Microsoft-Intel: Reality, Not Romance

The two tech titans make nice by necessity, working to patch up a relationship that has frayed recently as their interests diverge

By Cliff Edwards

Wintel rises again? Despite rumors of frosty relations, execs at tech giants Intel (INTC ) and Microsoft (MSFT ) are taking pains to note that their relationship is tighter than ever. Says Intel CEO-designate Paul S. Otellini: "The relationship with Microsoft is better now than it has been in a long time." (For a Q&A with Otellini, see "Intel Will "Continue to Run Faster"".) Microsoft Senior Vice-President Will Poole, in an interview with BusinessWeek Online, adds: "We're continuing to work together to drive computing forward, bringing innovation to market as rapidly as possible."

Warm and fuzzy words aside, the Microsoft-Intel relationship remains strictly a marriage of convenience. The pair came together in the early 1980s when IBM (IBM ) chose Intel's chips and Microsoft's operating system to power its personal computers. The duopoly rose to dominate the PC industry.


  The relationship hit a low point five years ago when Intel was forced to speak against the software giant during a high-profile federal antitrust trial. Bad feeling has largely dissipated, but each is pursuing separate growth initiatives that don't support the other's aims.

Company sources say the relationship has been strained by Microsoft's open support of chipmaker Advanced Micro Devices' (AMD ) 32- and 64-bit chip architecture over Intel's. Microsoft's support of AMD's Opteron and Athlon 64 chips, in part, pushed Intel to adopt AMD's architecture for its own Xeon server chips.

Still, Microsoft's Poole says the decision was a win-win for everyone. He argues that the software giant's support stems from customers, who are looking for faster chips that still allow them to use a vast installed base of 32-bit software. "Any provider of an innovative product is in a constant race with its competition," Poole says. "Intel has strengths, AMD has strengths. We're going to try to help all of them succeed to the best of our abilities for our mutual customers."

Intel, meanwhile, has been aggressively supporting Window's rival Linux operating system and writing its own PC software as it tries to become more dominant in the wireless sector.


  For all the strains, though, the two are acutely aware they need each other to maintain their businesses and grow. Intel is anxiously awaiting Microsoft's next desktop OS update, Longhorn. And both are trying to dominate the digital home by transforming desktop PCs into media servers that can dish up music and video to various rooms in the house. They face major consumer-electronics incumbents such as Sony (SNE ) and Samsung, who are making their devices more PC-like. Then, too, there are set-top-box makers who are including similar functions in products far cheaper than Media Center PCs.

Intel's situation appears more precarious than Microsoft's. This year, Otellini canceled plans to roll out a specialized TV chip based on liquid-crystal-on-silicon technology. And the outfit has had a tough time breaking into other markets such as communications chips and handhelds.

But the two giants are working at the relationship. That's why we're seeing new handholding between them. Earlier this month, they announced their first-ever joint advertising campaign to pitch their Media Center PC solution. This holiday shopping season, the pair expects to spend tens of millions on a media blitz that includes television, print, cinema, and online advertising, as well as "experience zones" in malls around the country. It may not be the happiest marriage, but it's one that will last.

Edwards is a writer for Business Week in the Silicon Valley bureau

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