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Intel Looks Beyond Silicon

CEO Craig Barrett says most of the chipmaker's R&D spending will go toward the technology underlying wireless handhelds, consumer electronics, and components of the communications infrastructure.

Intel plans to push its business model beyond basic silicon in the coming year, as the worldwide telecommunications infrastructure and home-computing environments continue to go digital. In fact, Intel CEO Craig Barrett told financial analysts Thursday that most of his company's R&D spending will go toward the technology underlying wireless handheld devices, consumer electronics, and components of the communications infrastructure.

"The tenet of our industry has been to innovate and integrate," Barrett said.

Intel will continue to focus on delivering modular, standardized technology for communications devices. The goal, Barrett says, is to get the telecommunications industry to rebuild itself to more closely resemble today's computer industry, where many hardware makers eschew proprietary technology for those based on open standards.

To help Intel grow revenue and earnings over time, the company is developing chip architectures, chipsets, and software that drive standards throughout the devices in which Intel chips operate. President and chief operating officer Paul Otellini told analysts at Thursday's meeting that the company's architectures for the immediate future are based upon hyperthreading technology, which brings multiprocessor-type capabilities to smaller systems, and Centrino technology, which promotes the conversion of computing and communication devices.

On the software side, Intel is focusing on changes to the BIOS layer, where PCs of the future will be able to do system recovery in the event of a failure. Intel plans to license this technology to other companies.

Barrett also noted that Intel is focused on a global approach to delivering its technology. Most of the company's business this year was done in the Asia-Pacific region, whereas 30% of the company's sales were in North America, Barrett said. Intel's global strategy pertains to both established and emerging economies, such as those in China, India, and Russia.

There hasn't been a strong demand for PC upgrades in the Americas and Japan because these are mature technology markets, Barrett said. There's more growth in Europe and the Asia-Pacific region, which contain more emerging economies. Emerging economies are those that are investing in technology to catch up rather than stay ahead. Barrett doesn't expect a major refresh spending cycle in the United States, but he does anticipate an increase in IT spending in the coming year.

In addition to technology integration and a focus on global markets, Barrett said Intel is counting on the "adjacency" of technology, referring to an "active spillover of Intel's technology" into the communications and consumer electronics sectors. This is already happening with cell phones that also act as PDAs and digital cameras.

Any potential short-term impediments to Intel's objectives could stem from reluctance on the part of telecommunications equipment providers such as Lucent Technologies Inc. or Nortel Networks Ltd. to spend money on new technology. "We need these companies to get healthy," Barrett said. "Intel's goal is to get companies to design its processors into their next generation of products. It's been tough to get an investment cycle going."

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