Going small: Tiny technology will expand market, Intel CEO says

0 Comments | Deseret News (Salt Lake City), May 29, 2008 | by Peter Svensson Associated Press

NEW YORK -- Intel Corp.'s push to create and boost new categories of small, cheap Internet-connected devices is taking the world's largest chip maker in some unusual directions.

It's investing in wireless networks, or even buying them outright. It's relying on software that isn't from Microsoft. And it's looking at making processors cheaper and smaller, rather than faster and faster.

To Chief Executive Paul Otellini, it's all part of bringing the Internet to new places and people, and computer makers are responding.

"I've not seen energy like this from our customers in a long, long time," Otellini told The Associated Press on Wednesday. "Everyone views this as being sort of hyperexpansive to the existing market."

A centerpiece of the strategy is the Atom processor, which packs the power of a PC-class processor from six years ago into the smallest space yet -- 25 Atoms will fit on a square inch. It's intended for Mobile Internet Devices -- iPhone-like tablets that provide a "full" Internet experience, better than that available on cell phones.

Somewhat larger than the MID is what Intel calls the "netbook," a small, cheap laptop. Taiwan's AsusTek has had a breakout hit in this category with its eeePC, which starts at $300 and uses an Intel chip. Other manufacturers, like Hewlett-Packard Co., also are entering the space, though HP is using a chip from Via Technologies Inc.

Otellini isn't concerned that low-power processors could "cannibalize," or steal, sales from Intel's high-end, high-margin products.

"If a higher-priced notebook isn't substantially better and doesn't offer more utility, shame on us," he said. "If there's cannibalization, I'd rather be the cannibal than someone else."

The company's push with the Atom processors comes as it has seen diminished profits with its type of memory chip called NAND flash, commonly used in digital cameras and MP3 players. Intel has operations worldwide and employs 300 workers at its Riverton, Utah, location and approximately 1,800 in its joint venture with Micron Technology Inc., IM Flash Technologies, which is based in Lehi, Utah.

Intel began making NAND flash in 2006 under the Lehi-based joint venture with Micron, to cash in on growing demand for the most popular type of memory for consumer electronics, a move that some analysts now say was ill-timed considering the price plunge for those chips.

Otellini last month said the joint venture is rethinking how much factory space it wants to devote to making NAND flash and has delayed construction on a new factory in Singapore for the memory chips as a result.

But the outlook for the netbooks could be brighter. Bill Hughes, an analyst at the research firm In-Stat, noted that a relatively small group is behind the demand for netbooks, which some stores have had trouble keeping in stock.

"It's growing fast because it's very small," Hughes said. "It will continue to be a niche for the foreseeable future."

As for MIDs, Hughes said the firm's surveys indicate that consumers are much more likely to want a "smart" phone, rather than carry another gadget along with a cell phone.

"Mobile Internet Devices are going to struggle in the U.S., but that doesn't mean they aren't going to be wildly popular in other markets," he said.

To connect these portable gadgets to the Internet, Intel is backing WiMax, a wireless technology sometimes described as a long- range version of Wi-Fi. Like Wi-Fi, it has its roots in the PC industry, but it's really a competitor to cellular wireless technologies.

Most major wireless carriers are skipping WiMax, planning instead to build out networks using Long Term Evolution, a successor to current cellular technology. To keep WiMax in the running, Intel is contributing $1 billion to a $14.5 billion venture controlled by Sprint Nextel Corp. that will build a WiMax network across the United States, with a commercial launch sometime this year in a few markets.

Intel is also a minority investor in a consortium that bought a Japanese WiMax license. And in May, it paid $26 million to buy a wireless broadband license in Sweden. It did that without a partner, but Otellini suggested that the company is looking for one.

"You won't see Intel per se becoming a network operator. That's not our competency," he said. "But as a means to enable hundreds of millions of high-performance mobile devices that access the Internet -- both notebooks and smart phones -- I think it's a good investment for us."

Even though mobile WiMax has a head start on LTE, which won't be along until perhaps 2010, Otellini acknowledged that its success isn't a sure thing.

"Whatever happens with WiMax, the consumer will benefit, because it makes LTE happen faster," he said.

As Intel is looking for partners for WiMax, it's drifting away from an old friend. For two decades, Intel processors and Microsoft Corp.'s Windows software were so closely associated that the joint platform was called "Wintel," much like celebrity couples TomKat and Brangelina.

But the union has been looser in the last few years, with Intel- based servers increasingly being used with the upstart Linux operating software. On the consumer side, Apple Inc., which has its own operating system, adopted Intel processors in 2006.