Inside Intel: Betting on the future

Everyone has heard the "Intel Inside" slogan. Welcome to inside Intel, the research and development laboratories where the future of Intel -- and perhaps the future of a good chunk of the computing industry that piggybacks on the company's initiatives -- is being shaped.

This is the Intel (intc) few people know. In a darkened cubicle in the company's Hillsboro, Ore., facilities lab, researcher Mark Holler tests a visual user interface that could someday allow computers to be operated with the flip of a finger or nod of the head. More than 800 miles away, at Intel's Santa Clara, Calif., headquarters, a group of company researchers is debugging an interactive virtual chat room for broadband networks.

With nearly 6,000 employees and a development budget of $4 billion in 2000 (about six times what rival Advanced Micro Devices Inc. spent during the last year), Intel's research and development operations are forging a new future.

Intel researchers are brewing projects in the company's labs that encompass everything from pagers for teens to Internet appliances. For example:

a pen-based technology that allows users to write words that are automatically recognized by the computer and slotted into a word processor application;

virtual chat rooms where friends can play games and executives can conduct business;

"immersive" games that allow sports fans to view a World Cup soccer match -- from the point of view of the ball;

a couch potato's dream: an all-in-one set-top box that combines cable and Internet access with a DVD player and enhanced TV features; and

pagers for teens (such as a Back Street Boys pager) that beam them the latest news on their favorite bands.

It's not that Intel is abandoning its core PC market, where it enjoys more than a 70 percent market share. Instead, the company is dreaming up processor-hungry products and technologies that it can sell or industry partners can sell.

The goal is simple: Intel wants to seed the market for its next-generation chips. Just this week, for example, the chip maker announced an agreement with Macromedia Inc. that will include new 3-D graphics technologies developed by the Intel Architecture Labs in the Macromedia (macr) Shockwave Player. The technologies are aimed at improving consumers' experience with 3-D on the Web.

Essentially, research and development, Intel style, is charged with making sure "there are really new and exciting things on the plate that get consumers interested in using new technology," Intel CEO Craig Barrett said. "Intel is successful if technology moves ahead."

The challenge will be formidable, however. While attempting to expand or create markets in wireless communications, the Internet and a host of other areas, Intel must not lose focus on its most important business: the PC.

"How the company manages this (transition) is going to be the key," said Mike Feibus, principal analyst at Mercury Research.

"It's a management challenge. There's no doubt about it."

Since the early 1980s, the chip maker maintained an almost maniacal focus on the PC market, a single-minded mind-set that propelled it to become the top chip maker in the world, with 1999 earnings of $7.3 billion on sales of $29.3 billion.

It's too soon to tell whether Intel will be able to pull it off, said Dan Hutcheson, president of VLSI Research. But if history is a judge, Intel is tough to bet against.

Hutcheson remembers several times when it looked as though Intel was in dire straits, only to pull itself free at the last moment. For example, the company deftly stepped out of the slugfest memory market in the early 1980s, and later that same decade, it successfully paired its 286 processor with Windows 3.0, despite being late to market with the chip.

"Intel is one of the most unpredictable companies out there," Hutcheson said. "(Intel) is headed in the right direction. The big question is, has it gotten too big to make that move?"

Another danger could come from AMD (amd), its main rival. Analysts said that in order for Intel to scour the future for new opportunities it will likely need to focus less attention on its mainstay PC business. "If Intel tries to hold on to this area (the PC chip business) too much it, will quash the new one," Hutcheson said.

And even though its labs are some of the most respected in the tech world -- out of them have come the 386 processor, the Pentium, and work on technology initiatives including Universal Serial Bus and EasyPC -- Intel hasn't always served up winning technology or recognized market trends correctly.

Intel (intc) After ignoring the sub-$1,000 PC market for some time, Intel launched its low-cost Celeron chip in April 1998. However, the first Celeron, a 266MHz chip, was limited in its performance by the lack of a Level 2 cache. Reviewers panned it. Meanwhile, AMD used the blunder to grab more than 50 percent of the market for retail PCs.

There are three labs responsible for leading Intel's research and development charge: the Intel Architecture Labs (IAL), the Microprocessor Research Labs (MRL) and the Components Research Labs (CRL).

IAL's broad focus includes Internet-related applications for businesses and consumers. Its software efforts range from developing higher-quality video streaming to creating 3-D rendering techniques. On the application front it is developing Internet-aimed multimedia software as well as new kinds of games and even interactive television.

Meanwhile, Intel's Microprocessor Research Labs is at work on the down-and-dirty design of future chips. It is also conducting broad research into new uses for Intel chips, such as speech and gesture recognition for PCs and advanced user interfaces. "Those are the sorts of things that come out of keeping an eye on how applications are going to use our processors," said David Tennenhouse, Intel's director of research.

Equally as important, but less well-known, is Intel's Components Research Labs. CRL is charged with developing manufacturing processes that allow more transistors and other technologies to be crammed onto chips, improving their performance. When it comes to building chips, CRL is responsible for all of the underlying technology, ranging from transistors to packaging.

To make sure it gets the most bang for its R&D buck, Intel closely ties its research work with marketable products, so-called applied research.

But it also covers its bets by partnering with, and sometimes funding, universities and other organizations that do pure, blue-sky research. If it lacks what it needs, Intel has demonstrated readiness to acquire companies that have those ideas.

"I look at what we do in the following fashion: Intel is successful if technology moves ahead," Barrett said. "Everything we do is targeted at reaching out ... and facilitating the entry of new technology into the marketplace."

The role of research and development, in fact, will likely only increase in importance as Intel works to deliver the successors to its Pentium 4 chip and, at the same time, create whole new product lines focused on emerging markets.

"It seems to me to be impossible to be a leader in the high-tech industry without having an absolute dedication to R&D," Barrett said.