Intel wants to build business basics

Industry giants are trying to build a foundation for the next big thing - creating the infrastructure of the new, new Internet
Written by John G.Spooner, Contributor

The next technology gold rush won't so much be in dot-coms as it will be in companies moving to deploy digitalised services and e-business infrastructure.

Call it the new, new Internet or eBusiness 2.0 -- Intel, IBM, Microsoft, and Hewlett-Packard all believe electronic business and the build-out of infrastructure and software to support it will be the next big thing when it comes to driving growth for the computer industry.

That is because businesses will be making large expenditures aimed at building their capabilities to interact with customers and suppliers online.

For consumers, this buildup means an entirely different thing. Companies will increase the number of services available online from mere product catalogs to offer price quote, purchasing, and tracking capabilities, among other things, for products via the Internet.

For Intel, which hosted eXCHANGE, a San Francisco e-business conference to tout its wares, this week, the emerging e-business market means the need for more servers, which, for Intel, means an opportunity to sell more processors, including its forthcoming Itanium chip, in new areas.

Intel chief executive Craig Barrett says e-business structures are driving the company in more than one direction. Intel is using it internally to communicate with employees, obtain raw materials, and allow its customers to place orders for its chips. E-business also presents a major opportunity to continue growth. PCs are becoming more of a commodity, while the equipment needed to support e-business, such as high-end servers, is generally lower volume, but higher price and higher margin.

"It drives us operationally inside, and it drives us from a product focus from the outside," Barrett said.

But make no mistake, Intel is still a chipmaker, and the eXCHANGE event was mainly about advertising its Pentium 4 and Itanium chips for use in PCs and servers that will support e-business.

"All of those product thrusts are building blocks of Internet infrastructure," Barrett said. "We look for building block opportunities that are associated with our core competencies [such as processors]."

Barrett said that Intel's Intel Architecture, or processors, business represents about 80 percent of its business.

"It's going to be some time before any of that changes," he said.

However, he expects that chips aimed at networking and communications -- its Intel Exchange Architecture and Xscale processor (formerly known as StrongARM) -- will grow faster than its traditional Pentium-based processors as e-business infrastructure is built out.

With traditional chip sales slowing over time and Intel's new chip families scaling up, "the first order will kind of balance each other," Barrett said.

E-business isn't the be-all-end-all strategy, according to analysts, but it makes for good profits.

"It's been a good area of growth for Sun, so far. I think that the Intel band would do well to look seriously at this segment. In terms of raw unit growth, it's not like the mainstream PC market and won't be, but for dollars for system spent bodes well for the industry," said Mike Feibus, principal analyst at Mercury Research.

But, "Intel must also look to other areas for growth [outside e-business]," he said.

Some of those areas include wireless communication and networking.

"Well, they're also in the Xbox," Feibus said.

See Chips Central for daily hardware news, including interactive roadmaps for AMD, Intel and Transmeta.

Intel tried its usual bully boy tactics at a peer-to-peer conference last week -- only to back down rather swiftly in the face of solid opposition. Guy Kewney comments that this does not reflect a change of heart by Intel -- it shows that Intel does not yet have the power to dominate in this market. Go to AnchorDesk UK for the news comment.

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