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Intel eyes fatter pipes

The chip giant heads a drive to adopt more bandwidth for the Net in an attempt to sell more of its microprocessors.

Intel, the leading semiconductor maker, wants fatter pipes.

Increasingly focused on driving demand for its pricier chips, Intel wants to push the adoption of more bandwidth for the Internet and other data networks, creating a computing environment full of rich content that needs to be processed.

As a result, it has made a string of recent investments in broadband companies, DSL (digital subscriber line) providers, and data networking (virtual private network) firms.

Integrated Telecom Express is the latest firm to catch the chip maker's eye. Intel today announced an undisclosed equity stake in the maker of chip sets for DSL-based hardware.

Industry analysts and the company agree that even the fastest microchip cannot make up for a lack of speed on the Internet. PC users--an increasing number of whom are new to computing--that bought state-of-the-art computers have grown frustrated with slow downloads and Net navigation.

Intel, by promoting broadband, hopes to not only see a cash return from its investments, but also aims to ease the data transmission bottleneck--and sell more multimedia-enabled microprocessors to consumers along the way.

"If it takes you forever to send an email with a photo attached, that detracts from the PC experience," said Intel spokesman Robert Manetta. "If we can remove that barrier that makes computers more enjoyable."

The company declined to discuss how faster data transmission might affect chip sales, but Manetta said "we wouldn't be placing all these bets if we didn't want to have richer content. There are still bandwidth constraints."

Analysts, however, said faster connections open the door for the company to sell advanced multimedia chips at higher profit margins than lower-end models.

"Having fast communications systems certainly does help Intel sell more chips," said Jeremey Donovan, an industry analyst with Gartner Group's research firm Dataquest.

Investing Inside
Only two weeks ago the semiconductor giant invested $20 million in the Dutch arm of Net-over-cable access provider @Home. The two companies have also teamed to create a digital image site on the Web.

In addition to investing in broadband cable services, Intel has a stake in the DSL market, a competing technology that allows high-speed transmission of voice and data over standard copper phone lines.

Intel recently invested in NorthPoint Communications, a CLEC (Competitive Local Exchange Carrier) specializing in Internet access via DSL. Intel also is part of an alliance that aims to standardize ADSL (asymmetric digital subscriber line) technology.

In the last year, the company staked a claim in broadband equipment company Hybrid Networks, and jointly created a new broadband company called Pacific Convergence with Hong Kong's Pacific Century Group. The new company provides digital data services in the Asia-Pacific region.

Additionally, Intel has brought CopperCom, Copper Mountain Networks, and Covad, an upstart DSL provider, under its wing.

"We want to facilitate the mass market acceptance and penetration of ADSL technology," said Integrated Telecom Express chief financial officer Tim Rogers.

Financial terms of most deals have not been publicly disclosed. But Intel typically takes minority equity stakes of less than $10 million in companies, a spokesman said. With about 200 companies in its portfolio, Intel's investments are worth about $1.5 billion.

Mega Multimedia
Intel is not the only company that has branched out beyond its core business with investments in new technologies. Microsoft has invested in Time Warner's Road Runner Net-over-cable service, for example.

"They are driven by the same motivation as Microsoft, and that is higher bandwidth and persistent bandwidth will create a more dynamic PC experience which allows them to sell more PCs," said Ross Rubin, group director for telecommunications and technology at market research firm Jupiter Communications.

In an effort to showcase the power of its line of microprocessors, Intel offered incentives to Web sites that featured 3D or other multimedia content, optimized for the company's Pentium II chips. And Intel's content group is constantly working to develop new multimedia uses.

"Some of their earlier efforts to promote multimedia content were a bit misguided," Rubin said. "In effect you're punishing the user for the wrong crime. It's not that they don't have enough processor power, it's that their connection is too slow.

"Perhaps this is an atonement," he said.

Most analysts said Intel, and companies such as Microsoft, are in an enviable position to place bets on new companies. Often the entrenched leaders invest in competing technologies to hedge, taking advantage of their large coffers to spread the wealth across various niches.

Where the Chips May Fall
Analysts said Intel, a newcomer to the networking equipment industry, could stand to benefit from a surge in broadband connections to homes and small businesses by selling more low-end data gear or Ethernet-based networking cards to grow the market for set-top boxes, or other equipment.

The company's broadband push builds on its strategy to expand its presence in data networking, a market that Intel feels is ripe for its volume-based approach to hardware sales.

To that end, Intel recently bought remote access provider Shiva last month for $185 million.

Intel's muscle has been known to shake up the market. The chip giant initiated a price war last year in the market for networking cards that led a price plunge. That strategy may be revisited as the latest Ethernet technology becomes a more important component within data networks.

But some analysts, noting the increasing popularity of the company's lower end Celeron processor, said that investing in more bandwidth wouldn't necessarily lead to Intel selling faster, more advanced chips.

Jupiter's Rubin said: "I think the pressure they're going to come under for lower cost chips is going to force their hand in terms of promoting the latest and greatest."

CNET News.com Staff Writer Ben Heskett contributed to this report.