Intel to spell out communications revenue

Ron Smith, general manager of Intel's wireless communications and computing group, said late Tuesday that the company is contemplating reporting revenue from communications separately because of the rapid growth of the division. Securities and Exchange Commission regulations require that companies separate out segment revenue when a particular division approaches 10 percent of the company's overall revenues.

The communications business is approaching that benchmark, Smith indicated, but he added that the accounting change may come even before then. Intel holds a financial analysts' meeting in New York in April, Smith said.

"We're not just going to look at the financial rules," he said. "You are going to start to see some sort of breakout in the foreseeable future." Still, he cautioned, the change can't be guaranteed.

The company's communications business--which includes network processors for switches and telecommunications equipment, optical networking chips and flash memory, and other chips for cell phones--is growing fairly rapidly, according to company executives.

However, the progress has been difficult to gauge because the revenue is lumped into the "all other" revenue category, which also includes revenue from services, server appliances and consumer electronics devices.

In the fourth quarter, the "all other" category accounted for $1.85 billion of the company's total revenue of $8.7 billion. The Intel Architecture Group accounts for the rest.

To date, analysts have been largely lukewarm to Intel's communications effort.

Not only is the communications revenue not listed, but the company also can't promote many of its design wins. Intel, for instance, has landed over 100 design wins for its IXA line of communications processors, said Anthony Ambrose, director of communications silicon marketing at Intel. However, most customers want these deals kept silent.

Ties to computing markets
The company does lead the market in flash memory. And its StrongARM processor, which is part of the wireless communications group, is featured in Compaq's iPaq handheld and is the lead candidate for future Palm handhelds, according to sources. But these two Intel products are closely tied to traditional computing markets.

By contrast, it's difficult to gauge how well pure communications chips, such as those based on IXA, are selling. Some analysts say IXA sales haven't been great.

Intel "has identified (networking) as a segment they've wanted to focus on over the last six years or so," said Eric Ross, a market analyst with Thomas Weisel Partners in San Francisco, adding that Intel is "pretty much nowhere with IXA" right now.

Intel "is not a major player," concurs Frank Dzubeck, president of market researcher Communications Network Architects. "If I had to give Intel a grade, from one to 10, it's probably sitting at five."

However, Bob Wheeler, senior analyst at The Linley Group, said that he's fairly impressed with the progress Intel has made in filling out the IXA product line over the past year.

Either way, analysts don't seem to track the communications division that intensely. Last year, a couple of analysts wondered privately what had happened to Bob Pepper, the CEO of Level One Communications, one of Intel's largest acquisitions ever, and whether his relative scarcity meant changes for the division. It turned out Pepper, nearly 65 at the time, had retired.

If and when Intel reports communications separately, one of the interesting wrinkles will be to see which product lines are included. Currently, the company's networking and communications products are split among three divisions.

Staff writer John Spooner contributed to this report.