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Intel mulls branding for handheld chips

The chipmaker is examining whether it should create a separate consumer brand for processors used in handheld devices and "smart phones."

Chipmaking giant Intel is considering the creation of a separate consumer brand for processors used in portable devices as it battles Motorola for both market share and mind share.

The core architecture of Intel's handheld processors is the company's XScale technology, which is also used in other Intel products such as networking equipment. Xscale is a trademarked brand for chips that claim low power consumption and other features that are geared for portable devices. Thus far, Intel has primarily marketed the technology to manufacturers.

The company hasn't yet created a consumer brand for handheld processors. But in mid-2002, it filed the word "Iomir" with the United States Patent and Trademark Office, adding that the name could be used with handheld computer and mobile telephone devices as well as a long list of other possible products.

Intel representatives declined to comment on the company's branding plans for handheld processors.

The Santa Clara, Calif.-based chipmaker has had a history of betting big in order to make its products into household names. Establishing a name in the handheld market would help the company move its influence outside the computing world and into the mass-market arena of cell phones and other devices.

Portable devices, such as advanced handhelds and so-called smart phones, are seen as a potentially high-volume business, but sales have not grown to the extent that many industry observers had expected.

Smart phone makers shipped 3.6 million units worldwide last year, up 160 percent from the year before, according to data from research firm IDC. Those numbers are expected to mushroom to 80 million units worldwide by 2007. Smart phones are devices that can transmit voice and data information wirelessly.

After a late start in the market, Intel has been making significant gains in the portable-device chip market, moving into second place in market share and creeping up on leader Motorola.

"While Motorola is still No. 1 in the market, their lead is rapidly shrinking with Intel making a strong charge," said Alex Slawsby, an IDC analyst. "Motorola is back on its heels."

Sources familiar with the company's plans said Intel has conducted some preliminary consumer tests to evaluate the plan, but emphasized that no firm conclusions have yet been drawn and that the company may ultimately decide against it.

"This is something companies like Intel look into to manage its overall brand strategy. It's still very much up in the air," said one source.

The company has been extremely successful in branding its processors and is hoping that lightning will strike again with its Centrino brand for laptops, which it is backing with a $300 million marketing campaign.

Intel's past marketing efforts helped establish the company as the leader in the PC chip business, in part by subsidizing the costs of each PC manufacturer's advertisements if the manufacturer used the right Intel logo and Intel's familiar jingle.

Those payments were part of the company's "Intel Inside" program, which started in 1991 and heralded Intel's aggressive marketing efforts to convince consumers that buying a computer with an Intel processor would mean advanced processing capabilities. In 1999, Intel also spent about $300 million to promote its Pentium III chip.

Offering advertising subsidies to handheld manufacturers could prove prohibitive, because the processors for such devices typically cost significantly less than those used in PCs and servers. The company's high-end 400MHz Intel PXA255 chip for handhelds sells for $39.20 apiece, in 10,000-unit volumes. By contrast, Intel's PC processors range in price from $74 to $725, and its server chips can cost more than $4,000.

But the handheld market may be even more amenable to branding efforts than was the PC market, according to a customer of Intel's handheld chips.

"The impact of an ingredient brand might be more powerful for a handheld device, simply because they are smaller than a PC and more personal," said Ken Wirt, a senior vice president of sales and marketing at Palm, the market share leader in the handheld arena.

"I'm sure there were those that pooh-poohed the Intel Inside program, and they probably regret that now," he said. Wirt added that he said he could not confirm efforts on the part of Intel to brand a handheld processor.

Palm uses Intel chips for high-end devices such as the Tungsten C, but uses Motorola chips in some of its less costly lines.

Wirt acknowledged that margins for handheld devices are thinner than those for PCs, but noted that the volume potential could be higher.

"This is a market that is just getting going," said Wirt.

Handheld innovator Jeff Hawkins went so far as to predict that desktop and notebook PCs eventually will become accessories to combo cell phone organizers.