Intel Investors - Intel's Home Networking PUSH begins tomorrow.
Here's a background story.
Paul
{========================}
Monday April 5 9:50 PM ET
Intel Zeroes In On Home-Networking For Profits
PALO ALTO, Calif. (Reuters) - Mark Christensen, head of Intel Corp. (Nasdaq:INTC - news)'s still nascent data networking business, doesn't beat around the bush when he says what to expect from the group he's been heading up the last two years.
''Networking and communications products will be the next big growth engine for this company,'' Christensen, 39, said in a recent telephone interview from Hillsboro, Ore., where Intel's networking business is based. ''Intel believes that we're in a world of connected devices and the Internet is fueling it.''
At a mere 3 percent -- or $788 million -- of Intel's 1998 revenue of $26.3 billion, figures Brown Brothers Harriman analyst Bill Milton, that amount likely wouldn't even cover Intel's electricity bill.
But the figure is growing fast and Intel has the law of small numbers on its side: it's easier to grow sales from a smaller number than a larger one. The compound annual growth rate for Intel's networking business, Christensen said, has been more than 50 percent since 1991 and now is running at $1 billion in annual revenues.
Its latest salvo? A Tuesday announcement of Intel home-networking equipment that will let consumers tie together PCs, printers and share Internet access using their phone line. Forrester Research is predicting that by 2002, almost 24 million homes will have more than one PC, an increase from 10.5 million in 1997.
Indeed, early last fall, the 30-year-old chipmaker gave the networking business a promotion to stand-alone status as a ''group'' from its previous moniker as a ''division.'' Now called the Network Communications Group, its thousands of employees are honing in on four markets:
So-called Fast Ethernet products that link PCs in corporate networks, hawking computer chips that go into networking gear, making its own hubs, routers and switches to sell to small- and medium-sized business and home-networking.
If Intel's past success in becoming top dog in the market for microprocessors -- the brains of PCs -- is any indication, analysts say, competitors should be on notice. Intel is already No. 1 in the market for Fast Ethernet equipment, having overtaken former leader 3Com Corp. last year, according to market researcher Dell'Oro Group. At the end of last year, Intel had 45 percent of the fast Ethernet market while 3Com slipped to 43 percent.
''They are going to be a formidable competitor,'' said analyst Alan Leibovitch of International Data Corp., a Framingham, Mass.-based research firm, of Intel.
Since 1991, Intel has snapped up eight networking companies of various size. But none came even close to its March 4 plan to buy networking chipmaker Level One Communications Inc. (Nasdaq:LEVL - news) for $2.2 billion in stock -- Intel's largest-ever acquisition.
At first blush, it might seem peculiar that Intel -- with brand recognition of its Pentium chip that ranks with Coca-Cola -- would now be focusing so much on an industry marked by arcane terms such as ''Layer 3 switches,'' ''virtual private networks'' and ''remote access concentrators.''
But, as the lines separating the telephone equipment and data networking industries continues to blur, companies such as Cisco Systems Inc. (Nasdaq:CSCO - news) and Lucent Technologies Inc. (NYSE:LU - news), Nortel Networks and others will need faster, more power silicon chips to power their gear that will shuttle voice, data and video across one network, analysts said.
What's more, with the unstoppable popularity of sub-$1,000 PCs, Intel and PC makers need to find a way to boost the speed and power of networks if customers are to justify spending $1,500 to $2,500 for a PC with Intel's flagship consumer chip, the Pentium III, noted analyst Ashok Kumar of Piper Jaffray.
Still others said it's a genuine effort by Intel to move into new markets. ''What's obvious is that Intel sees the maturing of the PC industry,'' analyst Milton said. ''They're going to say this publicly, but they don't want to be dependent on the unit growth in PCs.''
And the aggressive move into home networking -- an area still being staked out by competitors large and small -- is an extension of that thinking, analysts said. But setting up a home network has to be easier to program the VCR or customers just won't bite.
''Home networking has to be much simpler and we want to make it extremely easy for the novice,'' Christensen said. |
