Whoa! Intel's New Slower Chip? By Olga Kharif



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Whoa! Intel's New - Slower - Chip?

By Olga Kharif

February 11, 2003

http://www.newsfactor.com/perl/story/20729.html
Intel wants to take your mind off chip speeds -- especially if you're going to be in the market for a new laptop. That might sound crazy to anyone who has watched Intel constantly crank out newer, faster chips -- and constantly try to convince consumers and corporations that the speediest semiconductor is the answer to all their computing prayers. But in a reversal of emphasis, Intel is about to start pressing the public to buy laptops with new brains that aren't faster than existing ones. Instead of simply running more rapidly, says Intel, its new laptop chip will result in better overall performance in real-world applications.
However, by taking this new, rather un-Intel-like approach to chipmaking and -- perhaps more important -- to marketing, the world's biggest semiconductor producer is attempting to dominate what promises to be a rare, high-growth tech market. Or possibly laying itself open to a big counterattack.
Intel says it achieves this performance increase without a speed increase because of the way it's bundling the new processor with other components into an integrated offering, a first for Intel. Called Centrino and set to be launched on Mar. 12, the package includes a main low-power-consuming processor specifically designed for wireless notebooks, a choice of one of two chips controlling graphics, and a wireless chip allowing the laptop to connect to wireless local-area networks.
Gotta Have It

This last piece is critical, considering the explosion of interest in Wi-Fi high-speed wireless Net access. Today, most users who want to connect to, say, a Wi-Fi network

at the local Starbucks have to buy special wireless cards to put into their computers. But a wireless chip like one that's part of Centrino functions as an embedded wireless

card -- essentially making any notebook wireless-ready.

And that's what makes these products so alluring. For 30 years, the bulk of computer processors Intel made went into desktop PCs that either sat by themselves or were

connected to a network, or later to the Internet, by wires. But as corporate buyers and consumers start replacing their PCs in late 2003 or early 2004, they're expected to

go ga-ga for laptops, especially those that can make batteries last longer and offer built-in wireless Web connectivity.
While only 5.7% of all notebooks in existence in 2002 were wireless-ready, that percentage will rise to 35% in 2003 and 90% by 2005, according to market researcher

Cahners In-Stat. In two years, 50% of corporate users will be tapping on laptops, up from 20% today, estimates Charlie Glavin, an analyst with investment bank

ThinkEquity Partners. And consumers won't be far behind.
Full-Court Press
So Intel, which already controls most of the market for laptop processors, "basically has to reinvent itself," says Glavin. And that's pretty much what the marketing blitz

behind Centrino, Intel's first mass-market brand since the original Pentium was introduced in 1993, will set out to do. In fact, Intel says it will pour more into marketing

Centrino this year than the $300 million it spent on Pentium 4 in its launch year, according to Pam Pollace, vice-president and director of corporate marketing at Intel.

Centrino, whose pricing hasn't been set yet, is expected to replace Celeron, Pentium 3, and Pentium 4 Mobiles as Intel's main notebook chip by the end of 2004.

As Intel, which already holds an 80% share of the PC processor market, embarks on this new marketing drive, it's adopting a strategy more like the one archrival AMD (as

well as Apple) has been using for years. And therein lies the danger. AMD's top chips have often run at slower absolute speeds than Intel's fastest models, but AMD has

always claimed superior real-world performance because of more efficient internal architecture. Ditto for Apple and its PowerPC chips (made by IBM).

Centrino, too, will claim better overall throughput despite its slower clock speed, 1.6 gigahertz, compared to Intel's current mobile Pentium 4's 2.4 GHz. And taking a page

from Transmeta's (TMTA) Crusoe laptop chip, Intel will also emphasize Centrino's ability to extend battery life. Despite Centrino's slower speed vs. the Pentium 4 Mobile,

"it will absolutely be the fastest processor on the planet for the mobile environment," claims Anand Chandrasekher, Intel's vice-president and general manager for mobile

platforms group.


High Hurdles
In making such claims, though, Intel might itself be bolstering the arguments its rivals have long been making that chip speed is hardly everything when it comes to

gauging processor performance. Tim Bajarin, president of tech marketing consultancy Creative Strategies in Campbell, Calif., believes that ultimately Intel's strategy will

pay off, but not before a long hard slog.
Among the hurdles Intel will face: The new benchmarks won't be as easy to explain to end users and could easily result in heightened competition from rival chipmakers

eager to go up against Intel on the terms they've been stressing all along. Also, many of Intel's PC-making customers fear that packaged offerings might rob them of the

ability to choose different vendors for different components. And they may not want to become even more dependent on Intel, especially since many specialty companies

offer more advanced individual products compared to Intel's Centrino bundle.

Although the CPU itself -- called Pentium M -- that's part of the Centrino brand will also be sold separately, most analysts believe that Intel will offer PC makers major

discounts -- and advertising dollars -- to make the bundle irresistible. Intel is expected to offer generous reimbursements to PC makers that mention Centrino in their ads.

'No Longer Important'
Intel's carrot is a new logo that laptop makers can slap on their Centrino machines, part of the long-running "Intel Inside" logo campaign. To be able to put the Centrino logo

-- looking like a heart on its side -- on their laptops, manufacturers will have to buy the three-chip bundle.


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 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, 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, whose chips are used by 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 and

ATI Technologies. "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.
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