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By Owen Thomas
Red Herring Online
March 8, 1999
At least Intel (INTC) didn't have to
go inside a federal courtroom.
The surprise
announcement Monday
morning of a proposed
settlement with the
Federal Trade
Commission in the
antitrust suit brought
against Intel is one
spot of good news for
the giant chip maker.
"The FTC brief was a
good, strong outline of
an interesting story,"
says Rich Gray, a
partner at the San Jose law firm of
Bergeson, Eliopoulos, Grady & Gray.
"The Intel brief put meat on all the
bones."
The Intel brief cited writings of
economics professor Frederic Scherer,
a government witness, in countering
the FTC's arguments.
"When you can use the other side's
expert against them, that says
something about your case," says Mr.
Gray.
GROWING COMPETITION
Assuming FTC commissioners approve
the settlement, Intel still faces a
host of challenges, however.
Advanced Micro Devices (AMD) and
National Semiconductor's (NSM) Cyrix
division have been gaining market
share in consumer offerings. In the
consumer market, PCs with AMD chips
recently outsold PCs with Intel
inside for the first time.
AMD's announcement of its market
share gains came shortly before the
FTC and Intel announced the
settlement; later Monday, however,
AMD announced that it would not meet
Wall Street's expectations and would
lay off 300 employees.
"The timing couldn't be any better
for Intel," says Dan Niles, an
analyst at BancBoston Robertson
Stephens.
WHAT PRICE SPEED?
Intel's new Pentium III chip was met
largely with yawns -- and a few loud
boos. At a launch event, Intel CEO
Craig Barrett acknowledged that
people using PCs for productivity
applications would see no real
performance gains from the Pentium
III; instead, he touted its superior
graphics power for games.
A controversial new feature, a unique
ID in each Pentium III chip that can
be tracked over the Internet, raised
a storm of protest from consumer
privacy advocates. The American Civil
Liberties Union recently joined a
coalition of groups that aims to have
Intel drop or modify the chip ID.
Intel agreed to modify the feature to
turn off the tracking ability by
default, but tech enthusiasts found
it was easy to subvert Intel's
modification to expose PC users. A
boycott effort, targeted at the PC
manufacturers who are Intel's main
customers, remains a possible course
of action for the privacy groups.
Recent reports that Microsoft word
processing and spreadsheet software
contained a similar tracking ID may
have reignited consumer privacy
concerns, which showed signs of
burning out after the launch of the
Pentium III. Now, competitors appear
poised to take advantage of consumer
fears of privacy violations to gain
market share at Intel's expense.
"The whole concept of putting a
secure ID feature into the chip
speaks to the fact that Intel is
still in denial," said Steve Tobak,
National Semiconductor's senior vice
president of marketing, in February.
SILENT KILLER
While the FTC and Intel mentioned a
range of industry players in their
briefs, one name appeared
surprisingly prominently in both
sides' claims: Transmeta.
Speculation has run rampant that
Transmeta, a secretive Santa Clara
startup that recently filed a patent
for "code morphing," has technology
that could render Intel's lead in
chip technologies irrelevant. The
company is aggressively hiring both
software and hardware engineers --
Linus Torvalds, the inventor of the
Linux operating system, is among its
employees -- but describes itself as
a fabless semiconductor company. IBM
(IBM) may provide its leading-edge
copper-chip technology and
manufacturing prowess to Transmeta.
And it's rumored that Gateway (GTW)
may have a deal to use
Transmeta-designed chips in its
next-generation Amiga consumer
computer.
"No comment," says Gateway
spokesperson Bill McEwen. "I don't
know anything about that."
In documents filed with the court,
Intel acknowledged that Transmeta was
likely to enter the market in 1999.
Transmeta officials could not be
reached for comment, but it's safe to
assume that Intel views Transmeta's
products as a real threat to its core
PC microprocessor franchise.
Does Wall Street see a threat to
Intel? "Not going to talk about it,"
says Mr. Niles. Robertson Stephens's
venture-capital affiliate is an
investor in Transmeta. |
