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Optical/IP

Intel Swaggers Into OC192 Market

In its boldest bid yet for a piece of the optical action, Intel Corp. (Nasdaq: INTC) unveiled seven optical semiconductor chips this week (see Intel Announces Optical Silicon Solutions ). Included are chips that control the flow of multiprotocol, packetized data in high-speed networks supporting 10-Gbit/s (Sonet OC192) data rates.

The announcement is the latest in a series of moves Intel's made to turn itself into a broadband chip manufacturer. Earlier this week, for instance, the company announced the $550 million purchase of a DSP (digital signal processor) company with packetized voice capabilities (see Intel Snatches VOIP Startup for $550M). That buy, Intel says, is just the tip of an iceberg of acquisitions (announced and unannounced) that are aimed at bolstering its broadband ambitions.

All this raises an oft-asked question about whether one of the world's largest PC chipmakers -- and most successful technology companies -- can port its success to next-generation carrier networking.

The vote's not in on this one. Analysts say Intel's assembled a series of interesting offerings that will earn money. But whether it can take any noticeable market share from established Sonet players like Agere Systems, Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC), and Vitesse Semiconductor Corp. (Nasdaq: VTSS) remains to be seen.

"Intel's doing all of the right things," says Jeremy Bunting, communications IC analyst at Thomas Weisel Partners. "But OC192 is a remarkably competitive space." He also notes that Intel's track record in ranging outside its core PC microprocessor area hasn't been particularly distinguished.

"Over the last couple of years, Intel's spent billions on communications IC acquisitions," he notes, adding that the company's revenues from these endeavors are probably substantial but so far haven't given Intel a sizeable share of the communications market.

Intel's most prominent acquisitions in this space include its $1.25 billion cash purchase last March of Denmark's Giga A/S -- a buy that brought Intel Sonet expertise. Other important moves were the $2.2 billion stock swap that brought Level One Communications into Intel's fold in March 1999 and the acquisition of the broadband integrated circuit business of the former Stanford Telecom in September 1999.

Intel says it's used these companies to build a formidable optical division. And on top of its actual acquisitions, the company's invested lavishly in optical endeavors through its Intel Capital division, acquiring know-how in the process.

"We sometimes made investments just to learn things," former Intel Capital executive Michael Lebby told Light Reading in a separate interview last year. (Lebby is now CEO of Ignis Optics Inc., a startup maker of optoelectronic modules backed by Morgenthaler Ventures.)

And if its level of investment is any measure, sources say, Intel must have learned a lot. "Intel was easily the most active investor in optical last year," says one venture capitalist, who requested anonymity. "They invested in well over 20 companies."

But some question whether the actual foundation Intel has assembled for its optical chip business can support the size of edifice it's trying to build. "Giga traditionally was early to market and had a fairly solid Sonet presence," says Bunting. But Giga's been weak in volume production and has had "no substantial" market share as a result, he says.

Bottom line? The magnitude of Intel's success as a manufacturer of optical components is an unknown at this point. But its ongoing interest in optical is clearly so aggressive that interesting results may follow.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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