Chip Off The Old Block? Intel Tackles
Networking
Date: 1/25/99
Author: Michele Hostetler
As the networking industry's attention is turned to the great horde of rivals
following the Holy Grail of converged voice-data-video networks, one tiny
player is opting to stick to the basics.
But the ''tiny'' company is Intel Corp. The chip bellwether is taking stronger
notice of a market where it's lagged instead of led.
''Never before have we been viewed so strategically to the company,'' said
Mark Christensen, chief of Intel's Network Communications Group. ''(Intel
CEO) Craig (Barrett) is incredibly committed to networking.''
It will take commitment. The world's biggest chipmaker has little name
recognition in this field, while its rivals are well-known.
They consist of more than just Cisco Systems Inc. and 3Com Corp., which
are formidable enough as the two largest sellers of data networking gear.
The new era of convergence also brings in phone networking gear kingpins
Lucent Technologies Inc. and Northern Telecom Ltd.
Nortel last year bought Bay Networks. Lucent this month said it will buy
Ascend Communications Inc.
The big networking players clearly are squaring off.
Well, the big boys can fight among themselves all they want, Christensen
says. Intel has its own plans, which focus on small and midsize businesses
that simply want to connect computers and peripherals.
''(Convergence) is a big battle, and we're going to stay out of the middle of
it,'' he said.
Intel is looking for those smaller businesses that aren't ready for a single
voice-data-video network. And many aren't, he says. There's fear that the
converged networks aren't reliable enough.
Christensen believes the long-range trend is indeed toward converged
networks. But is convergence happening today, or even tomorrow, inside
most midsize businesses? ''I am very skeptical,'' he said.
Some analysts, though, question Intel's commitment to networking.
''The ongoing challenge will be: Can we take them seriously?'' said Virginia
Brooks, an analyst at Aberdeen Group in Boston. ''Sure, they've worked
hard, but hard work may not be enough.''
The company might be committed to networking by necessity, she says.
Asia's economic woes and a slowdown in PC sales growth have forced
Intel to find new ways to make money, Brooks says.
''They're a company in transition,'' she said. ''I think the lull that we've hit has
caused them to look around.''
Intel's doing more than just looking. It had 1.2% of the third-quarter
Ethernet switch market, up from 0.6% in the year-ago quarter, says
Dell'Oro Group, a market researcher in Portola Valley, Calif. Ethernet is the
most common type of network. Switches add another lane to a network's
highway to speed data flow.
Still, Intel's share remains a far cry from leader Cisco's 44.6%.
Intel's networking sales jumped 40% in 1997 from the year before and
surged 50% last year, Christensen says. He wouldn't give specific figures,
but he says Intel soon might start breaking out the numbers for networking.
''We are now getting the critical mass and the growth that we've never had,''
Christensen said.
But Intel won't become a big networking name unless it makes a big
acquisition, says Jeremy Duke, president of Synergy Research Group in
Phoenix. Fore Systems Inc. and Cabletron Systems Inc. could be
candidates. But Intel must act fast, he says.
''The list of possible acquisitions has gotten very short and continues to get
shorter,'' Duke said.
Intel's name recognition is both a blessing and a curse for Christensen's unit.
''It means microprocessors to most people,'' he said. ''The good news is
you never have the door slammed in your face.''
Intel's shown skill in using its manufacturing acumen to make a profit in
some networking niches where others couldn't, says Stan Schatt, an analyst
at Giga Information Group. But now the company is widening its scope to
include higher-end products. That's a challenge, he says.
''I really have a lot of doubt that they will be successful in moving up the
food chain,'' Schatt said.
Intel is targeting five areas, Christensen says.
First is Intel's longtime market of network interface cards. Silicon-laden
NICs are installed in computers to connect them to networks. Intel's a close
No. 2 to 3Com in this market.
The second thrust involves more sales for midlevel networks, with the focus
on switches and so-called virtual private networks.
Intel's purchase of Shiva Corp. is expected to be completed this month.
Shiva specializes in wide-area-network technology such as VPNs.
Companies can use VPNs to ship private information over the public
Internet to save money.
Businesses with fewer than 25 workers are Intel's third target area. There
are more than 22 million of these, and fewer than 20% have a network,
Christensen says. The technology's complexity, not price, is holding them
back, he says.
Intel is trying to make it simple. The company is making appliances that do a
single network task, he says.
This fall, the company shipped an ''e-mail station'' that integrates all of the
functions of a companywide e-mail system into one computer.
''It installs in less than an hour,'' Christensen said.
Intel needs to build its sales channels to sell to these smaller businesses, says
Greg Collins, a Dell'Oro Group analyst.
The fourth area is home networking. Intel revealed in October a new
product developed with privately held Tut Systems Inc. It's a single
home-networking chip that goes into your PC, making it easy to connect
other devices to the PC. Sales will start before summer, Intel says.
The fifth target is selling chips to be used in high-end phone and data
networking gear. ''Our strategy will be to do the silicon, not the box,''
Christensen said.
''1999 is all about delivering on all those strategies,'' Christensen said. ''We
know what we need to do.''
(C) Copyright 1999 Investors Business Daily, Inc.
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