How Intel is re-engineering itself…

...and why chips are only part of its strategy

This year has seen unprecedented drops in prices of x.86 microprocessors, as Intel, AMD and a handful of other manufacturers slog it out to satisfy continued demand for PCs. While Intel continues to make good profits on its server and high end desktop microprocessors, and also makes some profit on its low-end Celeron range. But margins on its desktop chips is being undermined, not least by AMD with its Athlon processors, while even its traditionally safe range of server chips is likely to suffer at AMD and at other vendors' hands. Further, Taiwanese company Via, which Intel is rightly paranoid about, is set to make the going even tougher for the chip giant in the year 2000, particularly at the low end. Intel has also strongly hinted that next year its system-on-a-chip (SOC) processor, Timna, will be a considerable focus at the low and set-box end. Here, the company faces a serious challenge from National Semiconductor with its Geode and Geode II SOC processors, which cost very little to make and which have x.86 compatibility and capability. The erosion of Intel prices through the year is demonstrated by two chips: the Celeron 433 which cost $169/1000 in March and is now $73/1000, and the Pentium III-500 which cost $696/1000 in March and now costs $229/1000. While most attention this year has been focused on the fight between AMD and Intel over the high-end desktop chip market, it has been evident for most of the year that the giant of the two will not be caught either with its pants down, or holding all of its valuable dollar eggs in one basket. Indeed, senior executives at Intel have signalled, in both word and deed, that the Internet, and the so-called "building blocks" that make up Web infrastructure, are the targets of its desire. Intel has used its revenues and the rather large profits from those revenues to build up assets worth an estimated $33 billion. Its latest filing with the SEC showed that during the last financial quarter it bought or completed the acquisition of Dialogic, Level One Communications, Softcom Microsystems, and NetBoost Corporation, at a cost of over $3 billion. These companies are vital to Intel's "building block" push. That is not to say that its bread and butter business, microprocessors and flash memory, is not going to fade into the background by any means. Its roadmap shows that it will continue to introduce microprocessors at every level during the course of 2000, including its high end Itanium Merced part, which uses IA-64 architecture. That is not expected to contribute significant revenues for Intel for some time. Intel is seen as being adept at the chip pricing model. While AMD's Dresden facility will crank during 2000, the chip giant of the duo will continue to reach into its deep pockets and aggressively attack the AMD family at every level. While Intel can afford to do this, AMD probably will start to feel pain at several points during the year. Nevertheless, Intel's forays into the Internet "building block" business will continue, conscious as it is of both the importance of the Web as a platform for the future and the lucrative profits it can derive from being there as an early player. Watch it make more strategic acquisitions and never underestimate the nature of the beast. ® Related story Intel chips away at networking

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