August 31, 1999 5:30 AM PDT

Intel CEO: PC firms see telecom opportunities

PALM SPRINGS, California--The business of supplying equipment to the telecommunications industry is exploding, and the PC companies are laying the groundwork to take it over, said Craig Barrett, CEO of Intel.

The interest of traditional PC-centric companies such as Intel, Microsoft, and Cisco comes largely from the convergence of two trends. First, the rise of the Internet and electronic commerce has created a huge opportunity for technology companies to provide the backbone needed to create a wired world and merge voice and data networks.

Second, the communications companies have yet to go "horizontal," or fully segment parts of their businesses so that an entire chain of companies can get involved in making the elements that go into a specific product. Instead, most operate vertically, providing everything from basic silicon to customer services.

While vertical business structures have their advantage, exploding industries tend to evolve toward a horizontal structure, Barrett said, and the PC is if anything horizontal.

"It is kind of the same order of magnitude as the computer space. It is bound to go horizontal," he said. "Mother Nature doesn't like a vertical. Mother Nature likes a horizontal."

As part of this trend, Intel will announce its first family of network processors later today. Intel's new chip-called the Internet Exchange Processor, or IXP 1200--will serve as the nerve center for routers, switches, and other communications hardware built by companies such as Cisco Systems and Nortel Networks, industry sources said. The chip will depend upon technology acquired from Level One, Softcom, and Digital.

The $2.2 billion acquisition of Level One, which specializes in programmable networking chips, he added, has already made Intel a player in the market.

"The communications stuff is well over a billion dollar business and growing faster than the industry. It has the potential to be very big."

Other PC companies are already gearing up for an incursion into this space. Last week at DirectConnect, a conference sponsored by Dell Computer, four of the more powerful CEOs in high tech--Michael Dell, Bill Gates, Barrett, and John Chambers--waxed about the coming convergence of data and voice networks.

More to the point, the CEOs explained how the convergence would take place through the hardware and software made by the PC industry. All four broadly indicated that the communications market represents the next big opportunity to sell equipment, complete with demonstrations of voice-over-IP notebooks and servers.

"The PBX box is a dinosaur," said Chambers. PBX boxes are currently the standard servers for voice communications.

"We're going to see these proprietary PBX boxes become NT servers," said Michael Dell. Dell in fact has teamed up with Com2001 to sell a Windows NT server that can function as a voice/data/fax server.

 

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