How Intel copes with slowing US economy

By PETER GRIFFIN, IT writer

SAN JOSE - Despite sagging demand in the high-tech sector, the Intel juggernaut shows no signs of slowing down as it continues to churn out new chips and products and advance ambitious research and development plans.

"You never save your way out of a recession," chief executive officer, Craig Barrett told an audience of analysts, software developers and journalists yesterday at the Intel Developer Forum being held in San Jose.

The Intel father-figure shrugged-off the recent down-turn in the high-tech economy claiming the company was committed to spending over US$12 billion on capital equipment and research and development to ensure it retained its competitive advantage when economic conditions improved.

"The slowdowns are going to end and you need to prepare for the upswing," he added.

Mr Barrett joined other senior Intel executives in unveiling a number of Intel products and initiatives including a Pentium 4 chip for laptops planned for 2002 and the release of a new high-performance chip, a successor to the much-anticipated Itanium chip, co-developed with Hewlett Packard and code-named "McKinley".

Barrett also used the forum to comment on the progress of the Pentium 4, rejecting claims that the chip was superfluous to the needs of most home computer users. A Pentium 4-powered machine was used to demonstrate Microsoft's "biggest development since Windows 95", the new Windows XP. The software and Intel's flagship processor, claimed Mr Barrett, will allow consumers to use the "extended PC" to enter a completely digitalised world.

"The consumer experience is increasingly going towards rich media. There's lots of consumer applications continuing to require more horsepower and Pentium 4 will ride that wave," he said.

Intel's executive vice president, Paul Otellini said the new McKinley chip, a successor to the Itanium chip, will begin production at the end of the year and could provide up to eight times the performance of a similar UltraSparc chip from Sun Microsystems under some conditions. Itanium server chips are due out in the second quarter of 2001 after several delays.

Mr Otellini said much "debugging" had to be carried out in development of the chipset.

"The sheer complexity of the task, the number of variables, was really more work than any of us in the company imagined," he said.

Intel also signalled a new emphasis in the next year on mobile devices and notebooks, which are currently experiencing better market growth than desktop PCs in most regions.

The Pentium 4 chip will enter the notebook market in 2002 and big developments in bluetooth and 802.11b wireless technology could also be expected in that timeframe said Mr Otellini. A new mobile chip architecture is planned for 2003, built specifically for wireless connectivity.

Intel executives also spoke of a ramping-up of activity in the area of networking and communications. The company plans to produce at least 35new IXA (Intel Exchange Architecture) products this year in the next year.

But while the message from Intel was one of strong growth for the future, the executives were challenged about the average progress of some areas of Intel's business, such as its online and web hosting services.

"We're comfortable with the concept of managed hosting but that part of the business didn't meet expectations," said Mr Barrett.

While Intel's plans for growth in the next two years are extensive, poor economic conditions have made cost-cutting inevitable.

The chipmaker announced earlier this month that it would implement measures aimed at shaving hundreds of millions off its operating expenses. While the company has not resorted to the large-scale lay-offs that other computer and telecoms giants have recently completed, hiring policies will be tightened to lessen the company's headcount. Intel will also look to save money by delaying the issuing of raises for high-level employees towards the end of the year.

Such tightening of the belt will be combined with more efficient manufacturing processes to save money. Intel is to begin making copper chips using the "0.13-micron" process and the change to 300-millimetre wafers from 200-millimetre will cut costs by 35 per cent claims Intel.

Still, Intel management remains cautious about the future warning that conditions could change at any time.

"There's a potentially bigger problem that hasn't hit yet," said Mr Barrett. "We're just taking it quarter by quarter."

* Peter Griffin is attending the Intel developer Forum in San Jose as a guest of Intel.