Intel works hard at being irresistible

One of the more unlikely yet vigorous investors in many Silicon Valley companies is the world's biggest chipmaker, Intel, which this week announced two new families of microprocessor chips.

Intel taps into its $9 billion cash hoard not to make a quick buck, like the rest of the area's venture capitalists, but to sell PCs. Intel's business model is simple, if devastatingly effective. It starts by investing billions of dollars in chip manufacturing plants. Then it develops those chips and brings them to market at a premium price, simultaneously slashing the price of the last generation of chips. These newer, faster, more powerful models quickly find their way into PCs, are promoted heavily and, in turn, become discounted to make way for the next chip. The pace is relentless, the manufacturing and business practices honed to a science but there's a hitch.

What if people don't need faster, more powerful PCs? What if we all said: "Enough - we can do more than we ever imagined with our PCs. We're satisfied."

Of course, there will always be those who need all the processing power they can get, but the rest of us use our PCs to run our businesses, write letters, calculate, make presentations, surf the Internet and exchange email.

We actually have enough power in today's PCs. In fact, we probably have way more than we need. If we have computing problems, it's because the stupid things are far too prone to crash for no good reason. Or because so many of us like to surf the Net that the information highway is becoming like a big car-park.

That's where Intel's two dozen or so investment specialists come in. They complete, on average, two investments a week and their whole objective is to make PCs so irresistible for the rest of us that we'll keep replacing our existing models with new ones every few years. Because if we don't play the game, the whole pack of cards comes to a jarring standstill.

Intel's investments give a good insight into where it thinks both the bottlenecks and the opportunities are. Its most recent disclosed investment is in Quokka Sports, a San Francisco-based digital sports media company.

Quokka Sports, which already has some great, rich sports-oriented Websites including one for the Whitbread Round the World boat race (www.whitbread.org), will use Intel's money to develop a way for sports event organisers to integrate video, audio and results data, delivering the resulting "programming" over much faster, more efficient pipelines than today's standard modems. Intel has invested in similar "content providers" such as Cnet, a creator of popular technology Websites.

Other pieces of Intel's portfolio, which numbers around 100 companies, include a joint venture to produce superior 3D PC animation. Look out soon for Intel to put TV tuners into their products too. Great, you say, but let's say I buy a PC capable of showing all of this, how can I get this stuff via my ordinary modem and the s-l-o-w Internet?

Enter Intel's investment in @Home, a company that puzzles me but is loved by the stock market. Funded by cable companies, Intel and venture capitalists, @Home develops services that use cable modems to bring ultra-fast Internet access to homes across America.

After several years and much hoopla, it has wired up just 55,000 homes nationwide and the market values it at more than $3 billion (£2.17 billion). Intel, and presumably their other investors, values @Home for its potential to run big data "pipes" into households that would speed the delivery of voice and video as well as traditional text and graphics.

The assumption is that once we have this access we'll feel able to justify a powerful PC or two to take advantage of the content.

@Home is rumoured to be in talks with TimeWarner's RoadRunner, which provides a similar service. They are both competing with other technologies that promise fast Internet access, including a technology called xDSL, which uses regular phone lines and can provide Net access up to 25 times faster than a typical 28Kbps modem.

America Online is planning to test xDSL in a number of cities later this year, including Palo Alto. The market's big enough for both technologies to win - and Intel wins right along with them. Not content with investing in the creation of demand for PCs based on its chips, Intel announced earlier this month it would invest up to $1 billion in South Korea computer companies to ensure a consistent supply of some of the basic building blocks in future PCs.

What impact does all this almost paternalistic "guiding" of companies up and down the PC food chain have? The investments are certainly significant and the focus is clear. The danger is that Intel is so powerful that it stifles innovation that doesn't fit into its corporate goals or that gives competitors an advantage.

Overall, however, what's good for Intel is probably good for the industry because greater PC sales benefit every business from retailer to developer to hardware manufacturer. None of this matters if the people at the end of the chain - consumers - don't keep upgrading PCs. It's up to the industry to convince us all that our two-year-old computer is tired, old and decrepit even if they told us it was the most advanced device on the planet just a few Christmases ago.

If they fail, Silicon Valley could turn back from producing software millionaires to producing apricots again.

Frank O'Mahony can be contacted at frank@liffey.com