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Silicon Valley has a well-deserved reputation for having a Midas touch when it comes to turning technology into money. Much of that success is credited to an entrepreneurial culture that fosters startup companies. Hoping some of the magic rubs off, Panasonic plans to open a 20,000-square-foot incubator next month in Cupertino, Calif., that will house some 15 to 20 startups. To go along with its Panasonic Digital Concepts Center, the company will also set up a $50 million venture capital fund to support the firms.

The incubator is the result of a decision made two years ago, when Panasonic, the consumer electronics arm of Japan’s Matsushita Electric, decided it needed to get a grip on the much-heralded “convergence” of TVs, personal computers and telephones-all of which Panasonic manufactures. The company’s first thought, says Paul Liao, Matsushita’s chief technology officer in the United States, was to build a corporate R&D center in Silicon Valley. But, says Liao, “we realized that the Valley is not so much about R&D as it is about venture startups. They are the new way of doing R&D.”

Investing venture capital in startup companies in Silicon Valley is not unusual for big electronics firms. Last year, Lucent Technologies created a $100 million fund, and MCI WorldCom established a $500 million investment fund. Panasonic, however, appears to be the first to also build a facility to house early-stage startup companies.

Incubators are celebrated hotbeds of intensity and innovation-communal workspaces where geeks burn the midnight oil and entrepreneurs sleep under their desks dreaming of an IPO. Charles Wu, the Digital Concepts Center’s director, says that’s exactly what Panasonic is hoping for. Matsushita engineers and managers will be able to visit this microcosm of Silicon Valley culture “and act as a bridge to factories and divisions in Japan.” Most important, says Wu, Panasonic will get an early peek at home networking software.

Liao points out that appliances such as TVs, PCs and DVD (digital versatile disk) players, now “all have the same basic technology inside.” Namely, microprocessors. The question for Panasonic is what happens when all these devices start talking to one another.

The incubator’s first prospective tenant, InterActual, is developing software that adds an interface to DVD movies that allows a consumer to “play with” the movie on a computer DVD-ROM optical disk drive (a new generation optical disk drive). The idea is that after watching a DVD, you’ll slip it into your PC where you can read the screenplay, play video games, and (thanks to Panasonic’s investment in the startup) find Internet links to Panasonic’s online shopping site. Now that’s convergence-of a very commercial kind.

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