Andrew S. Grove, chief executive of $8.8 billion chipmaker Intel Corp., can't wait to show off his new toy. Sitting at what looks like a standard personal computer, he phones an assistant. A jerky video image of the assistant's face appears in a window on Grove's screen. Equipped with a series of Intel products to be unveiled Jan. 25, the PCs let Grove and his associate see and hear each other and work on the same documents--all at the same time. "The PC's never going to be the same," exclaims Grove.
It's no wonder he's as excited as a kid on Christmas morning. Grove hopes these "personal conferencing" products will generate entirely new ways to use Intel-powered PCs. Two decades after its microprocessor started to transform the computer industry, Intel is plotting to lead the next revolution. By jazzing up the 13-year-old PC with new application programs, hardware add-ons, and design standards, Grove hopes to make it as useful for communications as it is for number-crunching--an information appliance for the Information Superhighway. Says Grove: "We have to make the PC the ubiquitous interactive access device."
But don't confuse Intel with all those headline-grabbing highway hucksters. Grove isn't talking pie-in-the-sky. His objectives are simple: to push PCs to new limits so customers will buy models using the most advanced Intel chips--the ones that clonemakers such as Advanced Micro Devices Inc. and Cyrix Corp. don't sell. At the same time, by giving the PC a voice and a view, customers have less reason to consider the powerful workstations based on RISC (reduced instruction-set computing) chips.
Even more important, Intel wants to make sure the IBM PC standard--based on Intel chips--prevails in the era of multimedia and mobile computing. Already, there are danger signs. IBM and Apple Computer Inc. are both creating multimedia machines based on the PowerPC chip they're developing with Intel rival Motorola Inc. Silicon Graphics Inc. has contracts to build sophisticated cable-TV boxes using its MIPS microprocessors. And a growing number of gizmos, from personal digital assistants to game machines, are rolling into U.S. homes and businesses--without Intel chips.
And there's another threat: digital signal processors (DSPs). These superfast chips are specially designed to handle video, audio, and communications. By using these chips, PC makers could build advanced multimedia systems around the less expensive Intel 486 chips or its clones--instead of moving up to Pentium. Indeed, despite record 1993 earnings of $2.3 billion reported Jan. 18, Intel shares dropped sharply because of investor concern that profits may level off from increased competition and slowing PC sales.
ON THE BUS. So, Grove has launched an ambitious strategy--spending some 20% of research and development, about $200 million a year, to make Pentium-based PCs into great communicators. First, he's pushing the manufacturing pedal to the metal, cranking up Pentium output at twice the rate of the 486s. And to make sure they sell, Pentium prices will drop 18% from the first to the second quarter.
Intel is also proposing new hardware standards to get better video and multimedia performance out of PCs. It has a new "bus" to speed the flow of data between the microprocessor and other parts of the PC. It's also working with networking specialists Novell Inc. and Synoptics Communications Inc. to help PC networks handle video and audio efficiently.
Intel's most aggressive move will come Jan. 25 at the ComNet trade show in Washington, D.C., when Grove is scheduled to introduce three personal conferencing products. The first, dubbed ProShare, which analysts say will sell for $99, enables two people to work on the same documents or drawings simultaneously. PCs can't do that now without special hardware or pricier software.
Grove's favorite new toy, though, is the VideoSystem 200. It consists of two add-on cards to handle video, a tiny camera, a headset, and the ProShare software. Thus equipped, PCs based on 486 or Pentium chips can exchange live video. The images are a bit jerky because they run only 15 frames per second, half that of television. But at under $2,000 per PC, it's probably the cheapest product around for videoconferencing on PCs. Grove used the setup to beam himself into a recent Intel sales meeting in Los Angeles.
At minimum, these add-ons get Intel into a hot market. Sales of computer-based videoconferencing systems will grow from $70 million last year to $3.4 billion in 1997, forecasts Waltham (Mass.) market researcher Personal Technology Research. But Grove makes the real purpose clear: "The good thing about this," he says with a glint in his eye, "is that it eats all resources." In other words, it will sell Pentiums.
To help jump-start the market, Intel is signing up--and buying--a lot of new friends in communications. Last year, Intel invested $7 million in VTEL, a videoconferencing company. On Jan. 7, it bought a $2 million stake in Compression Laboratories Inc. with which it will co-develop PC products. And on Jan. 10, it joined with Compression Labs, AT&T, and 10 others to write PC conferencing standards. Intel is also making sure PCs can plug into phone systems. Last May, it teamed with Microsoft Corp. to write standards for PC programs that work with telecommunications gear.
While it's aiming first at businesses, Intel isn't forgetting couch potatoes. Last month, it joined with General Instrument Corp., a maker of cable-TV converters, to create a modem to let PCs tap data coming across cable systems. Intel already has a $300 million consumer business that includes fax and modem cards.
Grove's bid to push the PC onto the Information Superhighway has its risks. There's plenty of competition in videoconferencing, including PictureTel, AT&T, and Compression Labs, which still plans to compete with higher-end gear. Moreover, Intel's product could be a hard sell because it requires expensive digital phone lines. And despite its clout, the market doesn't necessarily anoint Intel standards. For example, most computer makers rejected Intel's earlier Digital Video Interactive format.
Still, Intel has awesome strengths--not least a hoard of $3.3 billion in cash and securities. So the $200 million it's spending to make the PC a communications powerhouse can be seen as a cheap insurance policy on the $5 billion it's spending on Pentium. And it sure makes the PC a cool executive toy.
MAKING THE PC A GREAT COMMUNICATOR
DIGITAL VIDEO FORMAT Datacompression software allows video playback on PCs without special hardware
PERSONAL CONFERENCING ProShare lets users collaborate electronically
VIDEOCONFERENCING VideoSystem 200 software/hardware package lets people do videoconferencing on PCs
COMMUNICATIONS ADD-ONS Cards are aimed at key PC applications
PCs ON CABLE High-speed modem under development with General Instrument could connect PCs to cable TV
COMMUNICATIONS ALLIANCES Projects are under way with videoconferencing, networking, and phone companies.
PC STANDARDS Collaboration with PC and software companies could lead to faster internal pathways and make PCs easier to use