Graphics chip and chipset vendor ATI Technologies aims to have half of its revenue come from the consumer electronics market, according to company president and CEO Dave Orton.The company currently gets around 80% of its revenue from the PC market, he said.The next revolution in digital media will be centered around consumer electronics, Orton said last week at a conference in Hyderabad, India, where the company has a development subsidiary. The opportunity in the consumer electronics market is that there are no clearly defined standards in this market, he added.In an interview last week with IDG News Service, Orton spoke about Intel\u2019s new Viiv home entertainment platform, the impact of Intel\u2019s overall platform strategy on ATI\u2019s business, the consumer electronics opportunity and other issues. Below is an edited transcript of the interview.IDG News Service: Do you see Intel\u2019s Viiv platform as an opportunity or a threat to ATI? There are reports that Intel\u2019s PC partners will be able to take advantage of advertising and marketing resources so long as they include an assortment of Intel components in their PCs.Orton: From an ATI standpoint, we would probably say that we see it as both [an opportunity and a threat]. Viiv is really forward looking in the sense that it is an opportunity to take the PC platform more into the digital home with a focus on a full video, audio, multimedia-rich solution. ATI actually announced this fall a technology [for video capture and playback] called Avivo, and we look at Avivo as not competitive to Viiv but actually complementary.At a silicon level, we also would say that over time, as long as Intel keeps the platform open, we think Viiv is very complementary. If Intel takes Viiv to be a closed platform, then obviously it becomes more competitive to ATI.IDGNS: Do you see Intel shipping the same kind of chipsets that you would probably want to ship to this market segment?Orton: We don\u2019t think that Intel will get into the discrete graphics market, but we do think that in their integrated chipsets they will start to provide a more media-rich environment within their chipsets. But, at least in our discussions that we had with Intel on Viiv, there is always a model of what they call \u201cgood, better, best\u201d, and so there is still a better, best model that allows ATI to innovate on top of their base model. So we actually think that with that it gives us an opportunity to grow. But at the chipset level, we would say that there is probably going to be some competition between Intel and us in that segment, but we think that is further off.IDGNS: ATI announced last week a tie-up with Advanced Micro Devices (AMD) for its digital home strategy called Live!. Is it getting easier to work with AMD than with Intel in the consumer space considering that AMD has fewer designs on the rest of the motherboard?Orton: AMD is looking at the ecosystem to basically emulate what Intel does internally to some extent. AMD recognizes that a combination of ATI\u2019s Avivo technology and AMD can create a solution out there similar in concept to what Intel is doing with Viiv. So we do think that from that standpoint, AMD embraces what ATI is doing more actively, more openly.We don\u2019t see AMD competing with us. What we see is AMD wants to provide the processor and software hooks to create the platform solution for a multimedia-rich environment, and then we would come in, providing the graphics, the video and some of the other complementary pieces.IDGNS: In general, has Intel\u2019s new platform strategy based not only on processors, but also chipsets and other components, affected your business?Orton: On the chipset side of the business, the answer is yes. If you look at market share numbers from Mercury [Research], back in 2003 we had reached about 40% share of the chipset market for notebooks. When Centrino came into the market, that obviously competed with our chipsets, and we dropped to sub-15% market share on chipsets for notebooks. In the notebook market, chipsets provide a lower-power solution as well, so chipsets have in general also taken some share away from the stand-alone graphics in notebooks.IDGNS: Down the line, how do you plan to differentiate your products from those of Intel ?Orton: We look at Intel as first being a processor company, and us being a GPU (graphics processing unit) company on the PC side. So we look at that as very complementary. We are both focused on the same goal which is how do we grow the overall PC market. As we look at going beyond our GPUs, and they their CPUs, into chipsets and to other silicon on the PC, that is where we end up conflicting, both complementing each other but at the same time competing. I don\u2019t see ourselves competing with Intel in our core business, but as there is this drive for "platformization" and the drive for lower-cost solutions and integration, that does create a threat.At ATI what we are doing is a three-pronged approach. First, on the GPU side we will continue to bring more value, and differentiate following the \u201cgood, better, best\u201d model. In the chipset business, we look at how do we complement