February 23, 1998

Intel's Enterprise Push

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Read the interviews with Andy Grove and Craig Barrett

The chipmaker wants to make its architecture an end-to-end computing standard. But it will need more than just new processors to make a bigger mark on corporate users.

By Tom Davey

ntel has an ambitious enterprise goal: Establish its architecture as the computing standard from desktop to data center. The promise? Scalability combined with the low prices th at have driven the PC market's phenomenal growth.

But success will take more than the dramatically broader range of processors that Intel plans to roll out this year and next. The company is also working on a vast range of alliances and developments to stimulate the adoption of new Mips-hungry applications and eliminate the headaches--such as manageability and bandwidth limitations--that could slow down Intel's processor bandwagon. Another key area for Intel is networking. This week, the company will roll out Gigabit Ethernet and other new products to boost its $500 million networking business.

Says Intel president Craig Barrett: "Our thrust is to continue to ride the PC wave as long as we can--but also to work on the whole issue of enterprise connectivity, manageability, commerce, and cost of ownership."



Intel's processor plans are falling into place. This summer, the company will take a belated first s tab at a processor, a cacheless Pentium II code-named Covington, designed for sub-$1,000 PCs. A 32-bit server architecture with greater throughput is due this year. At the high end, Intel's 64-bit Merced processor, due in 1999, is gaining backing even from rivals such as Sun Microsystems.

But that's only part of the big picture. Behind the scenes at Intel is a huge effort aimed at generating new applications that ensure demand for new, more-powerful Intel processors and may help transform the way businesses use technology. Intel's architecture lab, which researches leading-edge software and networking technologies to run on Intel's fastest chips, has ballooned to 700 employees.

An Intel content group working to get key applications ported to the company's processors has swelled to 300 people. Intel last year invested $300 million in 100 companies--most of them Internet and software startups--including such apparently unrelated businesses as ModeCAD, a developer of Web-based catalog technolog y for clothing and furniture companies. Other E-commerce efforts include Intel's Pandesic venture with SAP.

Intel is also working extensively in the area of technology for visualizing information, for which the Web is particularly adept. "Visualization is going to continue to be a driving force," says Intel chairman Andy Grove. "The big payoff is increasing the tempo of business. Electronic information and transaction transfer are going to make just-in-time business absolutely possible."

Intel's broad initiatives are a measure of its ambition--but they still might seem a bizarre, even unfocused mix for a company that's essentially a highly efficient electronics manufacturer. Some of Intel's efforts--such as those to improve PC management and to increase available bandwidth through faster networking and Internet data-compression technologies--clearly resonate with users. "When bandwidth is cheaper, we'll grab it," says Larry Mohr, VP of IS for F.W. Webb, a heating and ventilation company in B urlington, Mass.

But other Intel efforts--such as desktop videoconferencing, a technology that Grove admits hasn't taken off as fast as the company expected--get a more lukewarm response from corporate customers. "There will be gains in a lot of this research, but the issue is whether it solves a specific problem," says Art Beckman, executive director of planning and technology support at Pacific Bell and a member of Intel's user advisory board. "Does my phone bill need to be 3D-rendered?"

Grove sees Intel working more closely with IS organizations as the company moves higher in the enterprise. "We have for some years realized that we have a contribution to make because the planning horizon of an IT department is very similar to ours," he says.

To Barrett, who's responsible for spearheading Intel's efforts in many of the new business areas, these noncore projects will ultimately succeed or fail based on whether users continue to accept each new generation of more-powerful Intel proc essors. Given Intel's 85% desktop market share, that might seem a done deal. But the company has never faced a more urgent need to push desktop users to new processors. The notoriously paranoid Intel was caught off-guard by demand for low-priced PCs.

The average desktop PC used to cost about $2,000. But an InformationWeek survey of 100 IT managers last week found that 35% pay an average of less than $1,500 and that 28% plan to buy sub-$1,000 models. Brian Halla, CEO of Intel rival National Semiconductor Corp., says his company is working on Intel-compatible processors for PCs that may be priced as low as $500. "Just about every PC supplier is conducting focus studies to find out if their own brand names are more important than having the `Intel Inside' logo," he says.

Intel's captive PC market is also threatened by network computers, which typically haven't been based on Intel chips because they don't have to run Windows 95. Another threat may be Intel's greatest current ally: Microsoft. Its Windows CE operating system, aimed at handheld computers, terminals, and network computers, runs on many non-Intel processors--some of which are better suited to mobile devices than Intel's chips.

