"Sales Of Network Chips Slow, But Intel, 3Com Don't"
Date: 4/16/98
Author: Michele Hostetler
After nearly doubling in '97, sales of networking chips built into PC
motherboards are expected to slow this year - and two of the big players
don't care much.
Customers are turning to a competing product they find more flexible than
the chips. And Intel Corp. and 3Com Corp. are leaders in both products.
The networking chips go by the name of LAN (local-area network) on
motherboard, or LOM. They connect computers to networks, as do their
rival product, network interface cards, or NICs.
Last year, LOM threatened to snatch sales from NICs. But the tables have
turned.
''In '98, there's going to be a lot of churn in the market,'' said Justin Smith,
an analyst with International Data Corp., a Framingham, Mass.-based
market researcher.
Though leading makers of LOMs, Intel and 3Com could benefit
regardless, because they're the top players in the overall market to connect
computers to networks. There are two main markets: LOMs - a chip
directly on the PC's motherboard; and NICs - a separate circuit board, or
card, easily added to a PC's innards.
LOM sales rose to 10.2 million units shipped last year, from 6.4 million in
'96 and 4.42 million in '95, says IDC. But this year's shipments are
expected to be the same or less than '97, Smith says. A LOM adds about
$10 to the cost of a PC. Specialized NICs cost about $80.
Even though it's a small market, a move to NICs and away from LOMs
could hurt LOM makers Advanced Micro Devices Inc. and Texas
Instruments Inc.
But the LOM market will recover, says Gary Smerdon, AMD's
networking product marketing director.
''We see '98 being nominally up,'' Smerdon said. ''Overall, we remain very
bullish on this space.''
AMD sells LOM chips to IBM Corp., Gateway 2000 Inc. and
Hewlett-Packard Co.
PC buyers don't want to bother with installing NICs, Smerdon says. They
want their computers to arrive ready to work, and LOMs do that. In
addition, PC makers are under pressure to shave costs on PCs sold to
businesses.
Those factors add up to more LOM sales next year, he says.
Last year, Intel led the LOM charge. The world's largest chipmaker
spurred PC makers to include more networking capabilities directly on
motherboards.
But PC makers are stepping back from network-ready PCs. Buyers want
to customize PCs to suit their needs, and NICs may do the job better
because the technology has improved, analysts say.
Intel and 3Com have made NICs more attractive to PC buyers this year.
The cards include more features, such as network management software to
handle such multimedia demands as graphics and video.
Intel agrees that LOM sales will stabilize this year, says Mark Christensen,
general manager for the company's Network Products Division. About
40% of Intel's network connection business is on motherboards, the rest
NICs, he says. He says some companies buy both products.
As long as customers buy NICs or LOMs from Intel, the company is
happy, he says.
''A lot of customers still want choice,'' Christensen said.
PC makers want to give them a choice, and NICs are more flexible, Smith
says.
''I think a lot of the PC suppliers are unclear what they want to do,'' Smith
said. ''NICs fit in well because features can be added later. You can
choose to put features in or not, depending on what your customer wants.''
Compaq Computer Corp. boosted the LOM market last year. The largest
seller of PCs included networking on motherboards, with Intel as a
supplier.
''Compaq's old strategy was: 'Build it, and they will come,' '' Smith said.
But Compaq has changed to follow the made-to- order strategy of
competitors Dell Computer Corp. and Gateway.
Still, some major PC makers are attracted to the network-ready PC. Acer
Inc. is stepping up its use of LOMs. It's tightened its relationship with Intel
to make network-ready PCs.
Businesses that buy large numbers of PCs may find it easier to have built-in
LOM technology, rather than buying NICs later.
But today's NICs can do more than simply connect a PC to a network.
Both 3Com and Intel in the last two months rolled out a spate of new
NICs that help computers manage multimedia demands and work faster.
These new features should boost NIC sales, says Doug Spreng, 3Com's
executive vice president of the Interface Products Group.
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