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FEBRUARY 11, 2003 NEWS ANALYSIS Whoa! Intel's New -- Slower -- Chip? [Page 2 of 2]
Intel's strategy, however, is already proving contagious: In March, Taiwan's VIA Technologies -- mostly known for its motherboards but also a chipmaker with a sizable following of white-box manufacturers -- will start offering a similar three-chip bundle to its customers, says Richard Brown, associate vice-president for marketing at VIA. Referring to its new 1-GHz laptop chip, Brown says: "Megahertz are no longer important. Now, we can [sell chips] just as well as Intel can." That may be an overstatement. But Intel will clearly have to overcome resistance from PC manufacturers. "Centrino definitely has a role in our portfolio, but so do other products," says Matthew Wagner, manager of product marketing for Hewlett-Packard's (HPQ ) personal systems group. "It's all about flexibility." PLAYING CATCH-UP. So HP plans to use Centrino as well as separate chips from other suppliers. And on Jan. 29, HP, IBM, NEC (NIPNY ), and Toshiba (TOSBF ) announced that they would purchase wireless chips -- more advanced than those initially available with Centrino -- from startup Atheros Communications in Sunnyvale, Calif. Why Atheros? "We are specialists. We live, breathe, and die that one thing," says President and CEO Rich Redelfs. Indeed, the wireless chips included in Centrino are behind the competition in functionality. Intel's initial chip will support just the so-called 802.11b standard, commonly used for wireless LANs, even though other makers already offer chips that support that standard and the newer, faster 802.11a. Intel can't match that until the second quarter. By that time, companies such as Agere Systems (AGRA ), whose chips are used by Dell (DELL ), among others, and is the No. 2 wireless-chipmaker behind Intersil (ISIL ), will already offer chips based on three standards, says Tony Grewe, Agere's director of strategic marketing. PC makers and end users could be leery of Intel's early efforts here. Says Allan Nogee, an analyst with In-Stat: "When you pay $2,000 for a laptop, you don't want to be caught with just one [wireless] technology." SLOW START. Considering that most PC companies also don't like to depend on one supplier for their key chips, Mark Grossman, an analyst with SG Cowen Securities, doesn't expect Intel to gain much more market share in notebook processors from rivals like AMD and Transmeta. Indeed, the latter says it's seeing rising orders, according to Mike DeNeffe, Transmeta's marketing director. For the same reason, many analysts estimate that Intel will take perhaps only a few percentage point of share away from entrenched graphics-chip makers like Nvidia (NVDA ) and ATI Technologies (ATYT ). "We think of ourselves, first and foremost, as a partner of Intel," says Philip Eisler, vice-president and general manager for mobile and integrated business unit at ATI. And he points out that his company also makes chips that can be used to enhance Centrino's relatively limited graphics abilities. So, ATI could actually benefit from Centrino's success. It remains to be seen, however, whether that gain would more than offset sales lost to Intel's new bundle. Nvidia declined to comment. At first, most notebook makers would likely install Centrino only in a few models, says Creative Strategies' Bajarin. Intel confirms that the package will cost more than a comparable stand-alone processor, and anything that drives up laptop makers' costs would be more than unwelcome, considering how thin their margins are already. However, any laptop maker that wants to build wireless-ready machines will have to spring for some extra cost, either for the additional separate wireless chip or for a Centrino bundle. SPREADING THE GOSPEL. Still, Intel's Chandrasekher claims initial orders for Centrino already exceed by three or four times what Pentium 4 Mobile got when it came out in March, 2002. This March, PC maker Gateway (GTW ) will begin outfitting some of its most popular laptops with Centrino. And by yearend, more than half of its notebooks will have Centrino inside, says Mike Stinson, Gateway's general manager for mobile products. So far, most manufacturers seem pleased with the quality of Intel's chips, says Dean McCarron, founder of PC components consultancy Mercury Research in Cave Creek, Ariz. The adoption of the Centrino brand could take a while, as Intel spreads its new, speed-isn't-everything gospel to computer makers and consumers -- a message that rivals might actually welcome and help spread. With $10.8 billion in cash as of yearend 2002, though, Intel has all the time in the world. And it's betting that the wait will be worth it.
 By Olga Kharif in Portland, Ore. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | FEBRUARY |
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