Intel's Crystal Ball

What Intel is really trying to do is sell more processors for home use--it's still a chip company, after all, says Kurt Scherf, VP and principal of market research firm Parks Associates. Demand for Intel's processors in the home will come from media-center PCs and other consumer electronics that interact with digital content. "Given the demand for PCs and multimedia in the home, it's critical for Intel to have a game plan," Scherf says.

That game plan is different than it was a few years ago, when the company tried selling Intel-branded digital cameras and MP3 players. Intel now is doing what it does best: providing the building blocks to create a foundation for a new generation of technology. At January's International Consumer Electronics show in Las Vegas, Otellini unveiled a technology, code-named Cayley, that uses liquid crystal on silicon to create small chips, or microdisplays, that will improve the quality and lower the price of high-definition TVs. For example, Cayley uses advanced silicon manufacturing processes to produce a high-quality surface for reflecting light that creates an extremely bright display. "What we're good at is building state-of-the-art technology very efficiently in a way that lets it touch millions or billions of people," says Spindler, a 22-year Intel veteran.

Intel's $200 million investment fund accelerates the rollout of products that will use the company's processors while complementing its wireless initiative. The latest consumer electronics and wireless technologies typically hit the market with steep price tags. A network-connected DVD player can cost as much as four times the price of a standard player.

This works to Intel's advantage in a couple of ways. The company can either enjoy comfortable profit margins for the first 18 months after a product is introduced, or it can work with device manufacturers to cut prices and gain market share. Either way, consumer electronics and digital home technology are fertile markets for Intel. Shipments of network-capable consumer electronics, including set-top boxes, wireless DVD players, and televisions with embedded networking components, will reach 120 million units annually by the end of 2008, Parks Associates analyst Scherf says.

Barrett sees the danger of trying to squeeze high margins out of consumer electronics. "If you raise the price of the microprocessor, it raises the price to the end user, and it puts it out of the sweet spot in the market, and you don't sell the volume," he says. "So you don't have indiscriminate capability to go in and raise prices."

Another edge Intel has is its ability to design integrated components. "With so many companies competing on price, [component makers] will be looking for integrated solutions where all sorts of applications are included on one board," Scherf says.

Consumer electronics will provide significant growth for the company that can provide the right technology. Whether that's Intel remains to be seen. In today's consumer-electronics market, buyers care less about what type of chips their televisions or DVD players have and more about picture quality and performance.

But don't expect to see Intel-branded consumer electronics or computers. Rather, "they will find new and creative ways to build new things out of silicon," says Steve Kleynhans, a VP at research firm Meta Group. Today, it's processors; tomorrow, the company will offer silicon-based sensors, radios, and nanotechnology, Kleynhans says.

Intel's mantra is to never stop thinking about new ways silicon can be used to improve technology. Spindler sees a day when Centrino's microprocessor, chipset, and wireless capabilities will be integrated onto a single chip. This makes sense, given that the more technology that's placed on a single piece of silicon, the easier it is to mass produce.

But that's building on today's technology. The real challenge for Intel remains peering into the future. "It's like when you play chess, the best players are thinking ahead five or six moves," says Mike Fister, senior VP and general manager of the Enterprise Platforms Group. "You have to look at the next logical evolution."

It's a challenge that poses big risks and offers big rewards if the right moves are made. For a company like Intel that wants to continue to lead an industry, it has no choice but to keep trying to predict the future.