InformationWeek: The Business Value of Technology

"Our mission statement for years was to be the building-block supplier to the computer industry," says president and CEO Craig Barrett. Now, Intel must become "an integral part of the hearts and brains of the new economy," Barrett says.

Most analysts say Intel has the know-how, clout, and cash to build or buy its way into new markets. It has spent billions of dollars during the past 16 months acquiring technology companies, and still has about $12 billion to fund other ventures. The key question is whether Intel can successfully break new ground while keeping its core chip business--plagued of late by shipping delays and design glitches--on track. "What Intel is doing is without precedent in its history," says Merrill Lynch analyst Joe Osha.

One factor that bodes well for Intel's Internet plans is that the company spent the past few years becoming an E-business itself. That effort began in 1994 with a single, bare-bones Web site. Today, Intel does an average of about $1 billion in business over the Web each month.

"The big mistake people make when they set out to do this is that they're too timid because they're worried about corrupting their existing business," says Paul Otellini, executive VP for the Intel Architecture business group. Intel now has 6,000 Web sites, managed from four data centers in the United States and the United Kingdom, doing business in 57 countries. Underpinning this is an electronically integrated chain of suppliers and customers that can tap Intel for instant updates on orders, payments, and the like.

Otellini says Intel's network has made the company a virtual extension of its business customers, making it tough--though not impossible--for rivals to cut in. Most recently, Intel launched a pilot of a supply-line management system with some customers that's designed to help them maintain optimum chip inventory levels.

Otellini says that "when customers move to E-business, they don't go back." Steve Yon, a director of marketing at Dell Computer, agrees. "The ability to conduct business this way is extremely important to us because we're a company that has to move as quickly as possible," he says.

Building and maintaining this environment, company thinking goes, has given Intel the experience it needs to successfully drive the development of components optimized for E-business and, ultimately, construct E-business architectures for third parties.

A closer look at the numbers indicates what's ultimately behind Intel's strategy. The company posted fourth-quarter revenue of $8.2 billion, and its 1999 sales of $29.4 billion represented a 12% increase over the previous year (see story, p. 115). But while much of that was driven by strong chip sales in the fourth quarter, Barrett says the days of big growth in that sector are over. "From 1990 through 1998, chip sales had a 35% compound annual growth rate. It's not going to do that anymore," he says. "We need to grow in areas other than that core business."

Illustration by Doug Ross