Intel Closes Connected Products Division

Intel Corp. is phasing out its Connected Products Division – which comprised MP3 players, digital cameras and PC-enhanced toys -- due to poor earnings, the company confirmed.

"It simply was not meeting expected revenue targets, so we decided to get out of that business," said Intel spokeswoman Linda Bonniksen at the companys headquarters in Santa Clara, Calif. "Our plan is to sell out our existing inventory through the holiday season."

In addition, Intel scrapped plans it announced just a few months ago to produce a Web tablet, which was targeting at tapping demand for Internet-tied appliances that has yet to materialize.

Intel began its foray into selling consumer electronics with its introduction of a PC-connected digital camera in 1997. Since then, the company expanded its offerings to include toys, such as the Sound Morpher, which used digital effects to distort voices, and audio players, such as the MP3 Pocket Concert, which it introduced earlier this year.

Intel employees were informed of the decision to shut the division this week, said Intel spokesman Bob Calder, who declined to reveal the number of workers that would be impacted.

Although Intel will continue to sell some consumer products through retailers, such as its AnyPoint Home Networking systems, the decision marks its continued retreat from past efforts to tap new sources of revenue beyond its core microprocessor business.

The chip maker began shuttering some of its businesses early this year as falling sales slashed the companys earnings. Over the last several months, the company has closed its Web hosting business, significantly cut back its online services unit and halted production of a personal organizer, called Rex, that it acquired early this year.

"They threw a lot of spaghetti at the wall to see what would stick, and obviously Web hosting and MP3 players were not the kind of things that stuck," said market analyst Jonathan Joseph of Salomon Smith Barney in San Francisco.

Intels quarterly earnings report on Tuesday underscored its increasingly difficult struggle to stay profitable, as its income plummeted 96 percent from a year ago.

Given the current difficult economic climate, Joseph said, Intel is doing the smart thing by focusing more of its energies on its most important business, selling microprocessors.

"Theyre cleaning up from all of this stuff that they diversified into in the last couple of years," Joseph said.

One analyst questioned Intels efforts to market consumer products in the first place, contending that it put the company in the awkward position of being a competitor to its biggest customers, the PC makers that buys it processors.

"I was always wondering how they could manage this anyway, because here they were competing with the guys who buy their chips," said Dan Niles, a market analyst with Lehman Brothers in San Francisco.

Many computer manufacturers in recent years have expanded their product offerings beyond PCs to include items such as MP3 players and digital cameras as well. The fact that Intel was going after the same customers, Niles said, likely didnt sit well with PC makers.

"It really makes sense for Intel to get out of this business," he said.