Intel Looking for Larger Share of Computer Networking Market
Santa Clara, California, Feb. 13 (Bloomberg) -- Intel Corp.
is expected this month to unveil new networking products and cut
prices on existing ones as it seeks a larger share of the market
for equipment that links computers to the Internet.
The world's largest computer-chip maker has been developing
its own networking technology since 1991 and also has been
investing in startup companies and forming partnerships with
networking industry giants such as Cisco Systems Inc.
Intel's push into networking is driven by its belief that PC
sales might be slowing at the same time that the market for
networking equipment sold to small and mid-size businesses is
expected to explode, analysts said.
''These (networking sales) encourage more PC sales down the
road, but this is also a hot market right now'' said Brendan
Hannigan, an analyst with Forrester Research in Cambridge, Mass.
Only a third of businesses with fewer than 100 employees
have their computers wired together in networks, according to a
study released this week by Access Media International in New
York. That number is expected to grow as more small companies
look to internal networks to speed data flow and to the Internet
for access to more customers.
While networking sales account for less than 5 percent of
Intel's total revenue, those products contributed about $700
million to the company in 1997.
A $12 Billion Market
Access Media predicts that spending by small companies on
networking hardware and software will grow to about $12 billion
in 1998 from $9 billion in 1997.
That figure includes the market for networking gear such as
hubs, routers and switches; computer servers like those made by
Compaq Computer Corp. and Hewlett-Packard Co.; and networking
software such as Microsoft Corp.'s Windows NT.
3Com Corp., the No. 2 networking company, has by far the
largest market share for low-cost routers, hubs and switches,
according to the latest figures from the market research firm
Dell'Oro Group. 3Com also controls more than 50 percent of the
market for network interface cards, or NICs, which contributed
$1.4 billion, or about 24 percent of the company's revenue, in
calendar 1997.
Last month, 3Com cut the price of its NICs to around $80,
and Intel plans to do the same later this month. The cards, which
can transfer data at speeds up to 100 megabits per second, are
installed in computers and workstations to connect them to office
networks and, through those networks, to the Internet.
Cost-Conscious
Intel's experience in making chips and selling them through
other vendors will help it sell inexpensive networking products
to small businesses, analysts say, because those customers are
cost-conscious and tend to buy from retailers like Comp USA
rather than directly from manufacturers.
''These buyers care less about features than they do about
price,'' said Tom Nolle, an industry analyst with CIMI Corp. in
Voorhees, New Jersey.
Still, Intel faces an entrenched competitor in 3Com, which
also has built a strong sales distribution system to the small-
business market, Nolle said.
In addition to cutting prices on its low-end networking
gear, Intel also is expected to introduce its first high-
performance switching products capable of transferring data at so-
called gigabit Ethernet speeds, 10 times faster than today's
switches.
All of the major networking companies, including Cisco,
3Com, Bay Networks Inc. and Cabletron Systems Inc., have begun
shipping gigabit Ethernet products, which are expected to
generate $1 billion in sales by 2000.
Most of those sales will be to large corporations, a market
niche where Intel does not expect to be able to make much headway
against Cisco and its largest competitors.
Small, Mid-Sized Companies
''We will remain focused on getting small and mid-sized
companies connected to the Internet,'' said Frank Gill, executive
vice president of Intel's small business and networking group.
Pearlman and other analysts say Intel's presence in the high-
end corporate market likely will be limited to reselling products
of the large networking companies.
Intel developed much of its networking technology in-house,
Gill said, by investing billions of dollars to find ways of
embedding networking functions onto its silicon chips. The
spending has led to products like so-called LAN-on-motherboard,
or LOM, components.
LOMs allow PC makers to build machines that can be plugged
directly into a computer network, saving companies the expense of
buying a separate networking component like a switch, router or
hub.
In 1997, Intel was second to 3Com in LOM sales.
''This is becoming the connection of choice'' for PC makers
and buyers, Forrester's Hannigan said.
Besides developing its own technology, Intel has invested in
a growing number of networking companies. Last year, the company
took a 20 percent stake in Xircom Inc., a leading supplier of
NICs for laptop computers. It took about the same stake in Santa
Clara, California-based startup Berkeley Systems, which sells
gigabit Ethernet switches that use Microsoft's Windows NT
software to manage networks.
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