Intel Is Aiming at Living Rooms in Marketing Its Latest Chip

Article in the NY Times:

June 18, 2004

Intel Is Aiming at Living Rooms in Marketing Its Latest Chip

By JOHN MARKOFF and GARY RIVLIN

AN FRANCISCO, June 17 - For decades, the Intel Corporation has expanded
its core business by making computer chips that are faster and by
lowering their cost. Next week, however, the company plans to shift
gears; it will mute its traditional speed message and focus instead on
an array of consumer-oriented features to bolster growth.

On Monday, Intel is planning to announce its newest foray into the home
computing market, blending performance, wireless capability and
multimedia audio, video and image features into a set of chips that will
be at the core of the next-generation personal computer.

The new three-chip suite, which has been code-named Grantsdale, is also
the clearest expression of the "innovation and integration" strategy of
Intel's rising star, Paul S. Otellini, the chief operating officer. That
strategy is both a plan to lure consumers and a bet that Intel can
create a new wave of growth in consumer electronics.

"Intel has changed its design paradigm to start not just adding
gigahertz, but to adding features that users demand," Mr. Otellini said
at an analysts' meeting last month.

That strategic shift will be very much in evidence on Monday when PC
makers announce the first new computers based on Intel's new chips.

Intel executives said that the new chips will make possible higher-speed
computing, more reliable storage and more advanced audiovisual standards
and will represent fundamental change in the internal structure of the
standard PC.

In a significant shift, the company, based in Santa Clara, Calif., will
announce its fastest processor yet but will focus instead on the ability
of the new chip sets to serve as a Wi-Fi base station, support a storage
standard that protects against disk failure and allow users to view
high-definition video and listen to higher-quality digital audio.

"The last major makeover for the PC happened in the early 90's," said
William M. Siu, general manager of Intel's desktop platforms group.
"We're trying to focus not just on technology leadership but on how
people will use it."

Still, there is hot debate on how quickly the new design will be adopted
by computer makers and whether it will help Intel, the world's largest
chip maker, successfully push into markets now dominated by television
and stereo companies.

Intel dominates the home office and computing in the family room, but
its future depends in no small part on its ability to cash in on the
idea of the digital living room, a market that the investment research
firm Sanford C. Bernstein & Company predicts will generate more than
$250 billion in new revenue by 2008.

"This is very good news for the semiconductor industry," said Adam S.
Parker, an analyst with Sanford C. Bernstein. "The question is how good
this will be for Intel."

The challenge for Intel is that it is not alone in focusing on growth in
the consumer home entertainment market.

On one side, Advanced Micro Devices, Intel's traditional rival in the
microprocessor business, has quarried market share at the top end of the
desktop PC business with the introduction of its 64-bit Athlon
processor. Intel had been trying to lock A.M.D. out of the 64-bit
computing market by betting on its 64-bit Itanium chip for corporate
computing applications.

Now that strategy seems to be falling short. Itanium is staggering,
largely in competition with A.M.D.'s Opteron 64-bit chip for server
computers, and it now appears that Intel has also lost some ground to
the Athlon at the very high end of the desktop market.

"I don't think that consumers are asking for faster memory or a new bus,
they're asking for a great entertainment experience," said Marty Seyer,
general manager of A.M.D.'s microprocessor business unit. "We don't see
any innovation that is going to be announced next week that we haven't
already released."

At the same time, I.B.M. has pushed Intel out of the video game market
by sewing up microprocessor deals with both Microsoft and Sony for their
next-generation systems. Because video game consoles will have many of
the same audiovisual features that Intel is hoping to add to
next-generation PC's and will be heavily subsidized by the sale of video
game software, they may reduce the need for a high-end
entertainment-oriented personal computer in many homes.

"Consumers don't buy chips, they buy systems," said Nick Donatiello,
president of Odyssey, a San Francisco-based consumer electronics market
research firm.

The challenge for Intel's plans to make the PC the home's entertainment
media server, he said, is that wireless data standards are not yet ready
to move video data seamlessly around the house.

In addition to offering consumers an entertainment media server, Intel,
in demonstrations here on Thursday at a briefing for analysts and the
press, showed a personal computer that is designed to fit in stereo
cabinets and looks like a cable or satellite set-top box.

Mr. Siu said, however, that the prices for such systems would start at
about $700, far above the costs of digital video recorders and video
game machines that are now finding their way into the living room.

At the same time, the PC model for the home does have important backers.

"There is a strong catalytic value to Intel stepping up and saying, 'We
are going to create these integrated systems with stuff built in,' "
said Rob Glaser, chief executive of RealNetworks, the Internet
audiovisual service. "The PC as the smart hub in the home has basically
happened."

Despite moving in the right direction, some analysts and industry
executives also suggested that Intel might be out in front of the
market, which will be cautious in adopting some of the features that are
in its new chips.

Hewlett-Packard, for example, will introduce computers based on
Grantsdale on Monday, but they will not take advantage of many of the
chip set's features.

"We decided not to support the wireless portion of the chip set," said
Giovanni Sena, Hewlett's product manager for consumer computing. "We're
not seeing any demand yet."

Copyright 2004 The New York Times Company