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Is monopoly the ultimate goal?

That the key to power and wealth in the PC industry is control of what's inside a PC has not been lost on Intel, which has brought enough of the personal computer under its sway that some are beginning to wonder where Intel technology ends and where the rest begins.

Is monopoly the ultimate goal?
By Brooke Crothers
September 4, 1997, 12:00 p.m. PT

special report The Intel microprocessor is at the core of more than 80 percent of the world's hundreds of millions of personal computers. The ubiquity of its chips is evident to even the most casual observer since a PC is often characterized by the type of Intel processor inside rather than the brand name that appears on the outside.

That the key to power and wealth in the PC Q&A: The antitrust maze industry is control of what's inside a PC has not been lost on Intel, which has brought enough of the personal computer under its sway that some are beginning to wonder where Intel technology ends and the rest begins.

Indeed, an issue that has come to perennially haunt the PC industry since the beginning of the decade is the seemingly unstoppable march of Intel (INTC) from its microprocessor stronghold toward other parts of the PC.

All of which begs the question: Is Intel out to monopolize the PC as a deliberate goal or is it simply a necessary part of a successful business strategy?

The answer is probably that the latter begets the former.

"Intel can't grow by increasing its market share in PC processors," says Michael Slater, founder and editorial director of Microprocessor Report, a respected industry publication. "The only way Intel can grow faster than the PC market itself is by providing more of the components that go into a PC."

Intel puts it this way. "In order to continue to innovate and deliver compelling technologies at They will annihilate the competition the pace demanded by the market, Intel frequently offers computer 'building blocks' beyond the core microprocessor," said a company spokesperson.

But as it drives the PC industry inexorably forward to create demand for more processors, Intel has developed an insatiable need to control more of the other chips and components that interact with a PC's processors.

The reason is simple. The surrounding circuitry enables the newest Intel processors to fully attain the leaps in performance that are essential for driving the market forward. They also provide a ready-made computer core that PC makers can easily plug into new computer lines, paving the way for ever-faster market cycles, which in turn gobble up more Intel chips.

Infographice of Pentium 2 motherboard

This circuitry consists primarily of the chipset--peripheral chips that, along with the processor, make up the PC?s nervous system. Intel also makes the computer's main circuit board, also known as a motherboard, which holds most of the PC's electronics.

Intel's ascendancy in these areas triggered well-publicized power struggles with PC-manufacturing giant Compaq Computer and with chip competitors such as Advanced Micro Devices.

Slater points to sea changes in the industry effected by Intel's aggressive moves. "By making advanced motherboards available quickly, Intel took away the time-to-market advantage that companies such as Compaq once had," he says.

The result is that few PC makers these days have the financial wherewithal for research and development, thereby creating a vicious cycle in which Intel continually expands its power base. "Because no PC makers generate enough profit to invest heavily in R&D or have enough market influence to create new de facto standards, Intel has to play the role of the industry R&D leader to keep [the industry] from stagnating," according to Slater.

As Intel has brought its development and manufacturing prowess to bear on a PC motherboards, it has weakened a number of U.S. manufacturers, including Micronics and AMI. (AMI has branched successfully into other areas.)

Intel now supplies motherboards to many of the world's largest PC makers, particularly motherboards that are used when PC vendors first launch new desktop computer lines based on new Intel processor technology, according to Ashok Kumar, an analyst at Austin, Texas-based Southcoast Capital. Although a number of Taiwan-based motherboard manufacturers are still thriving, many of these companies nevertheless incorporate Intel components on their boards.

For chipsets, Intel's moves are much more striking. Chips and Technologies, a graphics chip company that Intel is now trying to purchase, once supplied chipsets to much of the desktop PC industry. Intel?s entry into the market, however, put an end to this.

Other chipset manufacturers, such as VLSI, have also suffered since Intel's entry into the field and been forced to seek other business. "That (chipsets) was 50 percent of our business 18 months ago. It's now 5 percent. Intel started making motherboards and chipsets...Half of our chipset business went away," said a VLSI spokesperson.

Kumar believes that Intel is well on its way to duplicating this desktop PC strategy in notebook PCs also. "They will annihilate the competition," he says. Indeed, Intel now supplies notebook chipsets to many of the top notebook vendors including IBM, Dell Computer, and Gateway 2000. Intel has also just begun to deliver to notebook makers small circuit boards, referred to as "modules," which hold much of the notebook's core electronics.

Kumar expects Intel to also bring out a notebook circuit board product in 1998 which incorporates even more of the electronics, including a graphics chip, though Intel denies this is in the works.

Which leads to Intel?s next target, the graphics chip, the last major PC chip market that it has yet to participate in and is currently populated by a number of independent suppliers, such as S3 and Cirrus Logic. Graphics chips play a critical role in controlling the images that appear on PC screens.

Intel's purchase of Chips and Technologies, along with its own internal projects, herald an aggressive foray into the graphics chip business. In short, if this is executed successfully, Intel could hold sway over all the main circuitry in a PC.

Moreover, the chip maker's position could be strengthened as it moves the industry to its proprietary Pentium II architecture, effectively shutting out Intel processor clone manufacturers--which raises the question of the company's intentions.

"Intel's primary goal is to continually Because no PC makers generate enough profit to invest heavily in R&D...Intel has to play the role of the industry R&D leader increase the market for high-performance PC microprocessors. The chipset, motherboard, and graphics business all serve this goal," Slater says. "And, of course, Intel presumably wants to have as much influence over the industry as possible, which gives them more control over their destiny."

This, in turn, leads to the apparently inescapable conclusion that Intel will succeed in taking over more and more of the computer. But history also dictates caution here, as companies hold in themselves both triumph and defeat, as one famous American poet said of mankind.

Intel's astounding success, rooted in a ruthless pursuit of market share, could overstep the bounds of acceptable market strategies, pushing PC manufacturers to rebel and embrace technologies developed by others. Or worse, it may get caught in a dead-end technological rut.

But Intel management is based on paranoia, as CEO Andy Grove has stated in his widely quoted mantra. And this constant fear may come to serve it well.

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