Inevitable? Big Blue: More competition--this time comm chips, smart phones. Significant, obviously, IBM's initiative in Q's area; also, SiGe and that IBM provides one of Q's fabs. Comments engineer, Walt, Clark?
Article on IBM's move into wireless smart phones and communications chips, DSP and other: read down for bolded text twice (phones and chips), italics once (DSPs).
IBM sets its sights on communications silicon
By David Lammers, Richard Wallace and Rick Merritt
EE Times
(07/30/99, 4:51 p.m. EDT)
SOMERS, N.Y. — Following the $810 million proposed acquisition of server maker Sequent Computer in July and an estimated $240 million bid for storage controller maker Mylex Corp. earlier this week, a casual observer might expect IBM Corp. was ready to sit back and digest a heavy meal of storage and computing technologies. But that's not the view from the office of Jim Vanderslice, who heads IBM's thrust to sell ICs, storage and networking equipment into the OEM marketplace.
Vanderslice is setting plans to carve out a major new business in communications silicon. That goal may well lead to another big-ticket acquisition aimed at garnering Big Blue some of the intellectual property (IP) it will need to go up against the likes of existing powerhouses such as Lucent Technologies and emerging communications wannabes like Intel Corp. in a brewing battle royale over who will supply the next batch of merchant silicon to power the rising Internet.
"If there is anything we need to enhance, it's our communications IP, and we will quickly do that," said Vanderslice in a wide-ranging interview here. "In the end I think acquisition is the fastest way to get IP, so stay tuned," he added.
In 1997, Vanderslice was named vice president at IBM's newly formed Technology Group, after managing a turnaround at IBM's storage division. To be sure, Vanderslice wants to maintain IBM's momentum in storage with moves like the proposed Mylex acquisition and the rollout of a high-end storage server.
And Vanderslice will not ignore the computer market. The group has already formed multibillion-dollar "co-opetition" partnerships with PC makers such as Dell Computer and Acer, and may be on the verge of another with Compaq Computer. IBM is sampling copper-based Alpha processors to Compaq as a first step in that deal. However, Vanderslice positions the Alpha work as "strictly a high-end foundry deal," indicating the company is not likely to make Alpha chips for the merchant market.
Vanderslice is also focused on sorting out a contentious debate between IBM and Motorola over the use of copper vs. the AltiVec instruction set in PowerPCs for Apple Computer, which has become a growing customer again. "There has been a debate between Motorola and IBM about what we are going to work on and what they are going to work on," he said. "We are close to solving that, but the deal is not completely locked up."
But it is refining IBM's strategy in communications, both wired and wireless, that keeps the midnight oil burning here, at a complex of pyramid-like buildings in the rolling hills north of New York City. IBM has a repository of communications IP, including router and switch designs from the Network Hardware Division (also under Vanderslice), but getting it in merchant silicon form is not always easy.
"There's lots of IP in IBM that we still need to capture. But the person fighting Cisco doesn't want to release his IP to Cisco," he said.
Nevertheless, "to keep our technology inside is fundamentally dumb," said Vanderslice, noting that IBM chief executive officer Lou Gerstner has decreed there will be no sacred cows — all IBM technology is subject to sale through Vanderslice's group. The technology division expects revenues of about $19 billion this year; three-fourths of that will come from sales outside IBM.
In today's overvalued stock market, getting communications IP "will take big bucks," Vanderslice acknowledged. "Some of the prices being paid now just blow me away."
IBM's stock price appreciation will help, and Vanderslice has Gerstner's support. Harking back to his experience at the IBM storage division, Vanderslice went to Gerstner, explained how the division could be restructured to recoup lost market share ("EMC was cleaning our clock in storage," he recalled), then asked for and got a capital infusion of $2.3 billion.
Intel spent nearly that much to buy Level One, then went ahead and purchased Dialogic Corp. for about $800 million. Vanderslice noted that Intel and IBM are "riding down to the same pasture" — the communications market, where Texas Instruments, Lucent Technologies and many other companies are already in position.
One weak spot for IBM is the lack of a full-blown family of DSPs beyond its core which is compatible with the TI C54X. IBM has supported a "homegrown, very high-speed" DSP development effort, but "we haven't decided what we are going to do there," Vanderslice said.
But Vanderslice also knows he can play to IBM's process strength with deep-submicron designs, copper, silicon-on-insulator and silicon germanium. "I'm not sure that we are seeing the full power of the microelectronics industry being brought to bear to the communications market," he said. "A lot of ICs shipped into the communications sector are being made at half-micron design rules and higher. We are not taking our latest stuff to the communications business, and in that regard maybe companies like Intel and IBM can make a difference."
At the systems level, IBM has one new initiative ready to roll. The company is "just days away" from announcing contracts to provide telecommunications suppliers with IBM-developed smart phones that can handle both voice and data. The reference design includes IBM-developed ICs, a flat panel and a keyboard, and Vanderslice said "it is the only smart phone that we know of that has an ISDN capability built in. It will have a PowerPC processor and a Java interface, with very high performance."
Rather than market the smart phone under an IBM logo, IBM will supply it to the large telecommunications companies that will market the systems.
"This is a new market for us, but for that matter, we've never been in the game market before either, and now we have this major relationship with Nintendo. When you think about all of the new things that will connect to the network, the challenge is to figure out which markets best allow you to apply your technology."
Another of those new markets is the booming cellular-phone world, where IBM is applying its silicon germanium expertise to parts designed with the newly acquired CommQuest (San Diego), aiming at ultimately merging digital and RF devices onto a single chip.
IBM's strategy is to sell its cell-phone chip set initially to second-tier cell-phone manufacturers, and apply silicon germanium to a larger fraction of the cell-phone solution over time. "We are breaking in [to the cell-phone IC market]," Vanderslice said, "but frankly I'd have to say we've had better success in Asia than in Europe."
Since last year's acquisition of CommQuest, Vanderslice and his lieutenants have been scanning the horizon for a similar move that will propel the group into the wired communications space. That bid could be an expensive one for the increasingly communications-centric technology group.
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