CNET también está disponible en español.

Ir a español

Don't show this again

Tech Industry

Expansion into networking

Breaking into the networking business ain't easy, but don't tell that to microprocessor monolith Intel (INTC).

    Expansion into networking
    By Ben Heskett
    September 4, 1997, 12:00 p.m. PT

    special report Breaking into the networking business ain't easy, but don't tell that to microprocessor monolith Intel (INTC).

    Until a couple of years ago, the company's networking role was confined Our fundamental role in networking is to match the performance of the desktop with the performance of the network simply to connecting PCs and networks through interface cards. Since then, Intel has embarked on an expansion plan to handle the data traffic coming from PCs that feeds into the switches, routers, and hubs which tie into the Internet or larger corporate networking hardware. Specifically, Intel wants a piece of this low-end router, hub, and switch market, targeting small businesses sometimes known as workgroups.

    Intel won't be confused anytime soon with enterprise corporate networking powerhouses such as Bay Networks, Cabletron Systems, Cisco Systems, and the corporate networking side of 3Com. But its sheer size alone means that it can't be ignored.

    As with many industries, name recognition and price are the two issues closest to equipment buyers' hearts in the highly contested router, hub, and switch market for small businesses. Intel just happens to have one of the best known brand names in computing, and with around $20 billion worth of muscle behind it, Intel can set prices seemingly at will.

    "They are obviously very well recognized," said Esmerelda Silva, analyst for market research firm International Data Corporation. "There's a reason why 3Com goes out and puts their name on Candlestick Park."

    The reasoning behind Intel's interest in Intel would be at the top of my radar screen if I was a competitor. They can afford to take hits on margins networking is simple: User access to a faster pipe means more bandwidth available to handle larger memory and processor-gobbling multimedia-driven applications at the desktop, where Intel just happens to dominate with around 90 percent of the chip market. (Intel is also an investor in CNET: The Computer Network.)

    "Our fundamental role in networking is to match the performance of the desktop with the performance of the network," said Reinier Tuinzing, director of strategic marketing for Intel's networking products division. "That's the direction we will continue to propose to provide bandwidth to the desktop."

    Intel's networking efforts are not targeted at high-end router business or enterprise switching hardware, areas dominated by the industry mainstays. That technology can speed data across several types of networking pipes from within one box, or chassis, as they are sometimes called.

    But Intel's most significant role in networking at the moment--in the network interface card market--has struck fear in the hearts of market leader 3Com.

    There, the company is rapidly gaining on its primary foe, 3Com, by cutting prices. According to Intel, that strategy will also be used in attempts to quickly gobble up market share in segments targeting small businesses, a rapidly developing opportunity where 3Com has also staked an early lead in several categories of networking hardware sales.

    Intel's interest in the network dates back to 1979, when it was asked to be part of the team that developed the original 10-megabit-per-second Ethernet specification for the industry after the technology was invented by Robert Metcalfe. In the next decade, Intel provided networking components within machines, but it was not until 1990 that it introduced network interface cards.

    Continuing to push the bandwidth envelope, the company was the first to introduce a 10/100-megabit-per-second card in 1994, which meant that users could migrate to a larger networking pipe without an upgrade.

    Then, in 1995, Intel entered the hub market, frustrated with the pace of innovation in that technology, according to those within the company. The next year found Intel introducing switches. And the acquisition of Case Technology early this year added some routing functions to the company's strategy.

    Intel is not alone among large companies focusing on the network. Other big names such as systems giant Hewlett-Packard and PC king Compaq Computer have also targeted networks in small organizations for growth, with Compaq gaining steam in the market by acquiring other firms. All three companies could gain more converts as 1,000-megabit-per-second Ethernet technology, known as Gigabit Ethernet, starts rolling out next year.

    Small businesses are providing new opportunities for these companies and others as workgroups seem to be rapidly recognizing the benefits of networking their offices and providing their employees with access to Internet and intranet-oriented services.

    Based on current market share estimates, Intel has a ways to go. For the first half of 1997, Cisco and 3Com own more than 50 percent of the workgroup switching market combined, according to IDC data. Intel's market share is located in the piece of the pie labeled "other." But Intel's hub growth in units from the first quarter of this year to the second was an astounding 400 percent, based on numbers compiled by market researcher In-Stat.

    "The primary challenge is it's a very different market segment beyond selling network interface cards," Silva said. "They're clearly rounding out product families, but it's certainly not something you do overnight."

    Still, the workgroup switching market is expected to be one of the fastest-growing networking market segments in the coming years, expected to total $3.3 billion by the end of this year and growing to $5.2 billion by the year 2000, according to IDC estimates.

    For the record, Intel says it does not intend to be all things to all people, choosing markets where it knows its in-house silicon-manufacturing skills and technology expertise can give Intel an advantage.

    "We want to continue to build best-of-class products," Tuinzing stressed. "We want to stay focused on providing those, rather than trying to cover all the bases and doing a haphazard job."

    But competitors fear that Intel will do to workgroup networking what it has accomplished in the interface card market. The chip giant has undercut prices, enabling it to pull uncomfortably close to 3Com.

    "Intel would be at the top of my radar screen if I was a competitor," said Diane Myers, senior analyst at In-Stat. "They can afford to take hits on margins and they're expanding their channel relationships."  end

    Go to: From microprocessors to media   next

      Inside Intel

      Latest Headlines
    display on desktop