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Despite Setbacks, Intel Says Itanium Is Here To Stay

Five years after Intel delivered its first Itanium chips to high expectations, initially poor reviews, and large sunk costs, the company is still working to recoup its research and development investment.

Say this for Intel—after five years of modest sales and scaled-down ambitions, it's not giving up on Itanium.

Intel, the world's largest maker of computer chips, unveiled five new chips for servers in its Itanium 2 product line Tuesday, the first Itaniums to contain two processing cores and the ability to execute multiple "threads," or streams of software instructions, at the same time. The chips deliver more than twice the database performance of previous-generation Itaniums, and draw 2.5 times less electric power—a big selling point with CIOs. But five years after Intel delivered its first Itanium chips to high expectations, initially poor reviews, and large sunk costs, the company still plans to recoup its research and development investment.

"We're working pretty hard to get it to a profitable product," said Pat Gelsinger, senior VP of Intel's digital enterprise group, in an interview following a press conference in San Francisco Tuesday. "If we could unwind the clock, I would have just built a RAS version of Xeon to attack the market," he said, using an industry term for "reliable, highly available, and scalable" chips, and referring to Intel's Xeon server chips, which employ the widely used x86 instruction set. Itanium uses a less popular design called EPIC.

In the 1990s, when Intel and Hewlett-Packard were designing the Itanium and its EPIC architecture, leading computer designers doubted whether x86 chips were scalable to large workloads, says Gelsinger, formerly Intel's CTO, and a protege of company co-founder Andy Grove. That ability was "highly questioned," he said.

Now, x86 chips with 64-bit extensions from Intel and its top competitor, Advanced Micro Devices, commonly handle large computing jobs. Intel has three more generations of Itanium on the drawing board, but Gelsinger declined to say when the product would provide a return on its initial investment, estimated to be in the billions of dollars. He also declined to say how much Intel had spent on the chip.

Meanwhile, Intel continues to remove costs. During the press conference, Gelsinger also said a layoff of 1,000 managers the company disclosed this month wouldn't be the last. "There will be other actions as we go forward," said Gelsinger—some which affect jobs across multiple divisions of the company, and some that target specific areas. Intel on July 13 said it would lay off the managers to cut costs and remove bureaucracy. Last month, Intel sold its cell-phone chip business to Marvell Technology Group for $600 million.

Intel is scheduled to report earnings for its second quarter Wednesday. Analysts expect the company to report revenues of $8.3 billion, down 10% from a year ago, and a 59% drop in earnings per share.

When Intel and HP launched Itanium in 2001, the companies positioned the 64-bit chip as a replacement for RISC processors in large computer systems, and perhaps eventually for x86 chips on smaller servers and even desktops. But RISC chips from IBM and Sun Microsystems still outsell Itanium processors by healthy percentages, and the industry has coalesced around an approach for smaller machines that uses special code "extensions" to let 32-bit apps written for x86 chips run on 64-bit processors from Intel and AMD. Advanced Micro gained an early lead in technology and market share on Intel by using the "extended 64" approach, forcing Intel to release products that could potentially compete with Itanium.

Today, HP is Intel's No. 1 Itanium customer, purchasing between 60% and 70% of Itanium chips, according to Brian Cox, director of worldwide server marketing at Hewlett-Packard. Itanium was supposed to be a "panacea" for high-end computing, says Cox. Then "reality set in" that customers were unwilling to reprogram much or their x86 software to take advantage of Itanium, he says. HP computers that run the company's HP-UX Unix operating system, as well as its more specialized OpenVMS and NonStop operating systems, all require Itanium chips. Four years ago, HP stopped developing its own chips and required its business customers to port applications written for those machines to Itanium when they were ready to buy new HP hardware.

For that reason, Itanium is more strategic to HP than Intel today, says Gordon Haff, an analyst at research firm Illuminata. "Their Unix, OpenVMS, and NonStop business goes 'poof' if Itanium goes 'poof'," says Haff. "HP can not afford to put its customers through another instruction-set transition."

In addition to its own operating systems, HP is working on scaling the open-source Linux operating system to take advantage of more Itanium processing power, according to Cox. This fall, HP plans to ship a Superdome server that can run Linux on 128 Itanium cores, vs. 16 cores on its general-purpose Superdome today. HP engineers have been able to run Linux on 64 Itanium cores in custom designs for business customers, Cox says, but those systems haven't been generally available.

Intel's five new Itanium 2 chips, code-named "Montecito," will be priced from about $700 to about $3,700. Those are the same prices Intel charged for single-core Itaniums, the company said. The new chips provide 2.5 times better performance per watt than single-core versions of Itanium, and outperform single-core versions on the Transaction Processing Council's TPC-C benchmark of database processing speed, running more than twice as fast.

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