Great review of Intel's move into the networking and internet space..........from the WSJ.....
From the WSJ:
September 1, 1999
Intel Wants Its New Chip
To Shake Up Web Standard
By DEAN TAKAHASHI
Staff Reporter of THE WALL STREET JOURNAL
Intel Corp. once helped overturn the computer establishment. Now the
chip giant is trying the same trick on a new target: the Internet.
In its most radical diversification drive ever, Intel has spent more than $3
billion this year to become as big a player in communications as it is in
personal computers. The PC powerhouse is still a novice in the field, but
Chairman Andrew Grove sees a historic opportunity.
The principle is the same as in the
personal-computer movement, which caught
fire when a cheaper, general-purpose chip
replaced many specialized chips. For the
Internet, "the driving force is the combination
of data and voice over the same network,"
Mr. Grove says.
Revealing the first major weapon in its campaign, Intel today is announcing
a product called a "network processor" that can replace the higher-cost
custom chips used in the switches and routers that form the backbone of
the Web. Initial customers for the chip include the communications
behemoth Cisco Systems Inc., network-equipment maker Newbridge
Networks Inc. and cable-television-equipment maker Broadband Access
Systems Inc.
In addition, Intel is taking the unusual step of pledging as much as $200
million for equity stakes in small customers needing financial help to use the
network processor. The processor is based on the StrongArm chip
architecture that Intel acquired 18 months ago from Digital Equipment
Corp.
"We've supplied the brains to computers," says Mark Christiansen, vice
president of Intel's Network Communications division. "Now we want to
provide the brains of the Internet."
The announcement is one payoff from a string of eight acquisitions, valued
at more than $4 billion over the past two years. And it signals how the
Internet is transforming the marketplace, forcing companies to come up
with bold new business strategies and redefine their markets.
There is another big reason for the urgency. PC sales, though steady, are
growing more slowly than the $23.6 billion market for communications
chips, expanding at 30% to 35% a year.
Intel faces tough competition in the market from such dominating forces as
Broadcom Corp., Lucent Technologies Inc., Analog Devices Inc. and
PMC-Sierra Inc. These companies have deep expertise in communications
and soaring stocks, allowing them to move even more quickly than Intel
with stock-based acquisitions.
'Up for Grabs'
Competitors are expecting the collision, but they aren't flinching. Robert
Bailey, CEO of PMC-Sierra, argues that general-purpose chips won't
necessarily dislodge companies in such strong niches as Internet access,
infrastructure, cellular phones and enterprise networking. "Because of the
Internet, everything is up for grabs," Mr. Bailey says. "But the
general-purpose approach has yet to succeed. The world-domination
strategy, where someone crosses from one part of the market to another,
is really more for show than anything."
Others point out that Intel also competes with some potential customers,
such as 3Com Corp., by making communications systems as well as chips.
"Some companies may not want to buy from Intel if they're a rival," says
Henry Nicholas, CEO of Broadcom, a network chip maker that has
acquired five companies for $1 billion in the past year.
But Intel has some powerful assets. It spends more than any other
company on chip-manufacturing plants, helping it produce technologies at
lower prices. It is also developing communications systems and software
that shape widely used technologies, giving the company an inside track in
some new markets.
For example, Intel takes standard high-speed computers called servers
and customizes them, with software and hardware, so that users can set up
private networks to access confidential company information.
"We're setting many of the Internet standards that are opening up the
opportunities," says John Miner, an Intel vice president who leads much of
Intel's software and equipment effort.
Forming the Guts
Intel hopes its communications chips will be used as silicon building blocks
to form the guts of everything from network cards in small businesses to
the high-speed processing chips for the Internet.
The company bought Level One Communications Inc. in August for $2.7
billion in stock, and it acquired chip maker Softcom Microsystems Corp.
for an undisclosed price in July. Those companies, along with the
StrongArm business of Digital Equipment, will contribute products for the
company's overall communications-chip initiative being announced
Wednesday: the Intel Exchange Architecture.
Clark Westmont, an analyst at Salomon Smith Barney in San Francisco, is
skeptical that Intel has the depth of expertise of its rivals, or can move as
fast. But Intel is no amateur in the field. It has sold network-adapter cards
for PCs for a decade. Five years ago, it launched a price war against
market leader 3Com that brought prices of the adapter cards down from
hundreds of dollars to $50.
Two years ago, it began moving up the food chain, acquiring makers of
hubs, switches and routers for small businesses. First the steps were small,
and then came some juggernaut deals like the acquisition of Level One and
a $780 million acquisition of Dialogic Corp., which makes software to
marry voice and data.
Now Intel is moving into hot chip markets and in some cases the
equipment markets, too. The chips are used in cellular phones; home
networking, which uses telephone lines to connect computers; and
asynchronous digital-subscriber-line modems, which use phone lines to
connect computers to the Internet at high speeds.
Intel's allies include Microsoft Corp., Hewlett-Packard Co., Nortel
Networks Inc. and Cisco Systems -- some of the very companies it plans
to compete against.
Last month, Intel Chief Executive Officer Craig Barrett put Mr. Miner, a
44-year-old executive who led the company's assault against Sun
Microsystems Inc. in the server business, in charge of the
communications-equipment division. He'll be joining forces with Mr.
Christiansen's chip businesses and other efforts. Mr. Barrett predicts all of
the businesses will generate "billions of dollars in revenues" as early as next
year.
"My bosses have made it clear to me they want indicators of success," Mr.
Miner says. "And we measure that in the billions." |
