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Monday, November 29, 2004

Intel At CrossRoads

NYTimes reports that Failed Hopes and Other Tales From Inside Intel has put Intel at crossroads. Excerpts:

Intel recently admitted its failure to successful enter the digital television market and is withdrawing from this market segment. A.M.D. has been so successful in stealing the spotlight from Intel lately that Kevin B. Rollins, the president of one of Intel's biggest customers, Dell Computer, said at a financial conference call this month that Dell was considering adding computers with A.M.D. chips to its product line. For two decades, Intel has been the most sure-footed of Silicon Valley companies. But lately, it seems to have lost its way.This all portends an interesting inauguration for Intel's 50-year-old president, Paul S. Otellini, the longtime Intel marketing executive tapped by the board this month to become only the fourth chief executive in the company's history.
Mr. Otellini will tell analysts that he plans to focus on four areas for growth:
-international markets for desktop personal computers,
- mobile and wireless applications,
-the digital home,
-as well as a new initiative aimed at large corporate computing markets that Intel is calling the Digital Office.

The strategy is a significant shift - a "right-hand turn," as Mr. Otellini likes to say - from Intel's long-term obsession with making ever-faster computer chips. Instead, the company is now concentrating on what he calls platforms: complete systems aimed at both computing and consumer electronics markets.Mr. Otellini insists that the recent missteps, including the premature introduction he himself made of the digital project, are simply a result of over-optimistic marketing.
Intel is still a technology giant, the global leader in semiconductors, with revenue last year of more than $30 billion. The company retains an unrivaled manufacturing capacity, control of a powerful desktop computing standard, and an enviable international growth rate which shows no sign of slowing anytime soon.But some of the company's marketing problems may become more acute before they are resolved. Until recently, selling Intel chips was easy: faster was better. Now, Mr. Otellini said, Intel intends to play the same game with the number of processor cores that can be embedded on a chip. The hope is that by breaking problems into parts that can be computed by separate cores simultaneously, chips will continue to offer better performance.The problem with the strategy is that so far Intel is trailing A.M.D., I.B.M. and Sun Microsystems, who all have their own aggressive multicore chip strategies. To combat the inroads in the microprocessor market being made by A.M.D. and other competitors, Intel is moving to add a growing array of functions to its microprocessor chips, a strategy that Mr. Otelleni refers to awkwardly as the "platformization" of Intel.

Currently, the company has 10,000 software developers and its new chip sets each ship with over a million lines of software code, largely hidden from the user. The clearest example of that strategy to date is the Centrino microprocessor for portable computers, which comes bundled with wireless abilities. "We don't talk about the chip, but the collection of attributes that Intel brings," he said. "That's the footprint in the snow for Intel's future." The ability to add software functions to its chips is a genuine opportunity for Intel but it also raises the possibility that it will reignite some of the tensions the company has faced in its more than two-decade-old alliance with Microsoft, which has intensely resisted Intel's software efforts in the past. And the two companies are increasingly likely to compete both in Intel's efforts to enter the digital home and its new effort to embed software that provides greater manageability in systems sold to the corporate server market.

Mr. Otellini said that despite the defeat in the digital television business, Intel still has some big bets that it hopes will pay off as lucratively as the PC industry once did. One of those big bets came into sharper focus last month when it announced it was investing in Clearwire, a digital wireless start-up being led by Craig McCaw, a cellular telephone pioneer. Clearwire hopes to capitalize on the unproven long-range version of the WiFi digital wireless standard called Wi-Max and Mr. Otellini clearly hopes the technology will be a disruptive one.If his vision is correct, the big losers will be today's voice telephone companies."Voice is going to be free as a result of all of this, which the carriers don't like to hear, but that's essentially where it's going," he said.What is in it for Intel? A cellphone-like wireless handset that works seamlessly both inside and outside the home throughout an urban area.That is a market that could easily mitigate any number of missteps and blunders - potentially a market that would remake the cellular phone world that so far has largely eluded Intel."Any market of 600 million small computers is not just important, but it's critical to us," Mr. Otellini said. Clearly , we shall witness the dawn of the New Intel shortly - in a much more competitive world - Intel has successfully weathered such challenges in the past and we have to see how it moves forward.
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