Intel beefs up wireless
BY TOM QUINLAN
Mercury News Staff Writer
Intel Corp. has opened its vault again, plunking down $1.6 billion in cash
Thursday to acquire DSP Communications Inc. of Cupertino.
The DSP deal strengthens Intel's presence in wireless communications
products just as cellular phone makers are demanding more sophisticated
chips and other hardware so they can add Internet access and other new
services to their latest models.
Santa Clara-based Intel has long been known for making
microprocessors, the brains inside personal computers. But over the past
year, the company has spent well over $5 billion buying or investing in
communications companies to diversify its wares.
Assuming the purchase wins shareholder and regulatory approval, DSP
will allow Intel to offer a complete line of hardware for a wide range of
wireless communications devices, including cell phones, computer pads,
global positioning systems, laptop computers and pagers.
``Right now the wireless market is dominated by cellular phones, and we
already have a pretty strong position in that market with our flash memory
technology and the StrongArm processor,' said Ron Smith, Intel's
corporate vice president in charge of the Computing Enhancement Group,
which will develop Intel's wireless technology.
DSP doesn't itself manufacture digital signal processing chips -- used to
transform a person's voice into digital data and back again. But it does
develop the specialized chips and software that integrate the signal
processing chips with the rest of the wireless phone.
DSP has 300 employees, and Intel will run the company as a wholly
owned subsidiary. DSP is on track to post revenues of $150 million this
year.
DSP recently started marketing semiconductors that make it possible to
provide voice communications and data over a single telephone
connection.
Combined with Intel's existing technology for wireless systems --
including a new DSP under development with Analog Devices -- Intel will
now have everything it needs to develop a standard platform for hand-held
and portable products that can be used to access the Internet or make a
phone call.
``With this acquisition, and as consumers start demanding the ability to
access data with their phones, we think we'll be in a pretty strong position
to bring some strengths to that market,' Smith said.
Indeed, Intel now has the opportunity to drive development of the wireless
market in the same way it did PC development, observers noted.
``They've bought themselves a seat at the table with this acquisition,' said
Richard Doherty, founder of the market research firm Envisioneering Inc.
``They have an opportunity to shape what kind of (Internet) experience
consumers have with wireless devices.'
Intel's previous purchases of communications companies -- Level One,
Softcom, Dialogic, Shiva and Netboost -- have already cost the company
more than $3.3 billion over the past year.
That's a substantial investment, even for a company with $6 billion in net
profits last year. But it could end up being a small price to pay if Intel
succeeds in expanding its substantial reach into the fast-growing market
for communications, observers said.
The technology and expertise Intel gained with the acquisitions enabled the
company to announce the creation of the Internet Exchange Architecture
as a standard for managing communications across the Web, along with a
network processor that the company put forward as a potential standard
for building communications products.
The total worth of those markets hasn't been measured -- some don't even
exist as yet -- but just some of the communications markets that Intel is
addressing are expected to generate revenues of more than $30 billion
annually within a few years.
If Intel can duplicate the success it had in the PC market with its
communications strategy, its future growth is assured.
``Intel wants to be involved with everything that has anything to do with
data,' said Hal Feeney, an industry analyst with Pathfinder Research.
``Clearly the cell phone market is going to be one of those areas, and I
think it will evolve into an important one.'
Certainly Intel believes the wireless market -- which is primarily dedicated
to phone service now -- will be an important cog in the Internet
juggernaut.
``The acquisition (of DSP) absolutely fits into our strategic vision,' said
Intel Chief Executive Craig Barrett during a conference call Thursday. The
vision, he said, is to become ``a pre-eminent building-block supplier to the
worldwide Internet economy.'
``This doesn't fill a hole in Intel's product line so much as it expands the
number of markets Intel can reach,' Feeney noted. ``If you draw a line
through Intel's various product initiatives, the common point is the
Internet.'
But the competition, already fierce, is growing tougher.
Motorola Inc., Texas Instruments Inc., Lucent Technologies Inc.,
National Semiconductor and IBM are seeing the same trends and are
developing products that promise to offer many of the features that Intel
is touting.
And while Intel is certain that its expertise in the data market will give it an
advantage when it comes to making the Internet accessible to wireless
devices, the company trails some of its competitors.
European phone manufacturer Philips Electronics is already touting a
cellular phone with Internet access, and at this year's Comdex computing
show in Las Vegas, a number of companies are expected to showcase
wireless products that combine voice with data communications.
``Intel's success isn't a foregone conclusion,' cautioned Nathan
Brookwood, founder of the market research firm Insight 64.
``Unlike the PC market, where you have hundreds of small companies
buying from one or two suppliers, in the communications industry you
have a handful of very large and well-established companies buying from
a lot of small chip companies,' Brookwood said. ``Intel is going to have to
learn to work with these companies in developing solutions. They aren't
going to be in a position to just dictate what the solution will be.' |
