Intel's new chip--called the Internet Exchange Processor, or IXP 1200--would serve as the nerve center for routers, switches, and other communications hardware built by companies such as Cisco Systems and Nortel Networks, industry sources said.
The company also will announce a new chip architecture that defines how Intel will design future networking processors and describes how to write software for the chips, the sources said.
With its new entry into the networking market, Intel is making use of technolgy acquired from two recent acquisitions totaling about $2.3 billion. The chip is expected to ship later this year or in early 2000, sources added.
Faced with declining profits from PC chips, Intel this year has set its sights on the more lucrative communications market, now the hottest area of the semiconductor industry as consumers and businesses demand more bandwidth, and Internet traffic grows. It is only the latest of many iterations for the company, which has recently decided to retreat from the hypercompetitive graphics chip market.
Intel will face similar pressures in the communications market. Rival chipmakers such as Lucent, MMC Networks, Texas Instruments, Broadcom, Motorola, and Conexant have been racing to develop new communications chips that make networking hardware faster and easier to upgrade.
Eventually, three or four chipmakers will sell the majority of the world's communications chips, analysts say. Intel and Lucent will be two of the main players, analysts say, leaving the others to fight it out.
Some sources believe Intel will announce the new communications chip as early as next week at its Intel Developer Conference Forum in Palm Springs, California. An Intel spokeswoman declined to comment on the company's plans.
In the past, these hardware makers faced a difficult choice between two types of chips: custom-made processors that were fast but not programmable, and general-purpose processors, such as Intel Pentiums, that were slower but flexible enough to add new features and to easily fix bugs.
The new generation of chips, such as Intel's IXP, is fast and programmable, allowing networking hardware makers to quickly add new protocols, security, and other features. This allows the companies to quickly bring new equipment to market. Customers also benefit because the products have longer life spans.
Sources said Intel's new IXP architecture is built from StrongARM technology it obtained from Digital Equipment in 1997, as well as technology from its recent $2.2 billion acquisition of Level One and $150 million purchase of Softcom Microsystems.
"Digital, Softcom, and Level One are all deeply involved in this and are key parts of the strategy," one source said.
The IXP chip features a StrongARM chip with six "microengines," or smaller processors. Sources said the networking chip is an open, standardized hardware design, allowing networking firms to customize it with their own programming.
"They want to emulate the success they had with the PC industry and bring it to the networking world," one source said.
The StrongARM chip has found a home in cell phones and handheld devices. Putting it inside the IXP chip will give Intel a bigger opportunity to sell the StrongARM technology.
Softcom's technology processes packets of data and makes the chip programmable, while Level One's technology is the silicon that sends information over a medium, such as telephone wire.
A study by International Business Strategies shows the communications chip market will grow from $28.3 billion in revenue in 1998 to $90.4 billion in 2005.
The market segment has been dominated by in-house development. But chipmakers such as Intel and Texas Instruments are betting the hardware equipment manufacturers, such as Cisco, would rather buy the chips than build them from scratch.
Intel has focused on the emerging communications market the past year, spending more than $3 billion acquiring communications companies, investing in TV set-top box initiatives, buying an e-commerce software developer, and recruiting Web consultants for a new data hosting division.
In a recent interview, Mark Christensen, vice president and general manager of the Network Communications Group, said Intel plans more acquisitions in the communications market.