Hardware kingpin Intel beefs up software business

Best known for producing the processors that have been at the heart of the PC industry for more than 20 years, Intel has quietly amassed an army of more than 8,000 software engineers, according to sources familiar with the company.

Executives at the chipmaker declined to comment on the specific number, choosing only to confirm that it has more than 5,000 coders. But the number has grown rapidly in the past few years, as the company has expanded its product lines. While much of the group's efforts still go into simply making Intel's hardware work, many of the engineers are now working to create new user interfaces, write Linux software and add features for Windows PCs that might have been left to more traditional software companies in the past.

The rising importance of software is part of a lesser-known aspect of the chipmaker's evolution over the last few years: Rather than simply pumping out faster chips and selling them to PC makers, the company is gestating entire product categories. One example is the launch of its Centrino notebook chip bundle, which tied a low-power processor to a wireless module and chipset.

With products such as Centrino, software is an important part of weaving together the components. It's a change that will become increasingly evident over the next few years, as Intel unwraps several initiatives to boost the functionality of PCs and seeks to strengthen its presence in the consumer electronics markets.

"We're looking at products and markets a lot more holistically. Not just computing, but communications, but also software as part of the offering," Paul Otellini, Intel's president, said in a recent interview with CNET News.com. "We ship more and more lines of code with every new platform offering than we ever did."

An OS is not on the horizon
While its efforts range from delivering development tools to creating drivers and applications for Windows, Intel isn't exactly planning to launch its own PC operating system. Instead, software serves the purpose of enabling new features and opening new markets.

One such application is a version of Intel's PROset software, which controls the wireless module that's part of its Centrino bundle.

Intel will deliver a similar version of the application that helps consumers set up wireless access points in PCs containing its Express 915 and 925 chipsets, which were released last week. The utility reduces setup of the optional access point to a few mouse clicks. The access points eliminate the need for a separate wireless router--a business that Microsoft recently retreated from.

Intel isn't alone among hardware makers who have determined that software is crucial to driving innovation.

Sun Microsystems has increased its software development efforts over the past year. The company introduced Java-based desktop and server software, and new management tools, all geared toward offsetting a slide in hardware sales.

IBM increasingly sees its software division as a strategic weapon to drive both hardware and consulting sales. It's also a source of profits. The company sold $28 billion worth of hardware in 2003, generating profits of just under $8 billion, while its software group generated sales of just over $14 billion, but netted $12 billion in profits, according to IBM's annual report.

(Not) waiting for Wintel
But the reasons for Intel's efforts are unique, coming as the product development cycle has lengthened for longtime PC ally Microsoft (one half of the so-called Wintel alliance), potentially curbing Intel's ability to roll out new features unless it also writes some software to enable those functions.

Between Windows 95 and Windows XP, a new operating system was on store shelves roughly every two years. But since XP was released in 2001, no new operating system has been produced, and Microsoft does not expect the next version, code-named Longhorn, to be available for two more years. Microsoft has said its focus on security has been partly responsible for the expected six-year gap.

In contrast, Intel adds new features to its chipsets frequently to encourage consumers to upgrade and to keep ahead of competitors such as Advanced Micro Devices. Intel typically launches one major new chipset per PC product line per year and usually delivers new processor speeds quarterly.

"Intel is getting ahead of Microsoft because Microsoft takes so long to qualify all of this (software). Then it must collect it and add to service packs and (new OS) releases," said Kevin Krewell, editor of the Microprocessor Report. "Intel wants to move faster than that. So it's a matter of timing and whether Microsoft's and Intel's visions coincide--and at some points they don't. Right now, Intel's got a schedule that doesn't at all correspond to Microsoft's."

Whether that leads to a clash is unclear, but there is some work being done by the two companies that could become a flash point.

Intel's Mobile Products Group, for example, has already produced and licensed software to other parties. The group created Extended Mobile Access, or EMA, a small secondary screen for Centrino notebooks designed to make the machines more functional and therefore more desirable to businesses executives who frequently dash between meetings.

The screen allows users to remain connected to a wireless network and monitor e-mail--without opening the lid or interacting with Windows, which can be in standby mode.

Jonathan Joseph, CEO of Insyde Software, said he licensed the software from Intel and has taken over the job of marketing it as a product. It's now called InsydeAxS and the screens will appear in several business Centrino notebooks later this year. Consumer models could follow.

Intel "did the basic software development and gave it to us to productize," Joseph said. "It was meant to be a product, not just a concept."

Meanwhile, Microsoft has discussed a similar idea for auxiliary screens, although it's not expected to deliver such a product until Longhorn is released.

Intel has also written several other Windows applications, which it gives to PC makers to include with their systems. The chipmaker is including software such as Experience 7.1 Surround Sound (the 7.1 relates to surround sound, not the application), which allows someone to set up his or her own surround-sound functions on a desktop that use Intel's new 900-series desktop PC chipsets. The application features a map of the speakers and, through a point-and-click menu, users can perform tasks such as setting the balance between the speakers. A storage utility, which permits users to connect and remove hard drives through a software menu, is also included.

Still very close friends...
That raises the question of whether Intel, which has traditionally worked very closely with Microsoft to align its chipset features with Windows, will do more work on its own so it can build new features and target new markets, such as digital home products.

Not necessarily, said Intel spokesman Scott McLaughlin.

"In a lot of the (software) engagements, Microsoft is right there with us," he said. "We work with Microsoft an awful lot. We're not in the OS business. So on things like Itanium (the 64-bit Intel server chip), we had to work closely with Microsoft" to generate software for the chip.

But the companies haven't always seen eye-to-eye when it comes to such efforts. Testimony given by an Intel executive during the 1998 Microsoft antitrust trial claimed Microsoft threatened Intel over an audio/visual software technology called Native Signal Processing that the chipmaker was developing. Microsoft vigorously disputed the Intel executive's testimony, however.

Intel has also aided Microsoft competitor Real Networks' video-streaming software, indicating that while the companies have long worked together when needed, they're also willing to pursue objectives that could put a strain on their relationship.

"Microsoft and Intel have a long history of collaboration and cooperation on a wide range of software and hardware topics...all of which are focused on delivering the best possible technologies, products and programs to our joint customers," a Microsoft representative told CNET News.com in a statement. "Microsoft values the open and direct dialogue we share with Intel. It has led to a successful working relationship that results in product innovation and which benefits customers and the industry."

That delicate balance, however, could be tested as Intel's 8,000 software engineers pump out new products during the next two years while Microsoft prepares its sequel to Windows XP.