's how I'd want to play DVDs and DVR capability. DVR would require that either my desktop or a Mac Mini were on all the time.”

Industry Respondent KRI9358 writes, "Apple will be in the forefront. With their recent success with I pods, they have come out with so many other reasonably priced devices.”

TBO6631 writes, "iPod - although it has broken out, a new wave can occur for broader use in a central home entertainment center.”


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MGO6950 writes, "Apple. They are positioning for a living room play and have the brand and sense of user interface to pull it off."

(c) HP

Industry Respondent SCI2525 writes, "HP as it already has a product in the market for this.”

SEN3673 writes, "HP - They seem to have the most Media Centers on the market.”

(6C) Question Asked: Which of the following will likely be the most important reason why a Media Center breaks out into mass market acceptance? (Choose No More Than Two)



Electronics



IndustryHas a Consumer Friendly Interface 46% 42%Made Available by a Content Provider (Cable or Satellite)

31% 41%

Ability to Move Digital Content Around the House Wirelessly

27% 23%

Marketed by a Powerful Traditional Electronics Brand (e.g. Sony, Samsung)

22% 13%

Marketed by a Powerful Consumer Friendly Brand (i.e. Apple)

12% 13%

Is a Powerful, Feature Driven Device 10% 15%Unlikely to Ever Break Out Into Mass Market Acceptance

1% 3%

Don't Know 6% 6%

Consumer Friendly Interface is Most Important For Mass Market Acceptance. Nearly half (46%) of our industry respondents see a “Consumer Friendly Interface” as the most important reason why a Media Center will break out into mass market acceptance.

Another 31% see “Made Available by a Content Provider (Cable or Satellite)” as the most important reason, while 27% say it’s the “Ability to Move Digital Content Around the House Wirelessly.”


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(7) Question Asked: (THIS QUESTION IS FOR MEMBERS FAMILIAR WITH THE WINDOWS XP MEDIA CENTER PLATFORM.) The Windows XP Media Center Platform has an array of bells and whistles to manage digital content and is supposedly one of the most technically advanced on the market today. How would you rate the Windows XP Media Center Platform? Would you say it provides a very satisfactory consumer experience and will win mass market acceptance? Or does it fall short - either technically or in terms of user friendliness -- and will therefore have to struggle for market acceptance?

Respondents Working for a Company That Manufactures or Sells Consumer Electronics (n=49)Respondents Knowledgeable About the Consumer Electronics Industry (n=94)



Electronics



IndustryIt provides a very satisfactory consumer experience and will win mass market acceptance

22% 20%

It falls short technically and will therefore have to struggle for market acceptance

29% 34%

It is awkward to use and falls short in terms of user friendliness, and will therefore have to struggle for market acceptance

35% 33%

Other 14% 13%

Windows XP Media Center Still Falls Short. Among industry respondents familiar with the Windows XP Media Center Platform, nearly two-thirds (64%) say it falls short and will have to struggle for market acceptance – with 35% saying “it is awkward to use and lacks user friendliness”, and 29% saying “it falls short technically.” On the other hand, 22% do think it provides a very satisfactory consumer experience and will win mass market acceptance.


16


(7A) Question Asked: Some analysts believe the new Mac mini is the ideal size for a living room based Media Center. Do you think Apple is likely to quickly evolve this or another type of product into a full blown Media Center?



Electronics



IndustryYes, Apple is likely to quickly create a full blown Media Center in the next 12 months

16% 22%

Yes, Apple is likely to quickly work with third parties to provide software to turn the Mac mini (or another Apple product) into a full blown Media Center in the next 12 months

27% 23%

No 19% 13%Don't Know / No Answer 37% 42%

Prospects for an Apple Media Center Product. Twenty-seven percent (27%) of industry respondents think Apple is likely to evolve the Mac mini (or another Apple product) into a Media Center in the next year. Another 16% say Apple is likely to create a new, full blown Media Center. The combined 43% is more than double the 19% who do not believe Apple will create a full blown Media Center.

(C) Digital Living Room Trends

(8) Question Asked: Which of the following market segments do you believe will best capitalize on the future of the digital living room?



Electronics



IndustryComputer Companies (e.g., Dell, HP, Apple) 29% 24%Consumer Electronics Companies (e.g., Sony) 27% 29%Chip Companies (e.g., Intel, AMD, Texas Instruments)

15% 14%

Content and Distribution (e.g., Comcast, Disney, Verizon)

12% 23%

Start-Ups 4% 2%Don't Know 10% 7%Other 3% 2%

Best Positioned to Capitalize on the Digital Living Room. Computer Companies (29%) and Consumer Electronics Companies (27%) are the market segments believed to be best positioned to capitalize on the future of the digital living room.


