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Intel restructures operations

The chip giant is embarking on a major restructuring designed to give the company greater focus on potential profit zones of the PC industry.

Intel (INTC) is embarking on a major restructuring designed to stem any slowdown in chip revenues resulting from flagging PC sales.

Analysts said the move to restructure comes as Intel is seeking ways to further drive sales of its microprocessors by branching into new markets. The chip giant, which fell short of Wall Street's expectations in the third quarter, is looking at non-PC devices in the consumer market, such as digital cameras, as another possible avenue to sell its processors.

Such efforts may be appreciated by shareholders, which pushed down Intel's stock after it posted weaker-than-expected earnings last month. (Intel is an investor in CNET: The Computer Network.)

Under the restructuring, Intel has created new business groups to cover consumer products, corporate platforms, and small-business and networking. The chip giant also has formed a new digital imaging and video division.

"This won't result in a big difference to their cost side. But on the revenue side, this should increase, because it allows management to focus on different areas. It more clearly defines their marketplace and the management that will be responsible for its results," said Chris Chaney, an analyst with AG Edwards. "Instead of their old structure of a single product with multiple segments, they will have multiple products with multiple segments."

Intel has taken its desktop products unit and split it into the consumer products group--which handles desktop PCs, TV set-top devices, and automobile computers--and the business platforms group responsible for network computers, Net PCs, workstations, data security solutions, and business computers.

Chaney said the new structure for the desktop group will enable Intel to better target the high and low ends of the product spectrum specifically.

Analysts also note that the new structure will enable Intel to get a better handle on the highly competitive market for PCs selling for less than $1,000, in which it holds a 65 percent of the market share. That's a small slice, considering that Intel is used to maintaining more than 80 percent of the market for computers loaded with the Windows operating system.

Market research firm Computer Intelligence said sales of sub-$1,000 PCs accounted for 40 percent of all U.S retail computer sales in August.

Intel's Internet and communications group, along with the company's research and development labs, will be split into the new small-business and networking group, spokesman Howard High said. The new group will include networking products, management software, business communications such as the company's videoconferencing technology, Internet services operations, and reseller sales.

High said Intel's "computing enhancement" group will pick up new responsibility for chipsets and graphics controllers.

The new digital imaging and video division take products previously spread across different groups and bring them under one roof, High said.

Earlier this month, Intel unveiled its 971 PC digital camera kit, which comes with a reference design, hardware, and software. Several companies already are planning to use its architecture to build their digital cameras.

Although Intel is taking steps to address a growing segregation in the PC industry, could it have moved on the restructuring sooner?

"In the past, the price and functional range on PCs was narrower. But now the range in price is from $800 to $4,000," said Scott Randell, an analyst with Soundview Financial. "So as these markets take on unique and separate characteristics, it now makes sense."

Chaney noted that some markets, like digital cameras, are just now beginning to take off. He said Intel's restructuring will allow the company to grow in those industries.

"Digital cameras are expected to grow 37 percent by the year 2001, and that's pretty high and is a pretty hot market," said Ron Tussy, a digital camera analyst for IDC Research, said in a recent interview. "PCs are only growing at an 18 to 20 percent rate."

The set-top box market is expected to grow to $1.89 billion by the year 2001 from its current level of $119 million this year, according to an IDC report.

"We're getting ready for 1998," High said. "If we get organized now and realigned, we will have people ready as this begins to take off, because a certain amount of transition time is needed."

Analysts said it is unlikely that competitors like Advanced Micro Devices (AMD) and Cyrix will follow suit on a similar restructuring, given that the companies have a smaller workforce and will need to run their operations with more overlap.

High said that, although the new groups and division will have separate profit and loss lines, their marketing and manufacturing will still be handled by other units at the company.