Although 2006 was filled with surprises in the telecom space, as described in Part 1 of this two-part series, there were equally dramatic changes in terms of the pure processing ability of computers and how that power translated to consumers in the form of lower-cost, higher-end products.
As has been the case for two decades, computers became smaller, more powerful, more functional and less expensive. "Good news continues for consumers, as more-functional high-tech products continue to become more affordable," said Kurt Scherf, a vice president at market research firm Parks Associates 
.
Whereas that trend followed the traditional path, an unexpected cast of characters drove higher-performance technology further into the mainstream.
The year's surprises came from Nintendo again revamping the gaming market, Intel (Nasdaq: INTC) pushing dual-core processing systems down to the desktop, and Microsoft (Nasdaq: MSFT) employing a high-definition (HD) drive in its game console system. In addition, there was a long-anticipated spike in HDTV sales, and Google (Nasdaq: GOOG) made an aggressive move into the video-content arena.
1. Nintendo Regains Its Luster
The year's biggest surprise came from Nintendo. "I really thought Nintendo had a tenuous future in the gaming industry. The company had been steadily losing market share to Sony (NYSE: SNE) and Microsoft," said Rob Enderle, president of market research firm Enderle Group.
In 2006, the gaming industry veteran emerged from the doldrums to introduce the Wii game console. Rather than compete with Sony and Microsoft in terms of gaming power, Nintendo opted to differentiate its system with its game controller, which is equipped with a motion sensor. As a result, players actually perform tasks, such as swinging a light saber or a baseball bat.
"One of the knocks on gaming systems has been they turn players into couch potatoes," said David Cole, an industry analyst at DFC Intelligence. "The Wii system literally forces players off of the couch."
The product was such a hot seller during the holiday season that many large retailers were sold out in early December, and gaming aficionados flocked to auction sites such as eBay (Nasdaq: EBAY) in quest of the system.
2. Dual Core Systems Increase Processing Power
More hardware power was seen in PCs as well as gaming systems. Intel joined
AMD (NYSE: AMD) at the forefront of transitioning dual core chips from servers to desktops and laptops.
Dual core processors are two chips in one, combining the improved computational power of chips with greatly reduced power requirements. These processors are much less prone to overheating and require less cooling than traditional hardware.
"The multiprocessor power found with dual-core systems opens the door to more robust applications and computations -- for example, business analytics," notes Stephen Arnold, president of Arnold Information Technology. More of these applications should arrive in the new year, he added.
3. HD Features Drive Gaming Interest
As increased processing power takes hold at the consumer level, HD video has been popping up more frequently. Microsoft has been at the forefront of promoting HD content in the gaming market.
As in other new technology areas, a couple of potential standards for video
data storage have emerged: high-definition DVD (HD DVD), which uses Microsoft's Xbox as its foundation, and Blu-ray, which is backed by Sony's PlayStation 3 group.
These two approaches are expected to battle for market supremacy during 2007. Because HD DVD maintains the same physical disc format as standard DVDs, Hollywood studios and replicators may be able to switch from DVD to HD DVD without major changes in their production lines.
Consequently, companies such as NEC, Intel, and Pioneer Electronic are backing the HD DVD format.
Blu-ray offers an increased level of security over other formats, with a copy protection scheme that makes professional and casual copying difficult.
Unlike current DVDs, Blu-ray uses a 128-bit encryption algorithm. Content providers physically insert a ROM (read-only memory) mark onto a prerecorded disc during the mastering process, and that item is needed whenever the user wants to play back the content.
Sony has convinced more than 100 firms, including Apple (Nasdaq: AAPL) , Hitachi (NYSE: HIT) , Philips Electronics (NYSE: PHG) and Samsung , to support Blu-ray. Movie studios 20th Century Fox and Sony Pictures plan to release their HD movies only in this format.
4. HDTV Gains Popularity
HD TVs were a popular but pricey gift in 2006. After years of talk about its potential benefits, the technology finally made its way into the mainstream; Leichtman Research Group found that one of out every six households in the U.S. now own an HD TV.
Sales of these devices were up more than 100 percent during the year, the Consumer Electronics Association (CEA) found. Lower pricing has been one of the reasons for the increase in sales. Though most of the systems cost $1,500 or more, select models can cost as little as $500.
In addition, cable television companies have been upgrading their networks to aggressively promote an increased number of HD channels. Consequently, HD has become the preferred way of watching shows such as sporting events.
5. Video Distribution for the Masses
Increased hardware power is forcing companies to look at their video capabilities more closely. Perhaps the industry's most surprising change in 2006 was Google's $1.65 billion acquisition of
YouTube .
As Google continued to focus on its search features, the company decided that better video features were a must for future growth. YouTube, which has more than 100 million video clips on its site, capitalized on the growing proclivity of Internet users to be creators of information as well as consumers. Its wide-ranging video content has proven to be quite popular among young people, a group that advertisers swoon over.
As the new year begins, hardware advances are once again expected. This year, it will be interesting to see if it is the usual suspects or new players leading the charge.
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