Sagging PC market spurs Intel to expand horizons

By PETER GRIFFIN

Computer giant Intel was put under the microscope by journalists and analysts from all over the world who descended on Silicon Valley for a glimpse of Intel's 2001 road map.

The $US35 billion ($80 billion) chip manufacturer sent a clear signal that it is pressing ahead and diversifying its business to include internet architectures and mobile devices.

But a wary PC market may be the strongest force holding Intel back.

Even a couple of earthquakes failed to shake Intel chiefs' optimism, as they delivered the company's vision of computing.

The four-day developer forum in San Jose last week prompted a number of questions about how the PC market's sagging fortunes will impact on Intel's plans for the year.

Intel chief executive officer Craig Barrett was quick to admit that hard economic times - they "really became apparent around last Thanksgiving" - were proving troublesome for Intel, but added that a recession could not be allowed to hinder the company's ambitious diversification plans.

Not only has Intel a busy year of platform releases ahead with the Itanium processor and its high-spec predecessor "McKinley" approaching their release dates, but the company is making it very clear that chip manufacturing will not be its only area of business.

The core business will remain chip manufacturing, with the IA-32 and new 64-bit Itanium families leading the way, but Intel's internet exchange architecture (IXA) and personal internet client architecture (PCA) will form increasingly bigger slices of the cake.

Intel is also ramping up investment in wireless device architecture, hosting services and peer-to-peer technology.

Much of the focus is on something Intel executive vice-president Paul Otellini describes as "the thing that Intel calls the extended PC."

"Everything that consumers do and care about in their personal lives is becoming digital. All of this is driving a digital spiral of the way we live in the world," he said.

Ron Smith, Intel's general manager of the wireless communications and computing group, said the digital revolution was perhaps most apparent in the mobile and personal digital assistant (PDA) markets, an area growing faster than the PC market.

"In the wireless world, the service providers are out there buying 3G spectrum to the tune of billions and billions of dollars. And if all they have today in terms of an application is voice, it's going to be a major issue for them."

Intel is considering reporting its communications division's revenue separately as it contributes close to 10 per cent of overall revenue. The firm's communications business already includes network processors for switches and telecoms equipment, optical networking chips and flash memory and chips for cellphones and PDAs.

That latter category in particular will likely provide an important growth area for Intel as mobile devices continue to sell strongly. Already Intel's StrongARM processor is used in Compaq's iPAQ Pocket PC.

Musician and sound guru Thomas Dolby joined Intel executives in showing off his Beatnik software, which runs on an iPAQ and allows users to mix and sample downloaded sound files. Such technology is becoming standard issue for the MP3 generation.

The company is enthusiastic also about peer-to-peer (P2P), or distributed computing. The data-sharing technology made famous by the file-swapping service providers Napster and Freenet holds huge potential for the PC market, according to Intel.

The technology could connect thousands of computers around the world to run applications that would normally sit on a mainframe. Still, the distributed computing market is small and security and compatibility issues are likely to hamper its growth.

But Intel sees P2P as a means of reviving a flagging and nearly saturated PC market. While companies could abandon expensive mainframes in favour of linking individual PCs on a network, a lot of desktop PCs would need to be upgraded to cope with large file transfers.

Before any real progress is made in P2P, however, the industry will need to settle on policies relating to the creation of distributed networks. Intel architecture group vice-president and chief technology officer Pat Gelsinger revealed that a number of companies were working with Intel as part of the Peer-to-Peer Working Group to try to come up with a structure. An agreement on a P2P framework is expected towards the end of the year.

Intel is set to make up to 20 million Pentium IV chips this year but the market slowdown has forced it to revise sales predictions.

Mr Barrett said he expected first-quarter 2001 sales to be down 10 to 15 per cent on fourth-quarter 2000 sales of $US8.7 billion.

This comes as Intel pours more than $US12 billion into capital resources and research and development.

And despite wage freezes and an investment cap for its online services division, Intel's longterm growth plans remain on track. Mr Barrett says there is enough life in the silicon transistor for another five or six generations, keeping Intel dominant for years.

* Peter Griffin attended the Intel Developer Forum as a guest of Intel.

Links:

www.intel.com

www.beatnik.com

www.napster.com

www.freenet.com