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(9) Question Asked: Which of the following consumer electronic items - if any - are currently exhibiting signs of an inventory buildup (i.e. surplus)? (Check All That Apply)



Electronics



IndustryCell Phones 27% 22%Digital Cameras 26% 27%MP3/Other Digital Music Players 22% 21%PDAs 21% 23%DVD-R Players 18% 15%Stand Alone DVRs 18% 8%Video Game Consoles 18% 17%Home Wireless Networks 12% 12%Media Center PCs 7% 4%Set-Top Boxes 7% 10%Plasma Flat Panel TVs 7% 8%LCD Flat Panel TVs 6% 8%HDTVs 6% 4%iPods 5% 9%Hybrid PDAs 5% 6%Cable Box DVRs 4% 5%DLP-Based TVs 4% 4%Satellite Radio 4% 6%None of the Above 3% 1%Don't Know 37% 48%Other 2% 1%


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(9A) Question Asked: And which of the following consumer electronic items - if any - are currently exhibiting signs of an inventory shortage (i.e. in short supply)? (Check All That Apply)



Electronics



IndustryiPods 36% 29%LCD Flat Panel TVs 10% 5%MP3/Other Digital Music Players 6% 3%DLP-Based TVs 6% 5%Plasma Flat Panel TVs 5% 2%Media Center PCs 4% 3%DVD-R Players 4% 2%Stand Alone DVRs 4% 2%HDTVs 4% 2%Video Game Consoles 4% 3%Satellite Radio 4% 4%Home Wireless Networks 4% 4%Digital Cameras 3% 2%Hybrid PDAs 3% 5%Cable Box DVRs 2% 1%Set-Top Boxes 2% 1%Cell Phones 1% 2%PDAs 0% 0%None of the Above 4% 7%Don't Know 42% 49%Other 1% 0%


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Net Difference Score – Consumer Electronics Items inventory buildup (i.e. surplus) vs. inventory shortage (i.e. in short supply)

Net DifferenceScore



Electronics

Net DifferenceScore



IndustryCell Phones +26 +20Digital Cameras +23 +25PDAs +21 +23MP3/Other Digital Music Players +16 +18Stand Alone DVRs +14 +6Video Game Consoles +14 +14DVD-R Players +12 +13Home Wireless Networks +8 +8Set-Top Boxes +5 +9Media Center PCs +3 +1Cable Box DVRs +2 +4Plasma Flat Panel TVs +2 +6HDTVs +2 +2Hybrid PDAs +2 +1Satellite Radio 0 +2DLP-Based TVs -2 -1LCD Flat Panel TVs -4 +3iPods -31 -20

Consumer Electronics Inventory Situation. Cell Phones (+26), Digital Cameras (+23) and PDAs (+21) are the consumer electronics items showing the most signs of an inventory buildup (surplus).

In contrast, iPods (-32) show the most signs of an inventory shortage.


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(10) Question Asked: Of all the companies - large or small - involved in products and services for the digital living room - which one(s) do you believe should be on our radar screen during the coming year? Please explain why.

RespondentsWorking for a Company That


Electronics


About the ConsumerElectronics

IndustryApple 23% 33%Samsung 20% 9%Sony 19% 24%Microsoft 15% 12%Intel 15% 2%Dell 10% 12%HP 8% 6%Texas Instruments 8% 6%ATI Technologies 6% 1%Panasonic 4% 2%Harmonic 4% 1%Zoran 4% 2%Nvidia 4% 1%Toshiba 4% 3%Silicon Image 2% 4%LG 2% 2%Netgear 2% 2%Broadcom 2% 2%Motorola 0% 2%Alvarion 0% 2%Time Warner 0% 4%Verizon 0% 3%Comcast 0% 7%AU Optronics 0% 2%Bose 0% 2%JVC 0% 2%Mitsubishi 0% 2%SBC 0% 2%Philips 0% 2%Other 31% 21%

Companies to Watch – Apple Leads the Pack. Apple (23%) was mentioned most when respondents were asked to name a company involved in products and services for the digital living room which should be on our radar screen during the coming year. Samsung (20%), Sony (19%), Microsoft (15%), Intel (15%) and Dell (10%) also garnered double-digit mentions.


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As Industry Respondent MIC9787 puts it, "Apple because they are the only ones who understand that one added bit of complexity can take a product from hit to worthless, and those elegant, beautiful creations will always have a market.” DGD8508 concurs, "Look to Apple for the lead they have developed with the iPod/iTune; Samsung for the technology in televisions...”

Below are some examples of Alliance member responses to this question. A much larger sampling of member responses can be found in Appendix B on page 29.

(a) Apple

Industry Respondent MIC9787 writes, "Apple because they are the only ones who understand that one added bit of complexity can take a product from hit to worthless and those elegant, beautiful creations will always have a market.”

Industry Respondent JGU2244 writes, "Apple Computer. It is a leading company in innovation of the media center, including sound and images. It is also the most consumer-oriented company in the computer business.”

Industry Respondent KRI9358 writes, "Apple- their innovative products will be at the center of this revolution.”

Industry Respondent STE2309 writes, "Apple: the momentum of Apple and companies Apple will partner with will be well worth watching, very similar to when Microsoft partnered with smaller companies. Finding these partnering companies Apple will choose to play with will be big. I believe we have an outside chance to see Apple replace Microsoft as the leader within 5 - 8 years.”

Industry Respondent DGD8508 writes, "Look to Apple for the lead they have developed with the iPod/iTune, Samsung for the technology in televisions, and Intel.”

(b) Samsung

Industry Respondent BBE8914 writes, “Samsung: they are the largest flash memory manufacturer as well as highly competitive and respected for quality and value in the consumer electronics arena. They also may be looking to list on the NYSE sometime in the near future.”

Industry Respondent LES6490 writes, "Samsung - up and coming with excellent R&D.”

Industry Respondent HAW6132 writes, “Samsung: aggressive marketing, cutting edge innovation.”

(c) Sony

Industry Respondent KEE6958 writes, "Sony - brand recognition.”


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Industry Respondent HAM5839 writes, "Sony: Brand recognition and quality of products. The only minus is higher priced compared to competition. Quality price ratio is among the best.”

