The Wintel Of Their Discontent

The view of the duopoly from inside Intel doesn't look so rosy

For 17 years, the relationship between Microsoft Corp. and Intel Corp. has been so symbiotic that the two have come to be known simply as Wintel--a contraction of Windows and Intel. But on Nov. 9, when Intel Vice-President Steven D. McGeady took the stand in the U.S. government's antitrust suit against Microsoft, he revealed deep cracks in the relationship.

McGeady's riveting two-day testimony contained enough bombshells to send Microsoft running for cover. The Intel exec told the court that in August, 1995, weeks before the launch of Windows 95, Microsoft threatened not to support future Intel processors unless the chipmaker stopped writing multimedia software that Microsoft saw as competitive with its own. The threat, McGeady said, "was both credible and fairly terrifying." Intel, McGeady noted, dropped its software soon after. But he conceded that Intel also was late to market.

McGeady's testimony was a powerful boost to the government, most of whose witnesses have been from Microsoft rivals. "The specific allegations themselves are damaging," says Richard Gray, a partner with Bergeson, Eliopoulos, Grady & Gray, a Silicon Valley law firm not representing anybody in the case. "And they carry more weight than previous allegations because of who [McGeady] works for."

McGeady revealed on the stand what many in Silicon Valley have long suspected: Changes in the high-tech landscape are straining the Wintel relationship. While the duo still work together closely on the technologies for personal computers, from which they both derive the vast bulk of their revenues, the post-PC future is driving them apart. "The growth opportunities for both companies are in different areas," says Nathan Brookwood, principal at chip analyst Insight 64.

Intel, for instance, is aiming for the high end of the computer market--and weaning itself from reliance on Microsoft. The chipmaker has heavily courted makers of Unix software--the chief rival to Microsoft's Windows NT--to support its next-generation Merced superchip, expected in 2000. And it has invested in a startup that sells the fast-growing Linux operating system, an alternative to Windows. Indeed, at a recent industry conference, Intel gave demonstrations of chips running on five different operating systems--only one of which came from Microsoft.

At the same time, Microsoft is more interested than Intel in consumer devices such as handheld computers and TV set-top boxes. These typically use chips cheaper than those Intel makes, so Microsoft now writes software for such Intel rivals as Hitachi and MIPS. Microsoft also is working closely with Intel's archrival, Advanced Micro Devices, on 3-D technology for Intel-compatible chips.

Then, there's Java, the Sun Microsystems Inc. programming language. Intel aims to make Java work best on Intel chips. This, of course, threatens Microsoft, which believes Java undermines Window's supremacy. McGeady told the court that Microsoft CEO William H. Gates III pushed Intel in 1995 to scale back its Java efforts. "They wanted it to stop," McGeady said.

"SUICIDE FOR INTEL." Intel did back off some. But the company has since invested in Java startups and is working with Sun to fine-tune the performance of Java on Intel chips. "It would be suicide for Intel to bet its whole future on fat PCs that run the latest version of Windows," says Jeffrey Tarter, editor of industry newsletter Soft-letter.

Insiders say that despite Intel's growing independence from Microsoft now, it was indeed intimidated by the software giant back in 1995. Then, Microsoft was writing versions of Windows NT for many brands of chips, not just Intel's. Since then, those brands have faded in importance, and Intel holds nearly all of the market for PC servers.

While McGeady's testimony underscores real differences between Intel and Microsoft, observers argue it's also a calculated bid to show the feds--who are chasing Intel, too--that the companies don't act as a duopoly. "Intel wants to put distance between itself and Microsoft," argues attorney Gray. The chill that could follow McGeady's damaging testimony might just do the trick.

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