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Intel strides into network chips with new products, fund

Intel enters the networking processor market with a bang today, unveiling a new line of processors for telecommunications equipment and a $200 million venture fund geared to attract allies to its cause.

PALM SPRINGS, California--Intel entered the networking processor market with a bang today, unveiling a new line of processors for telecommunications equipment and a $200 million venture fund geared to attract allies to its cause.

The multipronged approach, unveiled at the Intel Developers Forum here, leaves little doubt that the chipmaker wants to be a player in the growing market for chips that power telecommunications equipment.

Fleshing out this strategy, Intel today announced that it has entered into a definitive agreement to acquire privately held NetBoost in an all-cash transaction. NetBoost, based in Mountain View, California, develops and markets hardware and software for communications equipment suppliers and independent software sellers in the networking and communications market.

Terms were not disclosed, but sources close to the deal said Intel paid more than $50 million for the company, bringing the amount that Intel has spent in acquisitions in the past two years at close to $4 billion.

The networking strategy will largely center on the Intel Internet Exchange Architecture, or IXA, the blueprint for a new family of networking chips, according to Mark Christensen, vice president and general manager of the Networking Communications Group at Intel.

Networking is shaping up to be the most significant venture in Intel's strategy to expand beyond PC processors. With PC sales growth nearing a plateau, the company in the past two years has been seeking out new markets to maintain its historical financial returns. Christensen, among others, has pointed out that networking processors, as a market, will grow by 25 percent annually, which is larger than estimates for the PC chip industry. Most of the recent acquisitions have been for Christensen's group.

Accomplishing diversity, however, is often easier said than done. Earlier this year, Intel canned its work on standalone graphics chips after spending $430 million on acquisitions.

The IXA in many ways reflects the strategy that Intel has adopted in the PC industry. At the heart of the effort sits the IXP 1200, a processor set built around technology acquired from Level One, Softcom, and Digital. The chip, which integrates a StrongARM processor and six other microcontroller engines among other parts into a single piece of silicon, will essentially serve as the traffic controller for PBX boxes, routers, and other telco equipment.

Complementing the chip, Intel will release 12 other products that will allow the IXA 1200 to be placed into a variety of systems. These range from basic communications servers, to multiple processor systems, to voice-data network solutions, or to serve as the engine behind virtual private networks--a relatively deluxe service from communications carriers that allows parties to engage in protected communications that are not hooked up to the same internal network. NetBoost products will become complements for the IXP1200.

By developing several generic building blocks, Intel hopes to squeeze into as many sub-segments of the market as possible. Ten more communications chips will follow in the second half of the year for enhancing communication capabilities for PCs at different price points, Christensen added.

"We want to sell in millions of units, not tens of thousands of units," he said. "What we are talking about is a brand new architecture for how you build communications equipment."

In PCs, Intel has largely taken a core processor, most recently the Pentium II and III family, and surrounded it with complementary products to fit into as many segments as possible.

Programmable chips
How will Intel succeed in a market where there are already a number of companies delivering similar products? For one thing, Intel's products will be cheap, costing less than $200 in volume, and will be programmable, meaning that they can be used in a fairly wide variety of devices.

The programmable aspect also will allow companies to get away from depending on custom-made ASIC chips, which can be expensive and become easily obsolete by technological advances. With a programmable chip, corporate users only have to change the software, not the processors, when they want to add capabilities.

The chip can be programmed, for example, to prioritize email messages within a corporation so that intercompany messages get delivered quicker than spam, said a spokesman.

Second, the company comes to the table with cash and influential allies.

As part of the strategy, Intel has created a $200 million communications fund to investment in start-ups and established companies that are interested in collaborating with Intel on bringing the IXA architecture to prominence.

The company will also continue to buy networking companies as the telco equipment industry begins to narrow the variety of building blocks it uses to create its products. Earlier this year, the company acquired Level One for $2.2 billion.

"We're going to continue to acquire companies," said Christensen. "This is a very competitive industry. I don't think there is room for two dozen architectures."

Intel's latest planned purchase, NetBoost, provides hardware and software that allow communications servers to "load balance," or shift computing tasks for greater efficiency, said an Intel spokesman. As Internet traffic often comes in sudden bursts, these products can be instrumental in allowing IT managers or e-commerce sites to control network traffic.

Intel also has begun to line up customers for IXA. Cisco, among others, will announce that it plans to add IXA technology into some of its telecommunications equipment. Cisco, however, has not elaborated which products will contain IXA parts.

Cisco also announced a deal yesterday to work with IBM on a similar family of networking processors.

Other companies are expected to announced their support for Intel's products this morning. CAG Technologies, which specializes in chips for virtual private network systems, announced it will adopt the IXA1200 for its equipment, while Wind River Systems, which makes operating systems for industrial equipment and other devices, said it will adapt its products to the IXA. Others include Broadband Access Systems, Cabletron, Newbridge Networks, Omneon Video Networks, and T.Sqware.

One aspect of communications that Intel will focus on is segregation, according to Christensen. Currently, carriers are looking for ways to segment their bandwidth to customers. i.e. they want to provide standard phone and data service but also sell connections such as virtual private networks for a premium.

The IXA architecture will be geared toward making it easier for server manufacturers to develop boxes that can provide this sort of flexibility.

"The future is all about providing different services on top of this infrastructure," Christensen said.