EWI0296 writes, "Sony-IBM developed cell technology will provide a competing architecture to standard PC and dumb devices. It will help enable network-delivered content if adopted by content providers and cable/Telco delivery systems.”

VRO2791 writes, "Sony for their Blu-Ray technology...”

(d) Microsoft

Industry Respondent JRO6254 writes, "Microsoft. They’ve taken the initiative to 'try' and tie it all together (computers, video, tv, etc.). The public will appreciate a single 'gateway' to all their electronic accessories, instead of fooling around with several different setups.”

Industry Respondent JRO4419 writes, "Microsoft and Sony - financial and marketing muscle, R&D capability; ability to influence standards.”

(11) Question Asked: Finally, can you think of an emerging, potentially revolutionary technology in the Television/Media Servers industry that should be on our radar screen during the coming year? Please explain why.



Electronics



IndustryContent and Distribution 12% 13%Video/Viewing Screens/Displays/Projectors 12% 13%DVD Recorder/ HD-DVD 9% 3%IP Technology 9% 8%Linking Home Media With Cell Phones, PDAs, etc. 6% 3%Blu-ray Technology 6% 1%WiMAX 6% 1%Networking Connection 6% 0%Wireless Connectivity 3% 8%OLEDs 3% 4%Portability 3% 4%Ultra Wideband 3% 3%DLP 3% 3%Satellite 0% 4%Storage Capacity 0% 3%Simplicity/Consumer Friendly 0% 3%Other 21% 25%


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Below are some examples of Alliance member responses to this question. A much larger sampling of member responses can be found in Appendix C on page 34.

(a) Content and Distribution Industry Respondent DHU6632 writes, “The solution that becomes a must have will

allow broad content selection instantaneously. I should be able to go to my TV/media center and order any movie, any syndicated show, and niche content instantaneously. Pay per view and On Demand attempt this, but they need much more content availability. I believe a media conglomerate, like Time-Warner is most like to accomplish this and benefit from it.”

Industry Respondent TAY3944 writes, “HDTV will not really take off until satellite and cable companies are delivering the majority of content in HDTV format...and HD level DVD's and games are available. This will make hookup similar to existing TV: cable or satellite guy hooks it up. Consumer muddles through DVD installation. Until then, setup is complex and beyond the knowledge level of most consumers…The technology to watch is mediacenter extenders from network component vendors...low cost/high performance...to enable streaming of content to multiple TV's…”

(b) Video/Viewing Screens/Displays/Projectors Industry Respondent DRP2747 writes, “I think ceiling mounted front projection HiDef

TVs will start to catch on. The screens can be completely hidden in the ceiling when not being used, as can the projectors if really desired. For people who don't want their room to be only a TV room, yet want the best when they are watching.”

(c) DVD Recorder/ HD-DVD Industry Respondent KPH2308 writes, “I think the DVD recorder has the potential to

replace the decades old VCR as long as the industry can work out all the kinks, and increases the level of ease of use for consumer. Blu-ray and HD-DVD may be the follow-up contenders once they come down in price but may not be for several years...”

Industry Respondent CHI8142 writes, “DVR's that can record HD. People are addicted to DVR functionality, but the price point for HD DVR is still too high for most. As the price drops, look out.”

(d) IP Technology Industry Respondent NEU3562 writes, “Digital Living Network Alliances -- devices

interoperability using IP network and UPnP for device discovery.” SYA5987 writes, “Certainly IPTV which should be getting the same attention as VOIP.

Microsoft and others are moving forward on this. IPTV will be a boon to Verizon and the other RBOCs (SBC/BellSouth) in being able to offer video to the home. The cable companies will move to IPTV over the next five years as well.”

(e) Blu-ray Industry Respondent MBU2381 writes, “Blu-ray. Because of increased storage

capacity. This means you don't need that extra disk to view the bonus features. This will be important for several other reasons as well. One is, as digital camera megapixel capability increases, more storage capacity will be needed. This could also transition the DVD player market to new DVD players because most current DVD players use red lasers to read the disk, whereas Blu-Ray requires -- you guessed it -- blue lasers.”


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Appendix A

(6B) Question Asked: What company that manufactures or provides components and/or software for Media Centers would most likely benefit from a big breakout year for Media Center devices for the digital living room and why?

Respondents Working for a Company That Manufactures Component Parts or Sells Consumer Electronics (n=42)

Respondents Knowledgeable About the Consumer Electronics Industry (n=103)



Electronics



IndustryMicrosoft 26% 26%Apple 12% 13%HP 10% 8%Sony 7% 10%Intel 7% 4%Broadcom 7% 0%Comcast 5% 6%Dell 2% 9%TiVo 2% 4%Scientific Atlanta 2% 5%Motorola 2% 3%Silicon Image 0% 5%Other 31% 23%

Sample of Alliance member responses:

(a) Microsoft

Industry Respondent HIT6378 writes, "Microsoft. Lock up the OS and you control the infrastructure, options and set the rules.”

Industry Respondent DGD8508 writes, "Microsoft may already have a tremendous advantage because of the ubiquity of the OS that they can leverage if the trend goes to PC/Web/Media.”

Industry Respondent JRO4419 writes, "Microsoft - has the platform, financial heft and consumer reach.”

Industry Respondent GEO5992 writes, "Microsoft -- they have the start of successful efforts on several fronts already, with Media Center and Xbox, as well as their Comcast MSTV deals.”


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Industry Respondent ABG4221 writes, "Microsoft - sorry - but they have been working this issue for years now. They either own it or they will buy it. How you going to fight them? They decided long ago that this was the future of home media. They do this 24 hours a day. Bank on it.”

