Inside Intel: Otellini proclaims end of Internet age

Chip giant puts its hopes on PC-based devices to boost flagging sales as people stop buying PCs for the Net

Intel is looking to a new generation of PC-based consumer applications such as digital video editing to sell its latest mainstream processor, but admits that even the onset of the "digital wave" might not be enough to boost flagging sales.

In a presentation in London on Wednesday, Intel executive vice president Paul Otellini essentially proclaimed the end of the Internet Age, or at least the end of the Net as the primary reason consumers and businesses buy new PCs. The Internet has followed in the footsteps of the CD-ROM, opening up massive new possibilities for the PC market before subsiding into the status of a feature people take for granted, he said.

The best new possibilities arise as PC-based devices take over from established devices like cameras, video recorders and stereos. For example, last year two-thirds of video cameras were digital, and sales of digital still cameras recently overtook those of film-based cameras.

Such devices are designed to be connected to a powerful PC for multimedia editing and for distributing content over the Internet. We will take all the images that we care about in our day to day lives and put them into digital format," Otellini said.

Intel believes this shift, in the business as well as consumer markets, will ultimately help PC spending recover and expand. The company itself has attempted to boost interest in its latest 1.7GHz Pentium 4 by aggressive price cuts. But Otellini allowed that these, along with the appeal of the so-called "Extended PC", might still not be enough to boost Pentium 4 sales, which will "depend on market conditions".

As for whether Pentium 4 will reach its sales targets for the year, he said Intel has "a range inside the company that we are comfortable within", but would not elaborate. He said the price cuts earlier this year were a move to quickly move Pentium 4 into the mainstream, but that Intel would have opportunities to bring back higher price points later this year as Pentium 4 surpasses 2GHz.

Other key drivers of Pentium 4 sales will be the introduction of a new chipset infrastructure later this year and the release of new software such as Microsoft's Windows XP operating system. The 845 chipset will allow Pentium 4 to support standard SDRAM, used by most PCs today. At the moment Pentium 4 can only be used with Rambus DRAM, which is newer and more expensive. Intel is showing the first working 845-based systems at the Computex trade fair in Taiwan this week.

RDRAM gave Intel many a headache last year, as problems integrating the new memory technology into chipsets caused delays and product recalls. But Otellini said those issues had been solved since early last year. "I believe we're well beond that now. You have seen a new Intel in the last nine months, compared to what it was in the previous nine months."

Windows XP will be important to getting consumers interested in emerging applications like CD burning and video editing because many such functions are built into the operating system for the first time. "The release of XP will be a catalyst to the whole process," Otellini said. "It brings rich data types in seamlessly."

Industry observers may pick out several holes in Intel's view of the future. For one thing, Intel sees the home PC as an Internet gateway, ideally with a broadband connection which is redistributed to other Internet devices around the house via wireless LAN.,Otellini said Intel expects broadband use to double every year, a prediction some in the industry might find optimistic -- Bill Gates, for example, recently called broadband a stumbling block to the expansion of the PC market.

Industry observers also point out that while Intel's view of consumer technology is resolutely PC-centric, things might not turn out that way. Otellini admitted that Intel does not have plans to make a big push into non-PC-based digital video, such as DVD players or digital video recorders, saying "the PC or home server could do all that". He agreed that the PC and consumer electronics industries have very different views as to how digital video will evolve in the home. "That's one of those things that's going to be fun to watch," Otellini said.

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