Small, cheap Internet devices connect Intel to new places

NEW YORK — Intel's push to create and boost new categories of small, cheap Internet-connected devices is taking the world's largest chip maker in some unusual directions.

It's investing in wireless networks, or even buying them outright. It's relying on software that isn't from Microsoft. And it's looking at making processors cheaper and smaller rather than faster and faster.

To Chief Executive Paul Otellini, it's all part of bringing the Internet to new places and people, and computer makers are responding.

"I've not seen energy like this from our customers in a long, long time," Otellini said. "Everyone views this as being sort of hyperexpansive to the existing market."

A centerpiece of the strategy is the Atom processor, which packs the power of a PC-class processor from six years ago into the smallest space yet — 25 Atoms will fit on a square inch. It's intended for Mobile Internet Devices (MID) — iPhonelike tablets that provide a "full" Internet experience, better than that available on cellphones.

Somewhat larger than the MID is what Intel calls the "netbook," a small, cheap laptop. Taiwan's AsusTek has had a breakout hit in this category with its eeePC, which starts at $300 and uses an Intel chip.

Other manufacturers, such as Hewlett-Packard, are entering the space too, though HP is using a chip from Via Technologies.

No cannibal worries

Otellini isn't concerned that low-power processors could "cannibalize," or steal, sales from Intel's high-end, high-margin products.

"If a higher-priced notebook isn't substantially better and doesn't offer more utility, shame on us," he said. "If there's cannibalization, I'd rather be the cannibal than someone else."

Bill Hughes, an analyst at the research firm In-Stat, noted that a relatively small group is behind the demand for netbooks, which some stores have had trouble keeping in stock.

"It's growing fast because it's very small," Hughes said. "It will continue to be a niche for the foreseeable future."

As for MIDs, Hughes said the firm's surveys indicate that consumers are much more likely to want a smartphone rather than carry another gadget along with a cellphone.

"Mobile Internet Devices are going to struggle in the U.S., but that doesn't mean they aren't going to be wildly popular in other markets," he said.

To connect these portable gadgets to the Internet, Intel is backing WiMax, a wireless technology sometimes described as a long-range version of Wi-Fi. Like Wi-Fi, it has its roots in the PC industry, but it's really a competitor to cellular wireless technologies.

Most major wireless carriers are skipping WiMax, planning instead to build out networks using Long Term Evolution (LTE), a successor to current cellular technology. To keep WiMax in the running, Intel is contributing $1 billion to a $14.5 billion venture operated by Kirkland-based Clearwire and Sprint Nextel that plans to build a WiMax network across the U.S., with a commercial launch sometime this year in a few markets.

Intel is also a minority investor in a consortium that bought a Japanese WiMax license. And in May, it paid $26 million to buy a wireless broadband license in Sweden. It did that without a partner, but Otellini suggested that the company is looking for one.

"You won't see Intel, per se, becoming a network operator. That's not our competency," he said. "But as a means to enable hundreds of millions of high-performance mobile devices that access the Internet — both notebooks and smart phones — I think it's a good investment for us."

Not a sure thing

Even though mobile WiMax has a head start on LTE, which won't be along until perhaps 2010, Otellini acknowledged that its success isn't a sure thing.

"Whatever happens with WiMax, the consumer will benefit because it makes LTE happen faster," he said.

As Intel is looking for partners for WiMax, it's drifting away from an old friend. For two decades, Intel processors and Microsoft's Windows software were so closely associated that the joint platform was called "Wintel," much like celebrity couples TomKat and Brangelina.

But the union has been looser in the past few years, with Intel-based servers increasingly being used with the upstart Linux operating software. On the consumer side, Apple, which has its own operating system, adopted Intel processors in 2006.

The push into smaller gadgets is set to take Intel further away from Microsoft. "Netbooks" generally run Linux or Windows XP, which Microsoft has been trying to discontinue in favor of its flagship, Vista.

"Vista has a larger memory footprint, a larger graphics requirement and a higher price point. This is all about low-cost computing," Otellini said.

He noted that Microsoft has an operating system for smartphones, but it runs only on chips designed by Intel competitor ARM.

"I see much of the activity in Mobile Internet Devices, sort of the evolution of the handset, being centered around Linux," he said.