ROI9458 writes, "Microsoft. With their growing influence and signing up of major service providers for their IPTV solution, they have a fair shot at the media center market."

PKO4842 writes, "Microsoft will extend digital information management competencies out of the office and into the family room."

ERN7555 writes, "Microsoft for their Media Center Platform, and hard-drive manufacturers...storage space needs will explode."

MAT9449 writes, "Microsoft because they are already a player with a large XP installed base that can run media center software."

(b) Apple

Industry Respondent DRP2747 writes, "Apple. I think their reputation for ease of use and quality and the momentum from the iPod will convince consumers to give it a try, especially if the cost is right. Most Microsoft Media Center PCs are much too expensive, powerful and complicated. This might be one place where Macs are cheaper than PCs, and still easier to use.”

Industry Respondent DRC3209 writes, "Apple with its advanced technologies and experience.”

Industry Respondent KRI9358 writes, "Apple will be in the forefront. With their recent success with I pods, they have come out with so many other reasonably priced devices.”

Industry Respondent MIC9787 writes, "Apple, if Jobs were interested in solving the problem. With an increase in wireless network speed, my Media Center would simply be my iBook sitting on my living room coffee table. Currently it serves up my music wirelessly to my stereo and that's how I'd want to play DVDs and DVR capability. DVR would require that either my desktop or a Mac Mini were on all the time.”

MGO6950 writes, "Apple. They are positioning for a living room play and have the brand and sense of user interface to pull it off."

(c) HP

Industry Respondent SCI2525 writes, "HP as it already has a product in the market for this.”

Industry Respondent BMA9596 writes, "Hewlett Packard.”


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SEN3673 writes, "HP - They seem to have the most Media Centers on the market.”

(d) Sony

Industry Respondent AVE4522 writes, "Sony: Control of content sources, alliance with Microsoft for anti-piracy, defense against PRC and Taiwan based manufacturers.”

EWI0296 writes, "Sony. Developing next generation game consoles which can act as media centers."

AUG0979 writes, "Sony seems to have more lower priced components."

(e) Intel

Industry Respondent CHI8142 writes, "It'll be Intel if they can be first-to-market with a board/processor combo.”

Industry Respondent TLI0850 writes, "Intel will sell more chips.”

(f) Broadcom

Industry Respondent LAR9338 writes, "… Broadcom - chips.”

(g) Comcast

Industry Respondent MID4104 writes, "Comcast is a natural for adding these capabilities to millions of existing customers. Especially with increase delivery of HDTV programming.”

GEN7643 writes, "Comcast seems to be pushing ahead and will try to stay ahead as baby bell's and others push into the home entertainment area.”

(h) Dell

Industry Respondent ROD0138 writes, "Dell, since it is a direct distributor of media center PCs.”

VRO2791 writes, "Dell with their existing consumer marketing is positioned to capture a nice chunk of the Media Center market with a device running Windows XP/MC. Possibly Microsoft with a next generation XBOX/MC."

(i) TiVo

Industry Respondent MDE1165 writes, "TiVo - price, and established business.”

PTR2258 writes, "TiVo - Already has a subscriber base & can easily add additional features.”


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(j) Scientific Atlanta

BMA7440 writes, "Scientific Atlanta...many products in the works with TWX cable being their beta-tester primarily."

DIA4588 writes, "Scientific Atlanta already builds cable boxes with built in High Def TV DVR capabilities. All they need to do is build in DVD recording along with extra interfaces for home pictures/video and user controls to achieve a true media center capability.”

(k) Motorola

PAU0456 writes, "Motorola, Motorola makes boxes for Comcast and Comcast is the largest provider. Motorola is currently working on a system to leverage this into a wifi that can be used in the home i.e. send digital data to any other TV in the house. PC's/media centers will still be troubled by the OS which showed at the CES as Mr. Gates was chastised by Conan. Most houses are just now getting to digital set top boxes and these will dominate the industry for quite a while. They are the legacy that PC's will have to un-seat in order to win and this won't be easy.”

(l) Silicon Image

MAJ8457 writes, "Silicon Image – simplicity; Buyers want simple and not 600 wires."

MLF2454 writes, "Silicon Image for its connectivity and potentially a consumer level mass storage product.”

(m) Other

Industry Respondent MBU2381 writes, "Meedio. Because Meedio is one of the first companies to bring together application component and software providers in support of the DivX. This initiative brings together OEM's, IC Manufacturers and independent software & web providers for solid interoperable of products and services. They will partner with Windows, HP and other large players. The importance of DivX is critical for melding everyone together because it allows for compressed digital video that can be downloaded over DSL or cable modems which are already in wide use.”

Industry Respondent TAY3944 writes, "Monster Cable Products, Inc. They make the best quality cables on the market. Media center devices, especially when used in conjunction with HDTV, require a lot of very high quality cables. As a non-romantic enabling component, cables are a lot like the canvas pants (blue jeans) that Levi Strauss sold so successfully to gold miners.”

ENE2608 writes, "Texas Instrument- A few important chips in each system. High value analogue to digital chips. DSP multi-channel chips with almost commodity pricing and a multiple standards capability.”


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Appendix B

(10) Question Asked: Of all the companies - large or small - involved in products and services for the digital living room - which one(s) do you believe should be on our radar screen during the coming year? Please explain why.





