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Intel's Otellini pledges growth from places new and old

Coming off a shaky forecast for the first quarter, Intel's CEO promised that the chip maker will be in excellent shape over the next two years in both its core markets and new targets.

Tom Krazit Former Staff writer, CNET News
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.
Tom Krazit
4 min read

SANTA CLARA, CALIF.--Intel CEO Paul Otellini sought to reassure major investors Wednesday that the world's largest chip maker is still poised for strong growth into new areas like mobile computers, and can maintain its current lead in PC technology.

Otellini reiterated much of Intel's pitch from the last six months that the world of handheld mobile computers and low-cost PCs can supplement the slowing-but-steady growth of the PC market. Intel is investing new products like its Atom processor and attempting to break into these new markets by reminding software developers and device makers that Intel's chips are used to run today's PC-based Internet, and are ideal for allowing tomorrow's mobile devices to access that Internet.

Intel CEO Paul Otellini laid out Intel's plans for growth in front of investors Wednesday. Tom Krazit/CNET News.com

Investors from major financial institutions might be forgiven for being a bit skeptical coming off Intel's news this week that its gross margins would sag this quarter on falling flash memory pricing. But Otellini promised "this is a business that will not be a drag on Intel," and that the company was finding ways to make sure the volatile flash memory market does not hurt its bottom line.

Instead, Intel's CEO wants investors to focus on the potential for Intel's large bet on mobile devices. The company has been on a evangelical push for the last six months touting the virtues of the x86 instruction set in the world of mobile devices. The idea is that anything that can run on a PC--take Adobe's Flash, for example--would be able to run on a handheld device with one of Intel's Atom processors.

To break into this market, Intel is reducing the time between when an idea gets approved to production starting with the new Atom generation of products, Otellini said. The goal is to get from idea to prototype in six months, and then from prototype to production in another six months. PC processor designs take much longer, several years, from idea to production.

Intel also thinks it will benefit as people start owing and using more than one sophisticated computer, whether that's a home desktop, a work laptop, a smartphone, or something else we haven't even thought of yet.

Sean Maloney, Intel's sales chief, took the idea further as he talked about Intel's Netbooks project to build low-cost notebooks based on the Diamondville derivative of the Silverthorne processor. Intel sees Netbooks as almost "starter PCs," borrowing that time-honored marketing tradition of getting young kids hooked on a basic inexpensive computer and then sticking with them as their tastes mature and their demands grow more intense.

Intel is at a very interesting time in its history. PC and server growth has slowed, although it continues along at a "low-double digit" growth pace, Otellini said. That's not the kind of growth that gets investors all excited, however, they like the kind of growth more in the 20 percent range.

Having seen these trends a while ago, Intel has been searching for its next big thing for several years. But while it does that, and tries to build a business around handheld mobile computers and low-cost PCs, it has to keep an eye on its main markets.

One major area sorely in need of improvement is Intel's graphics tehcnology, currently built on outdated manufacturing equipment as a way of wringing productivity out of older factories. That is going to change, said Otellini, as Intel starts moving more and more of its chipset production to newer factories using the latest manufacturing equipment.

This will have a few benefits, he said. It will allow Intel to build chipsets with more transistors dedicated to graphics, since it will no longer have to use older technology that can't build transistors as small as its latest and greatest stuff. It will also help Intel reduce expenses as it moves toward "fewer, larger factories," Otellini said.

And Intel remains hard at work on Larrabee, its "many-core" programmable chip that appears to be designed for a variety of tasks that could well include graphics acceleration. By 2010, Intel hopes to have shipped Larrabee and moved all of its graphics transistor production to its leading-edge manufacturing technology, so that the same equipment is used for both CPUs and graphics, Otellini said.

Intel is in pretty good competitive shape at this point, with AMD still working to get into the quad-core era. But Intel has had trouble breaking into new markets outside the PC or server in the past, which is why investors will be watching closely over the next two years to see what Intel's talking about at that point.

Conspicuously missing from the spotlight during Intel's presentation this year? Viiv digital-home PCs, UMPCs, and cell phone processors, which have played prominent roles in past Intel investor rallies. There may very well be a market for starter PCs and x86 smartphones, but if history is any guide, Intel will strike out on at least one of those efforts.