The Cambridge-based company has scrapped the development of its new Risc 2 computer, effectively allowing the Acorn brand of PCs to wither and die. A third of its 175-strong workforce will be made redundant as a result.
Acorn said it would continue to supply and support its existing product range, which includes thousands of PCs in school classrooms around the country. However, experts said the company's decision not to develop new machines meant the brand would eventually disappear.
The move is part of a restructuring that will see Acorn concentrate on supplying products for the fast-expanding digital television market.
Stan Boland, Acorn's chief executive, said: "Today's announcement marks a watershed in Acorn's history.
"The projected return on the Risc 2 project was pretty marginal and we would have had to invest more to get it. Given that we have a limited number of investment dollars we decided to focus on digital television."
Mr Boland said that 75 per cent of homes would have digital set-top box decoders or television sets by 2006. In order to handle interactive applications such as home shopping and banking, those boxes would require massive computing power.
Acorn plans to develop powerful, efficient processors for set-top boxes by linking up with semiconductor manufacturers and consumer electronics companies.
The group is spending pounds 1m on making 60 of its non-engineering staff redundant and writing off surplus stock. A further 15 employees will be transferred to Xemplar, Acorn's joint venture with US computer maker Apple.
The move leaves Acorn with a workforce of around 100.
Mr Boland said the company was still working on ways to return its stake in ARM, the computer chip design company that was floated on the London and Nasdaq exchanges earlier this year, to shareholders without incurring a huge tax bill. Acorn hopes to put proposals to shareholders before year- end.