- The Washington Times - Monday, June 9, 2008

NEW YORK | Intel Corp.’s push to create and boost new categories of small, cheap Internet-connected devices is taking the world’s largest chip maker in some unusual directions.

It’s investing in wireless networks or even buying them outright. It’s relying on software that isn’t from Microsoft. And it’s looking at making processors cheaper and smaller rather than faster and faster.

To Chief Executive Paul Otellini, it’s all part of bringing the Internet to new places and people, and computer makers are responding.

“I’ve not seen energy like this from our customers in a long, long time,” Mr. Otellini said. “Everyone views this as being sort of hyperexpansive to the existing market.”

A centerpiece of the strategy is the Atom processor, which packs the power of a PC-class processor from six years ago into the smallest space yet - 25 Atoms will fit on a square inch. It’s intended for mobile Internet devices (MID) - iPhone-like tablets that provide a “full” Internet experience, better than that available on cell phones.

Somewhat larger than the MID is what Intel calls the “netbook,” a small, cheap laptop. Taiwan’s AsusTek has had a breakout hit in this category with its eeePC, which starts at $300 and uses an Intel chip. Other manufacturers, including Hewlett-Packard Co., are entering the space, too, though HP is using a chip from Via Technologies Inc.

Mr. Otellini isn’t concerned that low-power processors could “cannibalize,” or steal, sales from Intel’s high-end, high-margin products.

“If a higher-priced notebook isn’t substantially better and doesn’t offer more utility, shame on us,” he said. “If there’s cannibalization, I’d rather be the cannibal than someone else.”

Bill Hughes, an analyst at the research firm In-Stat, noted that a relatively small group is behind the demand for netbooks, which some stores have had trouble keeping in stock.

“It’s growing fast because it’s very small,” Mr. Hughes said. “It will continue to be a niche for the foreseeable future.”

As for MIDs, Mr. Hughes said the firm’s surveys indicate that consumers are much more likely to want a “smart” phone rather than carry another gadget along with a cell phone.

“Mobile Internet devices are going to struggle in the U.S., but that doesn’t mean they aren’t going to be wildly popular in other markets,” he said.

To connect these portable gadgets to the Internet, Intel is backing WiMax, a wireless technology sometimes described as a long-range version of Wi-Fi. Like Wi-Fi, it has its roots in the PC industry, but it’s really a competitor to cellular wireless technologies.

Most major wireless carriers are skipping WiMax, planning instead to build out networks using long-term evolution (LTE), a successor to current cellular technology. To keep WiMax in the running, Intel is contributing $1 billion to a $14.5 billion venture controlled by Sprint Nextel Corp. that will build a WiMax network across the U.S., with a commercial launch sometime this year in a few markets.

Intel also is a minority investor in a consortium that bought a Japanese WiMax license. Also, in May, it paid $26 million to buy a wireless broadband license in Sweden. It did that without a partner, but Mr. Otellini suggested that the company is looking for one.

“You won’t see Intel per se becoming a network operator. That’s not our competency,” he said, “but as a means to enable hundreds of millions of high-performance mobile devices that access the Internet - both notebooks and smart phones - I think it’s a good investment for us.”

Even though mobile WiMax has a head start on LTE, which won’t be along until perhaps 2010, Mr. Otellini acknowledged that its success isn’t a sure thing.

“Whatever happens with WiMax, the consumer will benefit, because it makes LTE happen faster,” he said.

As Intel is looking for partners for WiMax, it’s drifting away from an old friend. For two decades, Intel processors and Microsoft Corp.’s Windows software were so closely associated that the joint platform was called “Wintel.”

But the union has been looser in the last few years, with Intel-based servers increasingly being used with the upstart Linux operating software. On the consumer side, Apple Inc., which has its own operating system, adopted Intel processors in 2006.

The push into smaller gadgets is set to take Intel further away from Microsoft. “Netbooks” generally run Linux or Windows XP, which Microsoft has been trying to discontinue in favor of its flagship, Vista.

“Vista has a larger memory footprint, a larger graphics requirement and a higher price point. This is all about low-cost computing,” Mr. Otellini said.

He noted that Microsoft has an operating system for smart phones, but it runs only on chips designed by Intel competitor ARM Holdings PLC.

“I see much of the activity in mobile Internet devices, sort of the evolution of the handset, being centered around Linux,” he said.

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