Electronics



IndustryApple 23% 33%Samsung 20% 9%Sony 19% 24%Microsoft 15% 12%Intel 15% 2%Dell 10% 12%HP 8% 6%Texas Instruments 8% 6%ATI Technologies 6% 1%Panasonic 4% 2%Harmonic 4% 1%Zoran 4% 2%Nvidia 4% 1%Toshiba 4% 3%Silicon Image 2% 4%LG 2% 2%Netgear 2% 2%Broadcom 2% 2%Motorola 0% 2%Alvarion 0% 2%Time Warner 0% 4%Verizon 0% 3%Comcast 0% 7%AU Optronics 0% 2%Bose 0% 2%JVC 0% 2%Mitsubishi 0% 2%SBC 0% 2%Philips 0% 2%Other 31% 21%


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(a) Apple

Industry Respondent MIC9787 writes, "Apple because they are the only ones who understand that one added bit of complexity can take a product from hit to worthless and those elegant, beautiful creations will always have a market.”

Industry Respondent JGU2244 writes, "Apple Computer. It is a leading company in innovation of the media center, including sound and images. It is also the most consumer-oriented company in the computer businesses.”

Industry Respondent STE2309 writes, "Apple: the momentum of Apple and companies Apple will partner with will be well worth watching, very similar to when Microsoft partnered with smaller companies. Finding these partnering companies Apple will choose to play with will be big. I believe we have an outside chance to see Apple replace Microsoft as the leader within 5 - 8 years.”

SEN3673 writes, "Apple has been marketing digital media equipment that is trendy and well-received, and its OS is easier to use.”

BRA5368 writes, “Apple. With the iPod and their iMusic site they have demonstrated a clear vision for the media future and they will definitely move to dominate the media center market. They know where they are heading.”

(b) Samsung

Industry Respondent LAR9338 writes, "Samsung - they are eating everyone’s lunch.”

Industry Respondent TLI0850 writes, “Samsung. This company is so formidable that whenever it goes into a market it will become a dominating player in that area.”

Industry Respondent HAW6132 writes, “Samsung: aggressive marketing, cutting edge innovation.”

Industry Respondent BBE8914 writes, “Samsung: they are the largest flash memory manufacturer as well as highly competitive and respected for quality and value in the consumer electronics arena. They also may be looking to list on the NYSE sometime in the near future.”

JJH6379 writes, “Samsung. They are pulling away from the pack in performance and price. I just wish they traded (stock) in the US.”

(c) Sony

Industry Respondent ABG4221 writes, "Sony - they will not take these recent set-backs lying down. They will come back screamin'.”


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Industry Respondent HAM5839 writes, "Sony: Brand recognition and quality of products. The only minus is higher priced compared to competition. Quality price ratio is among the best.”

MDU7911 writes, "Sony because they always seem to be on the cutting edge of technology.”

EWI0296 writes, "Sony-IBM developed cell technology will provide a competing architecture to standard PC and dumb devices. It will help enable network-delivered content if adopted by content providers and cable/Telco delivery systems.”

(d) Microsoft

Industry Respondent JRO6254 writes, "Microsoft. They’ve taken the initiative to 'try' and tie it all together (computers, video, tv, etc.). The public will appreciate a single 'gateway' to all their electronic accessories, instead of fooling around with several different setups.”

Industry Respondent JRO4419 writes, "Microsoft and Sony - financial and marketing muscle, R&D capability; ability to influence standards.”

LW84586 writes, "Microsoft due to its momentum and its history in swallowing other tech inventions.”

(e) Intel

INT8321 writes, “Intel - demonstrating increasing focus on digital living room, recent purchase of ONKYO bonds, etc. Sony and Samsung - possibly best positioned.”

(f) Dell

Industry Respondent DPM4415 writes, "Dell - well positioned to dominate w/ Media Center, computing, consumer ties to HDTV suppliers.”

SCH0777 writes, "Dell - Low cost provider will grow costumer base, margins, and earnings in this area.”

FEA9527 writes, "Dell, they are looking for areas to spur their growth further, they have the power to change things.”

(g) HP

TER7036 writes, "HP - I've seen several (at least 3) newswire articles on technology that is Media Center and/or other consumer friendly media technology within the last year.”

(h) Texas InstrumentsCopyright ©2005 ChangeWave Research



DPB4534 writes, “Texas Instruments. The DLP product developed and being marketed by TI is driving the HDTV market down to the mass consumer price range.”

(i) Panasonic

Industry Respondent DCS4895 writes, “Panasonic, Dell, Denon.”

(j) Harmonic

QIL6821 writes, “Harmonic. The competition between cable, Telco and satellite companies could significantly drive the business growth of the company in next two years.”

(k) Zoran

RAV1272 writes, “Zoran- has expertise in DVD HDTV Digital Camera.”

(l) nVIDIA

Industry Respondent TAY3944 writes, “nVIDIA , ATI, Hauppauge, Silicon Image, Texas Instruments, Monster Cable...and whichever network components company first produces a killer Media Center extender: Linksys?”

(m) Toshiba

Industry Respondent TRI1273 writes, “Toshiba, product mix, and, distribution.”

(n) Silicon Image

Industry Respondent ROD0138 writes, " SIMG (Silicon Image), because it is emerging as the dominant player in its industry.”

