InformationWeek

October 20, 1997

Intel Eyes High End, Is Pressed On Low End

Chipmaker reveals Merced details, but profit rise slows

ven while Intel was disclosing technical details of its forthcoming 64-bit IA-64 chip architecture last week-a processor line that analysts believe will catapult the chipmaker into high-end enterprise computing-the company exposed its Achilles heel by reporting lower-than-expected profit margins brought on by competition from low-cost Pentium-class chip suppliers.

Engineers from Intel and technology partner Hewlett-Packard provided technical data on the highly anticipated 64-bit Merced chip to engineers at last week's Microprocessor Forum in San Jose, C alif. Merced, part of the IA-64 line, isn't due until 1999, and officials declined to comment on performance objectives. But they said that the chip will combine the benefits of RISC and CISC to offer "explicitly parallel instruction computing" (EPIC). With Merced, Intel is aggressively pushing its industry dominance toward server and graphics workstation platforms, areas that have traditionally been controlled by Digital Equipment, Hewlett-Packard, Silicon Graphics, and Sun Microsystems.

"Merced will make a big difference in our online data stores," says Bill Bone, VP of strategic technology services for the National Association of Securities Dealers. "By the time Merced comes along, we'll have 4 terabytes of data on our market data server. Executing 64 bits at a time will be key."

Intel, a profit machine in recent quarters, posted margins last week that fell short of analysts' expectations, despite a record number of chips shipped. Lower average selling prices for chips and price cuts for PCs affe cted its margins, analysts say.

"Average PC pricing is dropping," says Martin Reynolds, an analyst at Dataquest Inc. in San Jose, Calif. "The sweet spot in the market is moving below $1,500 for a complete system." Sub-$1,000 business PCs are already emerging, and vendors and analysts say fully loaded entry-level business PCs will be priced in the $800 range by the first quarter of next year.

But Intel says it's ready to protect all flanks, and corporate customers may lose some control over choice as a result. The company recently began using proprietary designs that make competitors' chips incompatible with Intel's motherboards and core logic chip sets. Intel argues the changes will more rapidly advance technology for end users. Opponents counter that Intel is attempting to make the x86 architecture a one-horse race.

But Advanced Micro Devices Inc. and Cyrix Corp. are also coming up with their own ways to ensure future compatibility. "In the absence of open standards, consumers will pay an ominou s tax," said AMD CEO Jerry Sanders last week at the Microprocessor Forum. Sanders said AMD has figured out how to make its next-generation K7 chips-due in 1999-compatible with the same motherboards Intel uses for its Pentium II chips.

With additional reporting by Mary Hayes

Back to News in Review