Magazine

Table: Barrett's Big Bets


After disastrous forays into making everything from Internet routers to information appliances, Barrett has settled on what Intel does best--silicon chips

MANUFACTURING

Spending $7.5 billion to convert plants worldwide to the latest technologies in a bid to make chips at costs below rivals.

BENEFITS: New factories will use larger, 12-inch wafers that pack in more circuits, copper wiring for faster speeds, and ultra-efficient production equipment to slash per-processor manufacturing costs as much as 50%.

CHALLENGES: Balancing manufacturing for a variety of chip lines, while preventing technical glitches. Prolonged downturn could mean the company bet on an expensive transition at the wrong time.

HIGH-END SERVERS

McKinley, the next Itanium server processor expected to handle

information in large chunks, is scheduled to begin rolling out in early 2002, doubling performance and lowering power requirements.

BENEFITS: Shows most promise for juicy profit margins, with high-end server chips estimated to bring in between $1,200 and $4,000 per processor. That's crucial for making up for the slimmer margins on Intel's (INTC) high-volume Pentium 4 chips, which sell for $133 and $562.

CHALLENGES: The $2 billion Itanium effort is two years behind schedule, giving rivals AMD and IBM (IBM) time to match Intel's offerings. Critics say Intel missed its chance now that a weak economy has cut into server sales.

WIRELESS

The big play: wireless Internet on a chip. Announced in May, the chip bundles all the previously separate pieces needed to build handheld devices or cell phones.

BENEFITS: Intel has an advantage being a one-stop shop, offering blueprints for quickly getting new products such as cellular phones and personal digital assistants to market.

CHALLENGES: Getting top manufacturers such as Nokia (NOK), Ericsson (ERICY), Motorola (MOT), and Palm (PALM) to switch from established suppliers such as Texas Instruments (TXN) and Advanced Micro Devices (AMD).

COMMUNICATIONS

Moving into chips, chipsets, and equipment for ethernet and optical networking for large phone carriers, home networking, and voice-over-Internet technologies.

BENEFITS: Few established suppliers means the field is wide open when the telecom recession ends and companies begin buying next-generation broadband gear. The $1.2 billion acquisition of Giga, a maker of chips for fiber-optic switches, has produced solid sales so far.

CHALLENGES: Intel may have a tough time keeping up with the rapid pace of change in the ethernet and optical space--not its core market.

WEB HOSTING

Intel hopes to dominate this market for setting up, testing, and managing Web sites when e-commerce begins to boom again.

BENEFITS: Small and mid-tier businesses increasingly want a third party to host and manage their Web site. Intel is hoping to crack this market that is now stalled but expected to boom again. Forrester Research predicts the overall business will hit $14 billion by 2004, up from $4 billion in 2000.

CHALLENGES: Intel has yet to make any profit on the business, after announcing it would invest nearly $2 billion to build data centers around the globe. As other Web hosters flame out, Barrett says he'll stay the course, although he's cutting back funding.


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