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Motherboard maker MSI plans to make a splash at the upcoming CES show with X2 Media, a joint venture that plans an all-in-one portable video player and a business model that could have game retailers selling custom PCs.

Although X2 plans to launch several new products at the Consumer Electronics Show in January, president Rex Wong says the company’s impact will be felt in its ability to design customized PCs that use a just-in-time business model to eliminate costs and delays.

Like others in the marketplace, X2’s push will be to introduce U.S. consumers to the “digital lifestyle,” the intersection of computers and consumer electronics. At CES, X2 plans to introduce an enhanced version of its “Mega View”: a handheld, 20-Gbyte device that acts as a video player, personal video recorder, photo viewer, MP3/media player, portable storage device, while recording and playing back FM radio and speech. X2 will also introduce a new slim notebook line and a flash-based MP3 player at the show.

The new X2 line will leverage the MSI brand with a “Powered By MSI” label that will be attached to the company’s products. X2 is a 50-50 joint venture with the Taiwan board maker, Wong said, and will build products in Asia.

Ask Wong about his company’s products, however, and he quickly shifts gears into a discussion of the supply chain. Roughly half of the company’s staff either came from or worked with retailers, Wong said, and the others are “factory guys”.

“Actually, X2 got started not predicated on the product, but the delivery model,” Wong said.

X2 plans to kick off the model with its Super Thin notebook series, eight 4.1-pound models that will be introduced at CES and built around Intel’s Centrino platform. “Essentially what we do is take the Dell product model and bring it a little further,” he said. “We build it in Asia and drop it in the e-tailer model – but it doesn’t go into the normal supply chain.”

“If you can reduce the number of people that touch it…you don’t need to add margin to it either,” Wong added. “This is also factored in. There won’t be dramatic savings, but 3 percent to 5 percent on the price of a PC is a big deal.”

The problem with PCs sold on retail shelves, even custom models, is that the PC is built months ago by contract manufacturers, then shipped through resellers until it finally hits the retail shelves. The added delays and “touches” by third parties introduce cost and delays, Wong said. Instead, the company has a contract with UPS – a customer will order a PC in the store, then receive the PC mailed to his home address.

Working with one supplier also will help eliminate the chronic supply burps and bubbles that usually accompany the holidays, Wong said, helping to prevent the shortages that have affected the new slimline Sony PlayStation 2. The company plans to hook retail customers to its own proprietary ERP system, giving them quick access to place an order.

“Best Buy was trying to go BTO [build-to-order] a year ago, and this was exactly the issue they faced,” Wong said. “They ran out of motherboards. It’s easy to manage a single SKU, but when you have 16 to 20 SKUs it’s a different story.”

One twist on the direct retail model could be a deal to let customers design their own custom gaming PCs at specialized game retailers. Wong said X2 is “very close” to inking a deal with one of the “top two” videogame retailers to allow them to order a customized PC from its 1,100 stores. Such a design could avoid the so-called “OEM syndrome,” where major retailers sell consumers stripped-down “OEM” parts that lack features that retail versions include. If the deal is signed, the BTO gaming PCs could be offered as early as the end of the first quarter, Wong said.

Wong also envisions a future where its XML system could be tied into a retailer like, giving its customers customized access to a variety of products.

CES plans include video on the go

For now, X2’s flagship will be its portable 7-in-1 Mega View video player, which X2 plans to enhance at the CES show with Bluetooth capabilities and an SD memory slot. The new Mega View 566 will be priced at $399 for the 20-GB model, or $499 for the 40-GB offering. The drive supports DiVX and MPEG-4 playback, and includes an RCA jack for that purpose. FM radio can be received, and recorded. The MEGA View includes a removable lithium-ion battery that will last about 3.5 hours for video and about 8 hours when playing back MP3 files, Wong said.

The firm has made a conscious decision to lean more toward the Archos model of portable players, where video and other features are included, Wong said. This means that X2 will not ship any standalone hard-drive-based MP3 players, but it also means that it wont have to price them out of the market. According to Wong, Apple has boxed itself in with its MP3-only iPod; adding video will force the company to price it about a hundred dollars more, he said.

In 2005, X2 will design three or four more products that use a smaller hard drive to shrink the form factor, similar to Apple’s iPod Mini in size, Wong said. Those products will cost about $250, he said.

Also at CES, X2 plans to announce the Mega Player 522, a 256- or 512-MB MP3 player with a voice recorder, FM radio, an SD memory slot and Bluetooth capabilities, Wong said. The Mega Player 522 will cost under $199 or $299 depending upon the capacity, and will be compatible with the Mega DJ, a $25 FM transmitter that can connect to the headphone jack or USB jack of an MP3 player. When connected to the USB port, the USB connection powers the device, or an optional cigarette lighter plug can be used.

X2’s future mobile products will use USB On-The-Go to provide greater wireless functionality, Wong said.

On Wednesday, X2 announced the Mega 865, the company’s first Media Center PC in a small form factor priced between $999 and $1,999. Based around an Intel Pentium 4 processor, the Mega 865 includes up to up to 2 GB of DDR-400 memory and up to a 400-GB hard drive. The Mega 865 also has a built-in 802.11b+g Wi-Fi wireless LAN and 10/100 fast Ethernet LAN networking, a 6-in-1 media card reader, and an included DVD+/-RW drive.