Intel to fashion its own future out of communicating and computing

Visiting Intel Ireland's facility just outside Dublin, you could easily forget that the technology sector is mired in its worst recession. Despite a few hundred redundancies in the past 18 months, and a recent decision to close its main fabrication plant for a two-week period over Christmas, morale at Intel seems high.

At the end of every hour, hundreds of researchers, engineers and computer operatives fill the corridors at Intel's Leixlip facility chatting about work, the weather or what's on television.

Meanwhile, construction of the firm's state-of-the-art fabrication plant, Fab 24, and an accompanying office block IR6, is well under way, with production due to begin in 2004. The firm has spent €600 million on construction so far and will spend another €2 billion to kit out the facility with the latest manufacturing equipment.

Fab 24 is one of four global plants in which Intel is investing $10 billion (€10.1 billion) to focus on the next big thing in information technology. "We see the next big thing as the convergence of communications and computing," says Mr Doug Busch, chief information officer at Intel, fresh from briefing management and staff at Leixlip, Co Kildare.

The fact that wireless communications will be universal in almost everything Intel builds from now on will be a dramatic shift in the way we do things, says Mr Busch.

"Based on the kind of products that we are designing, every computing device will communicate and every communications device will compute. So your mobile phone is going to have the power of a major league computing device, your notebook computer will have built-in wireless capability, and your hand-held personal digital assistant or PDA will have bluetooth capability [which allows computer devices to talk to one another]."

Intel, which provides microprocessors to about 81 per cent of all PCs sold, has already begun to use manufacturing capacity at its existing fabrication plant in Leixlip to diversify into the communications sector. This year it invested €90 million in machinery for Leixlip capable of producing Intel's 0.13 micron technology used in flash memory chips - key components used in mobile phones, hand-held computers and PDAs. Similar expenditure is expected next year.

Intel is also focusing on introducting its next major mobile processor - its Banias chip, says Mr Busch. "It's not just a processor its a combination of a CPU chipset and a wireless chip. The combination of these make a highly integrated, very power efficient, wireless enabled notebook."

The platform, to be released in spring 2003, should offer users seamless wireless connectivity on the latest 802.11 dual band wireless local area networks, which are being installed at airports, coffee shops and offices.

Mr Busch believes the Banias chip will enable the numbers of notebooks with inbuilt wireless connectivity to reach a critical mass. This will make it a compelling proposition for firms to install wireless access points for employees, he says.

Being responsible for Intel's IT infrastructure, which has 65,000 notebooks, 35,000 desktop computers and 25,000 servers, Mr Busch knows the implications of mobility. "The ability to provide connectivity to people regardless of where they are in the facility gives us economies with the way we staff and support operations.

"We have people from different time zones all working together, so by giving everyone notebooks and making information available to them in real time, it enables them to work together," he says.

Mr Busch showed his own faith in mobility recently by supporting an Intel meeting in a hotel room supported by a suitcase of inexpensive kit plugged into a wireless network jack on the wall. "Traditionally people would have been fighting over the single analogue phone line but we were able to share information and move files around at the meeting."

Saving money is key for Mr Busch, who claims Intel has delivered $450 million in cost savings by substituting higher performance, lower cost hardware in its business over the past four years.

"We think it is extremely important that companies pay attention to their investment in their desktop and notebook installed base ... there is enormous difference in product performance in the one you buy today and the one you bought a few years ago."

An internal Intel survey found its own employees using desktops three to four years old would lose about 60 hours a year in productivity compared to those with the latest machines, says Mr Busch.

But with sales for full year 2002 projected at $26 billion, some 25 per cent lower than two years ago, it is clear most firms are ignoring Intel's advice to upgrade.

To some extent, there was a perfect storm effect in the late 1990s which is stalling IT upgrades at the current time, says Mr Busch.

"The Y2K bug caused a lot of people to upgrade then, the extremely strong economy caused a lot of companies to upgrade and you also had the infusion of new technologies associated with the internet all of these happened at the same time which created this spike in investment in IT. Those investments are all ageing and it will get more urgent in the next few months to upgrade," he says.

The growth in IT services is not dependent on the business climate, says Mr Busch, who notes Intel's staff rose 25 per cent between 1998-2001 but the IT services it delivered grew 100,000 per cent.

Mr Busch says Intel has saved $129 million this year alone by making greater use of IT services, e-commerce and creating revenue opportunities. He is credited with implementing a content distribution system to save cash which is based on the music file-swapping site Napster. "Napster gave people the way to exchange music and entertainment files. ... We now use it to distribute multimedia training files and videos."

Likewise, Intel has moved to eliminate almost all paper-based transactions and form-filling in favour of digital technology. And in the current difficult business climate, the firm has also sought to find ways to use its own IT systems to raise revenues, by offering new tools to its customers or software developers. Thrift is only half the answer, says Mr Busch.

But with little sign of a strong upturn in demand for microprocessors at least in the near-term, Intel will continue to focus on costs. Although Fab 24 is on schedule for production in the first half of 2004 and Intel will next month draw down grant aid from the Government, Mr Busch says Intel will continually adjust Fab 24 to meet demand. After two false starts during its construction phase, the 3,000 Irish staff hope slack demand will not slow the process.

"We absolutely believe that in this type of business climate you invest in R&D to work your way out of it. You don't retrench on R&D.

"It is new products and exciting new capabilities that consumers want, highly competitive new manufacturing processes that will give you the impetus that increases demand," he says.