(o) LG

Industry Respondent NEU3562 writes, "LG Electronics, Samsung (low price, good quality), Sony (PSP, PS3), Sharp (LCD), Matsushita/Panasonics (DVR with hard-disk), companies that are actively involved with DLNA (Digital Living Network Alliances). “

(p) Netgear

Industry Respondent TBA5112 writes, "D-Link, Netgear etc -- this group of companies is getting ready to release 2nd generation streamer products -- at the right price point (< or near $100), easy(er) setup/config and with combined still picture/audio capability. This is a simple new service that people can understand -- and (at $100) afford to experiment with. My view is that price shock will hold back acceptance of most other new media services (ex TV's) for the foreseeable future.”

(q) BroadcomCopyright ©2005 ChangeWave Research



SKY5085 writes, “Broadcom - Has the ability to shift with changing technology as they supply what others have developed without heavy R&D costs.”

(r) Alvarion

JOH5801 writes, "Alvarion for emerging screen technology at prices that are very competitive. Microsoft & Apple due to intense competition between the two for market share.”

(s) Time Warner

BMA7440 writes, "Time Warner towards the end of the year. As stated before, many products co-designed with SFA will be probably announced.”

(t) Verizon

KRS2506 writes, "Services and Distribution companies will be key to me. This would be companies such as Comcast, SBC (probably because of their AT&T purchase), Verizon, etc. The most money and subsequently profits are made in the service business, not the manufacturing business. However, I believe Hardware/Software companies will profit from the digital living room in the beginning and then the service firms will profit from then on.”

(u) Other – Specific Company

Industry Respondent W.S1509 writes, “Digital Theatre because of turnkey interface applications.”

Industry Respondent HIG2464 writes, “Entropic - privately held but could breakout with proprietary Ethernet over coax technology allowing networked set top boxes without re-wiring existing homes.”

COR7580 writes, “Mitsubishi - Because of their onscreen control features found in the Diamond series.”

KSP7559 writes, “Trident Microsystems is going to become a household word as its head-start and inroads with the Chinese market and Asian markets in general will build it into a monster HD chip manufacture.”


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Appendix C

(11) Question Asked: Finally, can you think of an emerging, potentially revolutionary technology in the Television/Media Servers industry that should be on our radar screen during the coming year? Please explain why.





Electronics



IndustryContent and Distribution 12% 13%Video/Viewing Screens/Displays/Projectors 12% 13%DVD Recorder/ HD-DVD 9% 3%IP Technology 9% 8%Linking Home Media With Cell Phones, PDAs, etc. 6% 3%Blu-ray Technology 6% 1%WiMAX 6% 1%Networking Connection 6% 0%Wireless Connectivity 3% 8%OLEDs 3% 4%Portability 3% 4%Ultra Wideband 3% 3%DLP 3% 3%Satellite 0% 4%Storage Capacity 0% 3%Simplicity/Consumer Friendly 0% 3%Other 21% 25%


(a) Content and Distribution

Industry Respondent STE2309 writes, “Yes: VOD or video on demand. This will render TiVo and DVR's obsolete. We already deliver 40 VOD channels and are very close to seeing the first network (knbc) come on demand. By the end of the year, two years at most, TiVo and DVR will be obsolete. Within 12 months TiVo will go out of business.”

Industry Respondent DHU6632 writes, “The solution that becomes a must have will allow broad content selection instantaneously. I should be able to go to my TV/media center and order any movie, any syndicated show, and niche content instantaneously. Pay per view and On Demand attempt this, but they need much more content


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availability. I believe a media conglomerate, like Time-Warner is most like to accomplish this and benefit from it.”

Industry Respondent TAY3944 writes, “HDTV will not really take off until satellite and cable companies are delivering the majority of content in HDTV format...and HD level DVD's and games are available. This will make hookup similar to existing TV: cable or satellite guy hooks it up. Consumer muddles through DVD installation. Until then, setup is complex and beyond the knowledge level of most consumers … Recording HDTV will require enormous amounts of storage. The PC as mediacenter can be converted to newer technology...HDTV tuners, massive storage...as needed. For the foreseeable future, the complexity of a home entertainment network requires the services of a system integrator. This is likely to limit the market until installation is simplified...probably as a set top box from the satellite or cable company. The technology to watch is mediacenter extenders from network component vendors...low cost/high performance...to enable streaming of content to multiple TV's. Also, ability to record from satellite.”

RIN9505 writes, “… content from providers will drive people to buy related HD equipment. Cable must start ramping up HD content at an attractive price. That coupled with the below 1000-2000 HD TV will get people to buy. I am an early adopter, and am paying an extra $10 per month for 4 HD channels, not a good deal yet.”

(b) Video/Viewing Screens/Displays/Projectors

Industry Respondent DIC4423 writes, “SED - TV (Surface-conduction electron-emitter Display) It uses less power - picture is fantastic. No digital effects on fast moving images - therefore ideal for HDTV gaming systems. Equal or better to CRT HDTV images.”

Industry Respondent DRP2747 writes, “I think ceiling mounted front projection HiDef TVs will start to catch on. The screens can be completely hidden in the ceiling when not being used, as can the projectors if really desired. For people who don't want their room to be only a TV room, yet want the best when they are watching.”

Industry Respondent RKI4584 writes, “Sony has a new wide angle LCD screen coming out, look for it this summer. Should help their sales.”

ESH4187 writes, “Flat vacuum tubes. This technology provides CRT picture quality in LCD form-factor. Most likely, it will not produce big money next year, but this is definitely the technology to keep an eye on.“

AHK4494 writes, “At this point in time, most consumers are interested in the near-term replacement of the CRT TV with a plasma or LCD unit at an affordable price. The same applies to the computer monitor. Another item is an affordable 5 megapixel digital camera and printer combination (and inexpensive ink cartridges and paper).”


