Intel lines up with Linux

Intel (Nasdaq: INTC) is expected to announce Wednesday a brand of Web appliances that don't use its longtime partner's Windows operating software. Instead, the new devices will run on the Linux operating system, which many customers are concluding is ideal for simple Web-surfing machines.

Intel also plans to announce at the Consumer Electronics Show in Las Vegas that it has three major customers for its first Intel-branded Web appliances: Japan's NEC Corp.; phone company U S West Inc. of Denver; and France's Lafayette Services, an electronic-commerce division of Galeries Lafayette. Those customers are expected to use different versions of Intel's devices to bring the Internet to non-PC users and others who want multiple Web paths.

Non-PC market targeted
"We are targeting the whole half of the [U.S.] population that doesn't have a personal computer as well as the gadget lovers," said Claude Leglise, general manager of Intel's home-products division, which is chartered with making appliances connected to televisions, cars and phones. "We think the Intel brand will mean a lot to consumers worldwide in this space, since consumers see Intel as representing good technology and safe, reliable products."

At 4 p.m. in a down Nasdaq Stock Market, Intel was down $4.0625 at $82.9375. Microsoft (Nasdaq: MSFT) had fallen $3.9375 to $112.625.

The Intel products will attach to the phone and appear to be phonelike in appearance and use, Leglise said. Like other so-called information appliances, they will emphasize low cost, ease of use and quick access to the Internet. As such, they compete with Microsoft's offerings: its WebTV device, which provides Internet access over TVs, and its newly announced Web Companion products.

Leglise downplayed any split with Microsoft. He said customers asked Intel to use Linux, a free variant of the Unix operating system, because of its flexibility, reliability and ability to deliver much the same capability as PC software. The devices will use Intel's low-cost Celeron microprocessors, Leglise said. Microsoft officials didn't respond to calls requesting comment.

"Our relationship with Microsoft is very strong in the PC business," Leglise said. "In the new market, we are agnostic. There are new types of customers and new requirements."

However, Richard Doherty, an analyst at Envisioneering Group in Seaford, N.Y., said, "Intel and Microsoft are going to exit January a lot more competitive" with each other "than when they entered it. What's good for Intel here is that they have good relationships with the telecommunications companies, they have good technology, and this Web phone is a foot in the door for e-commerce."

Intel expects its customers will set prices for the appliances; some may give them away to consumers in exchange for subscriptions to services such as high-speed Internet access.

Web appliance growth expected
International Data Corp., a market-research company in Framingham, Mass., said it expects Web appliances to have enormous growth between now and 2004. Although Web phones so far haven't taken the world by storm, Leglise said the Intel machines would be ready to handle high-speed data, and they would be particularly useful in electronic-commerce applications, such as online banking.

Besides making the appliances, due to begin shipping sometime this year, Intel is also packaging all the necessary software and services, such as management software that service providers can use to upgrade the software in the appliances remotely. To deliver such services, such as tying together all home message-recording services, Intel signed an agreement with Telcordia Technologies Inc. of Morristown, N.J., the former Bellcore research center. With the technology, a customer could use the appliance to look at e-mail and read a list of messages, whether they be e-mail messages, paging messages or voice mail.

While Intel says the PC is still the best way to connect to the Internet, it has been developing alternatives to the PC for the past 18 months. Some of those machines will use PC microprocessors, and others, particularly portable devices that need a long battery life, will use the StrongArm chips Intel acquired from Compaq Computer Corp.'s Digital Equipment Corp.

Separately, Intel said it has begun selling a 533MHz version of its Celeron microprocessor for $167 in wholesale quantities. That matches the price and speed of the fastest low-end microprocessors that were announced in November by rival Advanced Micro Devices Inc. of Sunnyvale, Calif.