Intel. The market is so big, so while Intel will be able to service the broad market, there are segments that will be available to us. We want to work with Intel to provide chipset solutions to fill out the platform, to grow the overall platform.Third, we are moving outside the PC market. We are growing in our consumer segments -- handhelds, digital TV, game consoles, areas where ATI can grow and not have that kind of threat.IDGNS: How important is the consumer business in your strategy?Orton: There is the consumer PC market, and then there is the consumer electronics market outside the PC, and that includes cell phones, digital television, set-top boxes and video PDA kind of devices. So when I refer to the consumer business, I refer to consumer electronics beyond the PC. Today, 20% of ATI\u2019s revenue comes from this consumer electronics market, and our goal is to over time become a balanced company where let us say half our revenue would be from the consumer-electronics side of the market. In the near-term horizon, the stake in the ground is how to get our consumer business to be about a billion dollars. That would make it more like a third [of our revenue].IDGNS: How different is this market from the PC market, apart from not having Intel breathing down your neck?Orton: First this market is a little more open. There aren\u2019t standards that exist such as the operating-system standards from Microsoft or processor standards that Intel has. That creates both an opportunity and a challenge. The challenge is that from an engineering standpoint we need to provide a fuller suite of solutions, we have to provide more of a software stack, we have to provide compatibility with a range of microprocessors, baseband processors that are out there.The opportunity is that you don\u2019t have the standards commoditizing the market as fast, and it is an opportunity for us to stand up on.IDGNS: However, in the consumer electronics market you still have a number of large players who prefer to do everything in-house.Orton: That is a really good point. You have Sony, Samsung, Panasonic and others that are effectively in-house developers. But as the market goes so digital, and it moves so fast, trying to be captive will be a challenge over time for each of them to keep up, because the market is so broad. As we have seen in the PC market and other markets that have gone digital, the captive R&D (research and development) teams are going to become fewer and fewer over time.Sony is our largest customer today in digital television, for example. Samsung is a good customer on digital TV and handsets. So we actually think that we will see more and more of that. One of the reasons for doing in-house development is to differentiate, so what we try to do in working with them is provide hooks within our architecture to allow them to bolt things on the side or into it.IDGNS: Is your strategy for the consumer electronics markets likely to get reflected in a larger number of acquisitions in that space ?Orton: From an M&A (mergers and acquisition) standpoint, we want to be more aggressive going forward on the consumer electronics side. We recognize that to become a billion-dollar consumer electronics company in the next 18 months to two and a half or three years, it is going to require both organic and M&A activity. So we want to pick up M&A activity. The first order priority is technology acquisition in the areas that we think the market is turning to, and we want to get there fast enough. The second priority would be customer or geography penetration opportunities. The last and lowest priority in acquisitions is just pure revenue.IDGNS: Are there technology gaps that you have already identified in ATI\u2019s portfolio ?Orton: Yes, and it is more on the digital-TV side than on the handheld side. If we look at the technology road map for handhelds, we have got a broad array of IP (intellectual property) development going on. But in digital TV, because of the very distinct technologies in each of the geographies, whether it is Europe or China, and the different delivery models ranging from satellite to cable to IP (Internet Protocol), we are definitely not on top of all those segments.IDGNS: What role does offshore development play for ATI ?Orton: We looked at offshore about two and a half years ago, and decided we had to make it a top priority for the company for a couple of reasons. One was just acquiring the talent, which was getting to be more difficult in Toronto and some of the U.S. geographies. The second reason was to get to the cost structure required to stay competitive in our industry.We did quite a bit of due diligence in India and China, and about the same time that we decided to target India first, the acquisition of CuTe [Solutions in Hyderabad] came along as an opportunity. We very quickly moved our thinking from having a development team in Hyderabad that would support our R&D centers in the United States or in Toronto, to being an independent R&D center to develop stand-alone products in the handheld area and in discrete graphics. The team in Hyderabad is the first outside North America that does pure product development.