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(c) DVD Recorder/ HD-DVD

Industry Respondent KPH2308 writes, “I think the DVD recorder has the potential to replace the decades old VCR as long as the industry can work out all the kinks, and increases the level of ease of use for consumer. Blu-ray and HD-DVD may be the follow-up contenders once they come down in price but may not be for several years. For media servers, I think Apple has a very strong potential. It has the technology know-how. Apple knows how to build technology and makes it easy to use for average Joe. It has strong tie to the entertainment industry and it's got brand. Not many consumer electronics companies have all those attributes not even Sony or Dell.”

Industry Respondent AVE4522 writes, “High Def DVD. I do not foresee any other medium to carry HDTV content to the masses, without massive investment in the telco or cable TV infrastructure. In 2001 I was in charge of an analog IC design center for a company which was sold to PXLW. We were targeting Enhanced Analog TV as a transition step to HDTV as well as very low-cost de-interlaced DVD players. I am also very familiar with the Grass Valley Group, which was sold to Thomsion CSF.”

MTE6498 writes, “Making movies of DVD-RW (+R -R) at home from copy write protected DVD material for playing on a (HD) DVD player. Eventually, the DVD and HD DVD player may not be needed since the PC could play directly into the Digital TV interfaces such as HDMI. Back to copy write laws. Get out of the movie theater buzz into the home theater buzz. Most people I know prefer movies at home not in a theater.”

(d) IP Technology

Industry Respondent NEU3562 writes, “Digital Living Network Alliances -- devices interoperability using IP network and UPnP for device discovery.”

KAW9506 writes, “Microsoft’s IPTV, they have a few big deals and their technology will become a big part of mass market home media. Mac Mini, we are pulling for Mac to pull this one off. It amazes me that Microsoft is leading with Media center; Mac does not show signs of an entry into the market. If they do, watch out Microsoft. Apple / TiVo merge would be great!!”

LEG6527 writes, “A combination of wireless IP devices in the home will combine formerly separate technologies - PCs/Internet, digital music, home theater, gaming consoles - and provide a unified network feel for the home. Once this unification can be achieved technically, the home consumer's mindset will quickly begin to view this seamlessly as well. This will open the possibility for single companies to develop across these currently separate consumer domains. i.e. Apple and HP in home theater, Sony in media services, Dell in digital content, etc. “

(e) Linking Home Media With Cell Phones, PDAs, etc.

Industry Respondent BRI7797 writes, “Cell phone docking system - connecting your mobile to your home line while incoming calls can be reached by your home network phones.”


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Industry Respondent KJO9758 writes, “I think you'll want to watch TV to Cell phone technology - Qualcomm comes to mind; maybe Verizon. Internet on cell phones is lame - Direct TV to Cell Phone that would be popular as hell for traveling and my boring airport and plane rides (cell phones coming to plane use soon).”

(f) Blu-ray

Industry Respondent MBU2381 writes, “Blu-ray. Because of increased storage capacity. This means you don't need that extra disk to view the bonus features. This will be important for several other reasons as well. One is, as digital camera megapixel capability increases, more storage capacity WILL be needed. This could also transition the DVD player market to new DVD players because most current DVD players use red lasers to read the disk, whereas Blu-Ray requires -- you guessed it -- blue lasers.”

Industry Respondent KDP6740 writes, “Storage area network for video-on-demand applications, manufacturer of next-generation of media discs (for HD-DVD and Blu-ray).”

(g) WiMAX

Industry Respondent TBA5112 writes, “WiMAX -- since it allows for the possibility of selling a media center as a service (not as a collection of HW). No setup, no capital expense -- just point and click the remote (pointed at a PC or a set top box) to store or retrieve media. Key idea: virtually no one wants to run a network at home (and even fewer people are qualified to do so.) WiMAX should make a centralized services model possible.”

VRO2791 writes, “… WiMAX will however be a boon if it's all they say it is, by providing services to those who cannot currently have them. This will open the avenue for more cost effective and higher performance access possibly driving a price war with DSL and Broadband. Unless of course they are the WiMAX service providers. This will also expand on the portal possibility for on-demand programming to media centers. TV and radio as we know it will eventually be replaced. Intel is positioned well in the WiMAX sector.”

(h) Networking/Connection

Industry Respondent HIG2464 writes, “Makers of Optical Network Terminators - Verizon is running fiber to the home and adding TV to its list of services.”

Industry Respondent LAR9338 writes, “Entropic Communications - high speed networking over TV coax; allows high speed connection of computers and media servers thru entire house hold. Being built into some new provider set top/DVR boxes.”

(i) Wireless Connectivity

Industry Respondent LES6490 writes, “Streaming video on WiFi - could change the way we currently think about home theater.”


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AKI5637 writes, “The industry needs a simple yet powerful device that can plug and play into your existing CAT 5 system in your house or wirelessly to provide traditional computer features (e-mail, internet etc), picture and music management and TV access and recording (DVR). This device would allow me to use a wireless mouse and keyboard or remote control from any room in the house that I have a monitor in to access this content or manage it.”

(j) OLEDs

Industry Respondent JOE1092 writes, “OLEDs as the technology to replace LCDs.”

(k) Portability

Industry Respondent WAS9107 writes, “Wireless, battery driven TV with media content storage on a disc that can be transported anywhere to watch (i.e. beach, car, camp etc.) Stores programs to watch in future.”

