Victor - Re: "a meaningful article or analysis on the long term future for Intel in the microprocessors (e.g. Merced) for servers and workstations"
I don't know if this is exactly what you want, but it may get you started.
Paul
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latimes.com
Intel in recent weeks has revealed a new direction for the coming decades and, incidentally, shown us why the stock market is as high as it is.
The specific news last week was mundane enough. Intel
reported second-quarter earnings 29% lower than last
year's, but its stock price rose because management was optimistic about
coming quarters. You don't learn much from such short-term information.
But the stock market's enthusiasm--it has taken Intel up almost 14% in the
last two weeks--stems from a new series of microprocessors called Xeon
that Intel has just introduced. The Xeon chip is not for the personal computers
with "Intel Inside" that have made the Santa Clara-based company a global
technology leader and a highly profitable company with $25 billion in sales
and more than $10 billion in pretax earnings.
The Xeon processor is for larger machines called servers that run
engineering workstations and computer networks, including Internet and
intranets that allow companies to communicate with customers, suppliers
and employees. Server sales, driven by increased use of networks, are now
outpacing sales of personal computers.
"I'm convinced that the growth of Internet commerce will be far greater
than any estimates now predict," says Craig Barrett, Intel's president and
chief executive. "Dell Computer already sells $5 billion worth of computers a
year online."
So like Microsoft, which is bringing out higher-powered
operating systems for servers, Intel is expanding its product
line into more complex fields. In the next two years, it will
bring out more powerful versions of the Xeon series. In 2000 or early 2001,
Intel will introduce the Merced processor in an alliance with Hewlett-Packard.
Merced promises to have many times the capabilities of today's chips and
yet be compatible with computers currently in use.
The new devices will make Intel a supplier to computers costing $100,000
and up, the kind that process millions of credit card transactions or model
weather patterns. It will have new competition from IBM, Sun Microsystems(
) and Hewlett-Packard, among others, but will benefit from the high
profit margins in the more complex and expensive end of the business.
* * *
One reason Intel is moving to new fields is that growth and profits have
diminished in personal computers. "The PC order has peaked, it's time for
the next wave," says Paul Saffo, senior analyst of Institute for the Future, a
Silicon Valley research() firm.
In a bonanza for consumers, competition has reduced
PC prices to less than $1,000 in many cases. Intel supplies
microprocessors to roughly 80% of all PCs, so it does
better than its competitors. And it will keep its place in the PC business,
because markets are growing in Latin America and Europe and were
growing very rapidly in Asia until the crisis hit.
But the excitement of new business lies with the Internet, which is
expected to grow in use by the public even faster in the next decade than it
has to date. The factor holding back consumer use of the Internet has been
lack of bandwidth, the communication capability to easily and inexpensively
perform interactive, videophone-like functions on the Net. Companies
account for 75% of Internet use today.
Yet the public is eager, as witness the growth of e-mail, online sales of
books and flowers and transmissions of children's pictures to grandparents.
So communications companies are getting serious about beefing up the
bandwidth. It's one of the goals of AT&T's proposed merger with cable
company Tele-Communications Inc.
Jeffrey Cole, director of the UCLA Center for
Communication Policy, predicts that 75% of U.S.
households will have Internet-capable computers by 2005.
That compares with 45% that have computers and 18% that have Internet
connections today. Cole, whose center is launching a multiyear, nationwide
study of 2,000 households titled "Surveying the Digital Future," says, "The
Internet is being accepted faster than television was in the 1950s."
* * *
That's why the stock market has been bidding up Internet stocks and
buying technology stocks in general. Investors may get overenthusiastic for
Yahoo and other Internet companies. But their enthusiasm realizes a larger
truth: That a new industry covering communications, entertainment, finance
and education--at the least--is being born.
Yes, but how does Intel fit into that brave new Internet world? The key will
be that everything, from data to voice to pictures will be transmitted digitally,
says Barrett. "If you want to create digital content and transmit it, you need
processing, and that's an opportunity for Intel," Barrett says.
Receiving digital information passively, as in watching television today,
may not present new opportunities for processing. "But if you want to interact
with digital content, processing and user interface() will be
necessary and those are opportunities for Intel," he says.
Nobody can predict the ultimate form of the new
medium--a combination television and computer or a
terminal on the Internet. But whatever it is, Barrett says, Intel
will be there.
Many analysts agree. Mark Edelstone, technology analyst at Morgan
Stanley, sees the Xeon chip leading to the Merced as "the triumph of the Intel
architecture," meaning the company's form of processing will be the
standard in the new computing age as it has been over most of the last two
decades.
It will be a neat trick if Intel can do that. Technology leaders in one era
seldom lead in the next. IBM, once a monarch, is now just a big computer
company; AT&T, once the dominant force in telecommunications, is a
stumbling giant.
More important, if Intel's new chips succeed, they will set the global
standard. Because in electronics and computing and other technology fields,
the simple fact is that U.S. companies set the world standard. Investment in
moving forward is one reason they do.
Intel this year will invest more than $7.5 billion in plants and equipment
and research and development. Like many high-tech firms, it never invests
less than 10% of its sales in R&D. The payoff for all that investment is the
progression of new industries, new opportunities. And that's a big reason the
stock market is as high as it is.
* * *
James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.
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