Intel moves from chips to communications

According to Craig Barrett, CEO of Intel, communications now accounts for around 8% of the company's business, but he expects that this will increase more rapidly than the company's traditional chip business. The projections are internal targets. He said: “We have high growth expectations.”

As part of the strategy, Intel plans to announce details of PCA, its Personal Internet Client Architecture, wireless building blocks that will enable the delivery of digital content and applications for wireless devices. PCA will also consist of XScale, architecture that will allow developers to scale power to the desired level and extend battery life on mobile devices.

Intel has already made in-roads into the wireless market in recent months. It signed a deal to licence handset manufacturer Ericsson's Bluetooth intellectual capital late last year with a view to offering OEMs Bluetooth capabilities. Last month, it said it would buy mobile solutions company Xircom, in order to provide the capability to link wireless devices to wireless local area networks and wide area networks. It also plans to release the latest iteration of its Xeon processor family, Pentium 4, for mobiles by the end of the year.

Part of its focus will be on a networking strategy for the telco and ISP markets, which comes from its Internet Exchange Architecture (IXA). This week it announced that it would buy voice-over-packet technology provider VxTel for $550m. Intel plans to incorporate the software and blueprints to enable delivery of voice and data services over packet-based networks with its Internet Exchange Architecture.

This comes after Intel announced that it, too, had become a victim of the downturn, and cut down on expenses in order to ride out current market conditions. It also follows news that Intel would be exiting from the streaming media space - closing its $20m Reading-based broadcast operations centre only months after its opening in October.

However, Barrett said there was no question of reducing spending on manufacturing and R&D - the company plans to spend $11.8bn in the next year. He said: “We must prepare for the upsurge. You never save your way out of a recession, you create technology and products.”

Similarly, there is no plan to reduce its $1bn allocated to its venture capital fund, Intel Capital, which has invested in the likes of Cambridge Silicon Radio, Ireland-based Mobile Aware and VxTel but it is considering investing in e-commerce businesses as well as technology vendors.

However, Intel has admitted that its managed service provider division Intel Online Services may yet become a bone of contention. Despite inking a seven-year deal with caching appliance provider Network Appliance for $1bn last week, Intel is understood to be cutting back on planned hardware implementations within its datacentres, including one in Reading. Barrett commented that Online Services had reached its target number of customers. But, he added: “What was not so successful was the size of the business, or the number of servers that customers needed.”

In contrast to the opinions of many industry observers and despite the ever-present threat of overcapacity in the co-location market, Barrett added: “We are totally comfortable with managed services. We are bullish about Intel Online Services.”

Meanwhile, Intel demonstrated its first deliverable from the long-awaited Itanium family of processors. Code-named McKinley, the processor is a bid to mop up some of the high-end server market, currently dominated by other processors including Sun Microsystems' UltraSparc III and Compaq Computer's Alpha which are able to process 64bits at a time, as opposed to Intel's Xeon processors, which operate at a 32bit rate. McKinley is expected to be available in Q2, but won't be built into servers until 2002.

McKinley will be available within HP-UX, Linux and IBM AIX operating systems. Software vendors such as Microsoft and Autonomy are currently beefing up their software for use within a 64-bit system.