Something For Everyone
To fend off the competition while driving to the high end, Intel is planning processors and chipsets specialized for each level of computing, including low-end PCs, the booming NT workstation market, and eight-way servers based on a new Slot 2 Intel architecture due out late this year. Intel will roll out a branding strategy later this year designed to differentiate its low-end, midrange, and high-end products.

Intel even sees a potential market in thin clients as replacements for terminals; next month, it plans to release a "lean client" Pentium reference spec for Windows terminals, Java-based NCs, or other devices. "I don't think this category has gone anywhere yet," Grove says, "not becau se of problems designing the client, but because it's a systems issue. It takes a while to make it a viable proposition."

Intel's most ambitious project, the 64-bit Merced chip it's developing with Hewlett-Packard, is the company's big move to the high end. "Merced will once and for all start to replace the mainframe," says Casey Powell, chairman of Sequent Computer Systems Inc., which makes big multiprocessing systems based on Intel chips.

The prospect of a standard 64-bit architecture is drawing support even from processor rival Sun, which last week released a Solaris developers' kit for Merced and hopes to attract hardware vendors to run its operating system on their Merced-based systems.

Intel will likely have to work more closely with several operating system vendors to take Merced to the highest levels of the enterprise. Users still see the scalability of the Intel architecture as a key problem--mainly because of the limitations of Microsoft's Windows NT. "We've got huge tran saction processing systems on Unix and mainframes," says Pacific Bell's Beckman. "It's an operating systems issue. When does NT get into that space?"

Not surprisingly, Intel is pouring money into its server business. It bought multiprocessing technology vendor Corollary last year and plans to use that technology to move standard PC servers up to eight-way multiprocessing by year's end. Among related efforts is VI, an architecture pioneered by Intel and other key players designed to improve clustering performance. It's due to emerge in servers this year. "The most dramatic change in the last couple of years is Intel architecture for the mainstream server platform, and that takes much more than a chip," says Leslie Vadasz, Intel's director of corporate business development.

Focus On Manageability
But many of Intel's broader initiatives aren't aimed at any one type of user or system; rather, they attempt to remove barriers to PC use in general. Manageability is one key focus: Intel and IBM last week said they will include new IBM technology for detecting PC problems into Intel's Wired For Management specification, which Intel is proliferating throughout the PC industry.

Easier management, of course, is one of the promises that thin-client vendors make to try to steal users away from PCs. Intel, Microsoft, and PC vendors are fighting back: 63% of IT managers surveyed last week by InformationWeek say PC vendors have reduced the total cost of ownership by improving manageability. "I'd like to see more, but it's a big improvement," says Erik Goldoff, IS manager at the Centers for Disease Control and Prevention in Atlanta.

Some of Intel's biggest efforts are in Internet-related areas. Intel's investments include the Pandesic E-commerce venture with SAP, for which Barrett is a director. Some are more unusual. Ticketing agency TicketMaster and Intel are developing a Web application that will give users a cyber-view of the playing field from various seats at sports stadiums. Intel gets a part of TicketMaster's revenues from that app.

Ron Whittier, the VP who leads Intel's content group, says Intel is helping Netscape Communications and Microsoft wrap technologies such as video streaming, speech recognition, and virtual reality modeling language into their browsers. "VRML will be incorporated into applications such as data mining," he says. Grove sees data mining as a technology with incredible potential. "If I know specific patterns faster, I have a competitive advantage," he says. "That's all there is to competition: knowledge and speed."

Mike Glodo, VP of enterprise central computing for Merrill Lynch in New York, also sees a place for video and audio streaming in the financial services firm's plans to sell to new customers online. "Our digital customers out there are going to be a different kind of consumer, and we need to address their needs," Glodo says. "The opportunity for Intel is to watch how we will communicate with our customers."

Can anythi ng stop Intel, with its overwhelming PC market share, from becoming an even more dominant enterprise player? One hurdle, of course, could rise if the current scrutiny by the Federal Trade Commission turns into outright hostility. Here, too, Intel has been almost paranoid in its attempts to avoid further problems. Intel employees are briefed periodically by antitrust lawyers and forbidden to use words such as domination and leverage.

But users don't seem concerned about Intel's power. "It's like worrying about the sun coming up," says Merrill Lynch's Glodo.

A key long-term question is who will be Grove's successor. Grove won't comment, though he notes that Barrett is taking on a bigger role in Intel's strategic initiatives. Today, the two form the management nucleus, with Barrett focusing on operations and Grove on strategy. "Grove leaves an incredible legacy, an Intel way of doing things," says Sequent's Powell. "A multibillion-dollar company isn't run by one person. The process will contin ue."

--with additional reporting by Martin J. Garvey , Monua Janah , Mary Hayes , and Clinton Wilder

Read the interviews with Andy Grove and Craig Barrett


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