Barron’s writes about how Intel may be doing to telecom what it did to computing:
To hasten the day that e-mail, voice and television converge over one network, Intel’s making a new push into telecom gear. Eric Mentzer, the head engineer from the Intel Communications Group, showed the developer’s meeting how Intel is pitching standard parts to telco suppliers that traditionally designed their own chips. “This is a megatrend that’s going to change the communications industry over the next ten years,” Mentzer told me. “It’s inevitable.”
Historically, vendors like Lucent Technologies and Nortel Networks custom-built their hardware and software. Now, nearly 30 companies have designed products that hew to an industry standard, called ATCA, which allows gearmakers to mix and match their circuit boards in a chassis. By year end, a new version of the Linux system software should be ready to run on Intel processors and this Linux will be sufficiently failsafe to satisfy telecom carriers. Lucent and Nortel haven’t publicly joined in this movement toward modularity, but NEC announced a product for wireless phone carriers that’s made from off-the-shelf parts like Linux and the Intel Pentium chip.
Mentzer thinks a new generation of network processor chips from Intel and other vendors will enable telecom vendors to build systems around programmable chips instead of custom chips dedicated to single networking chores, like encryption. Such data-packet processors are improving in the same way as the Pentium processors that power computers. Programmable packet processors would make telecom gear cheaper to build and upgrade, says Mentzer. The communications carriers are demanding these off-the-shelf economics, says the Intel engineer, to keep up with rising traffic at a time when revenues are flat. “Standing still is a death spiral,” he says.
Will off-the-shelf economics mean PC-industry economics for networking gear? Ever since Dell Computer started selling its own networking gear, investors have fretted that switches would become a “hollowed-out” commodity like PCs. Cisco Systems has maintained its 20% profit margins by judiciously using proprietary chips and software. For his part, Intel’s Mentzer thinks that communications gear is a long way from standardization let alone, commoditization.
Interesting: an Intel-Cisco battle seems to be in the offing.