Intel’s Big Bet

From Fortune on Intel’s USD 10 billion investment in its newest fabs:

Intel is gambling that by pushing the state of the art in chipmaking faster than rivals are able to, it will reach a point where it can use sheer manufacturing prowess and capacity to undercut any competitor in price, performance, and variety. That means not just fending off would-be archrival Advanced Micro Devices and continuing to dominate the business of making chips for PCs, but also challenging Texas Instruments, IBM, Motorola, and a spate of smaller competitors in chips found in everything from cellphones to cars.

“Capacity is strategy,” says Andy Grove, Intel’s chairman and former CEO. “Henry Ford used it to revolutionize the automobile industry; the Japanese used it to push us out of the memory-chip business 25 years ago; we used it a decade ago to ignite the explosion of the PC industry. Now we’re using it again so we can broaden our business beyond the PC.”

Intel thinks its manufacturing capabilities will speed the introduction of incredibly powerful chips that take the Internet to the next level, enabling hundreds of millions of computers, phones, and other devices to be always tied to wireless networks. “We’re talking about a half-billion transistors on a chip, and perhaps even a billion,” says Paul Otellini, Intel’s president, COO, and likely the next CEO. “Suddenly there will be very little limit to what you can design into a single integrated circuit. If you want to talk about a golden age for semiconductors, that’s when it will be, and the IT and telecom and consumer electronics industries will be the biggest beneficiaries.”

Fortune writes that Intel’s big bet is on communication chips. Its strategy gives an idea of the future we can expect.

The chips allow notebooks to speak wirelessly to networks, enable cellphones to make calls, and help route web pages, e-mail, and streaming media around the Internet. Intel thinks it can win business by finding a way to marry computing and communication, quite literally on the silicon chips themselves.

Chief technology officer Pat Gelsinger dubs the strategy Radio Free Intel. Simply put, he wants Intel to incorporate, right into many of its processors, radio transceivers that can automatically detect and connect to hot new Wi-Fi wireless networks and even cellphone networks. “How can we beat Texas Instruments or Motorola, companies that have decades more experience than we do in communications technology?” Gelsinger asks. “By changing the rules and defining a new architecture for integrating communications into smart devices. We want to make a radio transceiver something that you expect to be just another feature of just about any device with a microprocessor.”

The most accessible market for Intel’s radio-enhanced processors is mobile PCs. By the end of the year Intel will begin shipping samples of specially designed chip sets for notebooks that include ultra-low-power Pentium processors, graphics chips, and other support circuits, and a built-in ability to attach to a Wi-Fi network. These chip sets will enable a notebook computer to sense and connect with wireless networks as its owner moves around, and even switch from one network to another on the fly. “In mobile computing, to focus on the processor performance as we have in the past would be missing the point,” says Anand Chandrasekher, the vice president in charge of the product line. “The trick is to make all the extra performance that wireless requires invisible, so it just works, and the user can count on it.”

A second big target for the Radio Free Intel initiative involves cellphones and PDAs–markets Intel competes in but doesn’t dominate. This year 400 million cellphones will be sold, and many of them will contain Intel’s flash memory chips. But phones are also getting smarter and beginning to resemble PDAs in their ability to handle address books, calendars, and the like. Meanwhile Intel’s XScale processor is the brains for most PDAs that use Microsoft’s Pocket PC software, and it recently won the support of Palm. It has a shot at becoming an industry standard, much as the Pentium is the standard processor in the PC.

Intel’s grand plan is to couple its XScale chip with flash memory as a way to get more of its chips into cellphones. It also plans to use the same part, attached to a new Wi-Fi chip, to make PDAs more versatile communicators. Ultimately Intel wants to put everything–the communications transceiver for both Wi-Fi and voice cellphone service, the XScale processor, and loads of flash memory–into a single part that would function equally well as the heart and soul of a PDA or a cellphone. Creating that can be achieved only if Intel can make chips with much smaller transistors, and if it can learn how to place radios, logic circuits, and memory in the same chip package without having their electrical signals interfere.

Andy Grove on the future that will be: “Just wait five years. Hundreds of billions of dollars we now spend on voice telecommunications will become a freebie–just like [Cisco CEO] John Chambers has said. That’s Moore’s Law at work. The entire entertainment industry will be digitally distributed over broadband networks. [Media companies are] going to tip over, because one of them, with its back to the wall, will make the transition, and the others will have to follow. That’s Moore’s Law at work. Houses will be wireless, broadband will be delivered wirelessly, and home and portable computers and consumer electronics are going to be built to facilitate all of the above. Okay, it hasn’t happened in the first five years; it’s going to take ten. And there will be a lot of pain for some. But it will happen, and we’ll all benefit.”


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Rajesh Jain

An Entrepreneur based in Mumbai, India.