Gateway, AOL favor upstart chipmaker over big names

In another sign of Intel's and Microsoft's waning dominance, Gateway and America Online today selected upstart chipmaker Transmeta to provide processors and software for an upcoming line of Internet appliances.

The announcement was not unexpected, as

Gartner analyst Mark Margevicius says Gateway's and AOL's Transmeta/Linux approach does not mean the end of the Microsoft Windows-Intel duopoly, but it signifies a growing market with more types of customers. see commentary

Gateway and AOL in late April joined Compaq Computer and others providing Transmeta with $88 million in funding and endorsing its Crusoe chip technology.

Gateway and AOL last month unveiled a line of jointly developed Internet appliances--a Web tablet, a countertop appliance and a PC-like desktop appliance--running Linux. At the time, neither company revealed which chipmaker would supply the devices' processors.

The choice of Transmeta, which will provide Crusoe chips and its Mobile Linux software for the devices, is another slap at chip giant Intel, say analysts.

"Obviously, this is a threat to Intel from the perspective that Intel wants to be in the appliance space and from the perspective there are clearly rifts between Intel and Gateway based on the supply situation a couple of quarters ago," said Technology Business Research analyst Kelly Spang.

Gateway has been at odds with Intel since Pentium III chip shortages hurt the direct PC maker's Christmas sales. Gateway subsequently returned to using Advanced Micro Devices' processors, and last week the PC maker said it would double their use.

"At this point, one of the biggest threats to Intel is that it will become

Jim Chapman Senior VP of Marketing Transmeta   Discussing what sets Transmeta's Crusoe chips apart.

(only) a viable second source in the appliance space as well as the PC space," Spang said.

As first reported by CNET News.com, AOL has been working on a Linux device since May 1999 and refocused its efforts after investing $800 million in Gateway last October.

"One of the principal things that drove our relationship with AOL to begin with was that we had a very common vision of where the world was going and neither of us had the ability to deliver on our own," Gateway chief executive Jeff Weitzen said in an interview with CNET News.com.

The new devices will advance the AOL Anywhere strategy, which focuses on non-PC consumer devices for accessing the Internet. At April's Internet World trade show, AOL chief executive Steve Case equated AOL Anywhere with the Net's future success.

While the exact specifications and functions of the AOL-Gateway devices have yet to be revealed, they will be more than stripped-down computers, emphasized Weitzen. The two companies are working on applications and databases that will turn these devices from general purpose machines into machines tailored to function in the rooms in which they are placed.

"When we introduced the appliances that we talked about back in early April with AOL, those appliances are going to do more than just have instant-on AOL," Weitzen said in a recent interview. "I know that was kind of the focus of that announcement, but the real key is going to be what the content is going to look like.

"There's functionality associated with being in the kitchen--recipes and ordering food and calendaring and communications and getting help...It's going to be those kinds of things."

The new appliances will feature the "Instant AOL" service, a tailored version of the company's online software, and Netscape's Gecko Web browser.

Transmeta launched in January

Smart appliances

following five years of secrecy about its flagship product. The company introduced two low-powered chips, the Crusoe 3120 and 5400, that because of their cost, size and power usage are well suited to portables and Internet appliances.

Another selling point: PC makers or their customers can upgrade Crusoe processors using software rather than replacing the chip. Transmeta's "code-morphing" software also emulates Intel and other chips smoothly without the big performance hits typical of emulation.

"Over the last couple of months, in terms of the appliance space, a lot of manufacturers are taking a hard look at (Transmeta)," Spang said.

AOL's and Gateway's choice underscores problems for Microsoft as it struggles to transcend the PC to other devices. A survey conducted by eTForecasts in Illinois predicted that Windows' 78 percent market share of 153 million Internet-ready devices shipped this year will diminish to 48 percent in 2005, when 520 million devices will be shipped. This contrasts starkly with Intel-based PCs, where Windows has more than 90 percent market share.

Microsoft on Friday canceled its June 1 Forum 2000 event, where chairman Bill Gates had planned to unveil his Next Generation Windows Services (NGWS) strategy.

NGWS is Microsoft's long-term positioning of Windows 2000 for what CEO Steve Ballmer calls the PC-plus era. The company had been expected to unveil a broad Internet strategy around Windows 2000 transcending the desktop PC and embracing other kinds of devices, such as handhelds.

Microsoft rescheduled Forum 2000 for June 22, citing concerns a federal judge might rule to break up the company this week.