GOL9321 writes, “Voice to text portable device so that folks can port the medium to their computer for data entry. Many times you want to remember or try to write something down so that you can enter it into your computer later on and do not get it done. There is a company SSFT that specializes in speech to text and text to speech ... They would surely be a good candidate for wants to expedite this area.”

(l) Ultra Wideband

Industry Respondent HAW6132 writes, “UWB, move video (data) about a local region (a few rooms) Ethernet (over CAT5, fiber, existing power lines), to move data across larger distances (one end of the house to the other).”

(m) DLP

Industry Respondent BBE8914 writes, “Possibly the use of DLP projectors (such as InFocus, and BenQ) as a lower cost substitute for larger and more expensive DLP HDTV units. These units provide outstanding resolution and you can have huge pull-down or fixed Draper screens up to and over 106 diag. These units can also be used as a computer monitor as well. Their cost starts at about $800 to over $2000, with the $1000-1200 range being a great choice for brightness (over 1500 lumens) and XVGA resolution. They also are compatible with most HDTV formats as well. Power consumption is low and the DLP lamp usually lasts for up to 2000 hrs. Great value compared to plasma!”

BLI8019 writes, “Watch DLP. I think in the end it will be a superior technology. Also, concentrate on individual, best of class media technology components rather than all-in-one solutions.”

(n) Satellite

EIG1583 writes, “Satellite TV like Sirius or XM. Small antennas for viewing on a laptop. No more dish technology needed.”


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ETA3718 writes, “A small startup company named Sanswire (SNWR) is looking at placing high altitude airships into service beginning this year. They are advertising that they can stay in place for 18 months and provide HDTV. One of the major drawbacks to satellite is the lack of instantaneous two-way coms. I can't order movies on demand and stop them or re-wind without a TiVo-type device. With high altitude airships providing this service from 12 miles (versus 22,000), virtual satellites can transmit and receive from homes. Additionally, virtual satellites should not be as affected by weather as those in space. A single airship should be able to provide service to anyone within a 200 mile diameter footprint.”

(o) Other

Industry Respondent W.S1509 writes, “Customized multimedia (audio/video/data) consumer telecommunications residential pre-wired system panels located in every room. Applications will include home security (medical, police and fire) infant nursery monitoring, synchronous kitchen appliances, with telecommunications and multimedia features that are user friendly for new residential housing construction >500K$ per dwelling.”

Industry Respondent JRO6254 writes, “... I believe the next big item(s) will be holograms. As I see it, more and more people are becoming used to surround sound technology. Eventually surround 'movie' technology will drive a whole new technological revolution.”

Industry Respondent HAM5839 writes, “RFID combined with Biometrics for the consumer: principle is to know where everything and every body is while keeping maximum security for the home.”

LEE8147 writes, “DRP technology (Digital RF Processing) is just emerging. TXN has produced a single chip radio (almost) which is now being sampled to Nokia. It all hinges on taking advantage of some unique design possibilities at 90nm line widths (and below) which just could not be implemented at larger geometries. I think a couple of more years of Moore's law improvements will make single chip radio technology inexpensive enough to proliferate widely and enable many consumer applications that can't be fielded cost effectively today - especially the wireless digital media house. …”

GUP6814 writes, “Anything we know today will be obsolete in 2-3 years. There are new things being developed by SONY, Samsung, Toshiba that would amaze us in 4 years and no one knows about them as yet except very few staff working on R&D in those company's.”

KEN8259 writes, “A technology being developed by HPQ for new crossbar technology will replace the existing technology. This technology will usher in a completely new industry!”


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III. ChangeWave Research Methodology This report presents the findings of a recent ChangeWave Alliance survey on the Consumer Electronics Industry. The survey was for Alliance members working in or knowledgeable about the Consumer Electronics industry. It was conducted during the week of February 2 - 7, 2005. A total of 365 members participated, including 113 who work for a company the manufactures component parts or sells consumer electronics.

The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.

ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports. The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (58%) have advanced degrees (e.g., Master’s or Ph.D.) and 94% have at least a four-year bachelor’s degree.

The business and investment intelligence provided by the Alliance provides a real-time view of companies, technologies and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.


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IV. About ChangeWave Research

ChangeWave Research, a subsidiary of Phillips Investment Resources, LLC, identifies and quantifies "change" in industries and companies through surveying a network of thousands of business executives and professionals working in more than 20 industries. ChangeWave has a very unique asset in its 5,000-member Alliance. We have assembled our membership team from a broad cross section of more than 20 vertical markets such as telecom, semiconductors, data storage, and biotechnology, along with a wide range of professional disciplines including CIOs, IT managers and programmers, executive management, scientists, engineers and sales personnel. The ChangeWave Alliance is composed of senior technology and business executives in leading companies - credentialed professionals who spend their everyday lives working on the frontline of technological change. This proprietary research and business intelligence gathering system provides a real-time view of companies, technologies and business trends in key market sectors along with an in-depth perspective of the macro economy - well in advance of other available sources. ChangeWave surveys its 5,000 Alliance members on a wide range of investment research topics and converts the findings into valuable investment and business intelligence reports. ChangeWave delivers its products and services on the Web at www.ChangeWave.com. ChangeWave Research does not make any warranties, express or implied, as to results to be obtained from using the information in this report. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report.

For More Information:

ChangeWave Research Telephone: 301-279-42009420 Key West Avenue Fax: 301-610-5206Rockville, MD 20850 www.ChangeWave.comUSA [email protected]

Helping You Profit From A Rapidly Changing World ™www.ChangeWave.com


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