Intel agreed to buy the Telecom Component Products Division of Stanford Telecommunications for an undisclosed sum in an all-cash transaction. The Sunnyvale, California-based division provides chips for cable modems, TV set-top boxes, and broadband wireless equipment.
The deal, along with the recent acquisition of Level One and other moves, puts Intel deeper into competition against the likes of Motorola, IBM, Lucent Technologies, and Broadcom.
The dominant PC chipmaker is clearly gunning for a significant role in the growing market for chips that power communications equipment. The Stanford deal marks Intel's tenth acquisition in that sector in the last two years.
The moves are borne out of simple math. To continue to grow at its historically fast rates, the company has to boost its presence in other markets. Analysts have pegged growth in the communications chip market at a 25 percent annual rate, compared to estimates of around 15 percent this year for the PC market--a market where chip prices have been rapidly falling.
So far this year, Intel's financials reflect the changes in the PC market. In the first half of 1999, revenue from the Architecture Business Group--the main PC-focused group--grew 12.6 percent, from $10.7 billion to $12 billion. The other business groups combined are still just half the size of the main group, but revenue grew from $1.3 billion to $1.8 billion, a 38 percent increase over the same period a year ago, with obviously a lot more room to grow.
Analyst Mike Wolf of Cahners In-Stat Group said Intel's investment today helps round out its offerings in networking chips and also helps the company continue its push into the home market. Intel has invested heavily in developing home networking kits that allow consumers to link their PCs together to share files and Internet connections.
"Their acquisition strategy has been aggressive for '99, and they're filling a lot of holes," Wolf said. "In terms of access to the home, [today's purchase] is a big piece of the puzzle."
Intel's purchase is the chipmaker's second effort in the broadband access market, said Greg Lang, vice president of Intel's networking interface division. Intel recently announced an alliance with Cisco to build technology that connects digital subscriber line (DSL) access to PCs, he said. DSL is a high-speed Net technology that uses ordinary phone lines.
"On-ramps for Internet economy"
"The mission is to build the on-ramps for the Internet economy, and DSL and cable modems are two key ones for the home and small business," Lang said.
Lang predicted Intel should do well in competing against Broadcom and Lucent Technologies, as well as Texas Instruments, in the chip market for cable modems.
"There's enough newness in the market that there's opportunity for us to become a leading provider," he said.
Intel--which is creating a new cable modem division--will also build broadband wireless technology, which allows homeowners to get high-speed Internet access without the need for wires. In the future, homeowners can install dishes on their rooftops and communicate with a central dish elsewhere to get Internet access.
Allen Edwards, former vice president and general manager of Stanford's telecom component products, will become co-division manager of the new cable modem division.
Just as important, the purchase adds pieces to Intel's previously announced strategy for creating the blueprints to a family of networking chips, called the Internet Exchange Architecture, or IXA. Intel is hoping to distinguish itself from competitors such as IBM by offering a programmable chip, which allows corporate users to add or update functions by changing software, not the processors.
Bob Merritt, senior analyst with Semico Research, said building on-ramps to the Internet is a good idea, because increasingly, the communications market is driving new technology developments, not the PC market. "You have to go into this market to have a view of where the technologies are going to be," he said.
Yet there is a hidden danger. Intel's purchases are taking them farther away from what has made them the largest chip company in the world--its manufacturing expertise, he noted.
Performance improvements in communications chips rely less on manufacturing prowess and more on intellectual property. Melding the two together will be a challenge for Intel, Merritt said.
IBM, meanwhile, today touted the introduction of a new chip "core" for communications chips, a basic building block to which customers such as Cisco and 3Com can add custom components as needed. While Intel is touting programmability as an advantage to its strategy, IBM is relying on pure speed. The new chip runs at up to 550 MHz, which is almost as fast as some desktop PC processors, and is built using copper wiring instead of aluminum for better performance.
The 30 employees from Stanford will join Intel's Network Communications Group upon completion of the merger.
The Stanford division became available for purchase as a result of Newbridge Networks pending purchase of Stanford Telecom for $490 million in stock.