John, Janet Reno herself is going to have to beat my door down to take back my 1000 borrowed napster
songs! :)
Article.....
July 14, 2000
Intel Inside Every Cell Phone?
By Monica Rivituso
smartmoney.com
NEW WAVE
Data from July 31, 1997 through July 11, 2000
Source: DJ Interactive
LAST FALL, the buzz around Intel (INTC) centered on its efforts to expand beyond the PC. The world's largest chip company wasn't about to abandon the business of supplying semiconductors for personal computers. But it did tell investors it would step up efforts to make silicon for such high-growth areas as Internet networking and wireless-communications products.
Hard to argue with that growth plan; even the one or two Intel bears on the Street applauded the blueprint. But as with many new efforts, particulars were vague and results were far in the future.
Still, there was promise, and the rationale behind Intel's plan to grow its non-PC business was logical. After all, wireless connectivity continues to be one of the fastest-growing markets, while networking companies press on to expand their reach. To strengthen its position, Intel spent much of last year gobbling up companies that would help flesh out its new strategy. All told, the chip giant spent $6 billion to acquire 12 new businesses.
But while Intel has the stated goal of making the silicon for everything from routers to personal digital assistants, it is in cell phones, some analysts say, Intel is making its most determined effort. Indeed, if one highly regarded Intel analyst is correct, most mobile phones of the future will have nothing but Intel inside.
Of course, Intel isn't a complete stranger to the cell-phone market. The company is already the leading supplier of flash memory — programmable memory that retains data (like stored phone numbers) after power is switched off — with a 40% market share. But Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray (and an Intel alumnus), says Intel would like to extend beyond flash to provide all the key silicon components of so-called third generation, or 3G, cell phones. These phones, expected to come to market late next year, will sport faster data transfer rates and allow for sophisticated Internet capabilities.
Kumar believes that making chips for cell phones provides Intel with its first opportunity to make a meaningful impact beyond PCs. The company is said to have already landed a half dozen 3G cell-phone design wins — including with NEC (NIPNY) and Samsung — and recently forged a number of 3G alliances. In May, the company said it would team up with Mitsubishi to develop a new chipset and software for the company's 3G phones. And back in February the chip maker announced that Ericsson (ERICY) made a three-year commitment to purchase its flash-memory chips for next-generation cell phones.
Naturally, there's been plenty of debate about when Intel might show meaningful results from its non-PC businesses. Many analysts don't expect revenues from its communications businesses to show up until several years from now. Dan Scovel, an analyst at Needham & Co., says Intel still has a way to go in proving itself outside its core PC business. "I would say that Intel has not yet demonstrated a significant ability to diversify into new markets," he says.
There is some optimism, however. Joseph Osha, a Wall Street Journal All-Star analyst at Merrill Lynch, acknowledges that Intel has "big plans" for the cell-phone market. But while he says this is probably an area that would pick up the quickest if the chip maker were successful, he still doesn't foresee any near-term financial impact for the company. Blame it on Intel's sheer size. "It's really tough for any of these newer businesses to have much impact, even if Intel is successful," Osha says.
Still, there's good reason companies like Intel are targeting the cellular-phone market. As the high-growth years in PC processors are winding down, the sales projections for cell phones are gearing up. Some forecasts call for more than 400 million mobile phones to be sold this year. And depending on whom you ask, that number could balloon to anywhere from 750 million to 1 billion by 2003.
But while the numbers are enticing, there's already some stiff chip competition in the cell-phone marketplace. Take Texas Instruments (TXN). The chip maker is already recognized as the leading manufacturer of digital-signal processors, a key bit of cell-phone technology. And then there's the British intellectual property outfit ARM Holdings (ARMHY), which designs the main central processor currently used in cell phones.
But Intel is confident that it can succeed in the non-PC market. Vish Deshmane, Intel's director of marketing for its wireless communications and computing group, says that as handsets become web-enabled and start to perform more complex functions, they're going to require higher amounts of processing power — Intel's specialty. "The industry as a whole is moving toward Intel's strengths," he says.
So what's Intel's battle plan? First, there's that flash-memory market, one of the fastest-growing semiconductor segments. Intel shipped its one-billionth flash chip in May, after 12 years in the business — and vowed to ship its next billion by 2002.
Then there's the central processing unit. Most phones today operate on ARM's architecture, but Intel inherited an ARM-based product line from its 1998 acquisition of Digital Equipment. It's now developing that line into the next generation of ARM chips. These will offer six times the performance of today's processors, according to Kumar. "There's no other architecture out there that can compete," he says.
Finally, there's the digital signal processor, or DSP, a chip that translates analog sound to digital signal. On this front, Intel has joined with Analog Devices (ADI) to make a chip with enough power for tomorrow's mobiles. Of course, going head-to-head with Texas Instruments in the DSP market will be grueling, but Peter Wolff, an analyst at ING Barings, expects Intel to be meaningful competitor.
By combining all the guts for 3G cell phones, Kumar figures Intel has cooked up the main ingredients for next-generation handsets. "By the time 3G phones emerge in late 2001, Intel should be able to supply the CPU, DSP and flash memory while providing software compatibility with existing phones," the analyst said in a report Tuesday. "No other company has such a product portfolio."
A robust product line coupled with a strong end market could make for some interesting results. Piper Jaffray forecasts that annual cell-phone sales will reach one billion units by 2003. If Intel could achieve the same 40% market share it enjoys in flash with its DSPs and CPUs, Kumar figures that could translate into an additional 400 million unit sales for DSPs and CPUs. Combined, flash, DSP and CPUs for 3G cell phones could mean an additional $8-$10 billion in annual revenue within three years, according to Kumar. Consider that last year, Intel's total revenue was $29.4 billion.
Moreover, by making all the chip components for cell phones, Intel may be positioning itself to offer a so-called single-chip solution. As chips become tinier, the chip industry is moving towards cramming a variety of functions onto one slice of silicon. Smaller, multipurpose chips — say, a chip that combines a CPU, DSP and memory — would work particularly well in mobile phones, which shrink in size with each new model. By the time the second wave of 3G phones hits the market in 2002, Kumar says, Intel should be ready with a single-chip solution.
Will Intel be able to dominate the cellular-phone market? Hard to say. The competition is stiff and adversaries will be looking over their shoulders to keep Intel in sight. But the word is out: cell phones have caught Intel's ear. |
