Intel places big hopes on small

Intel Corp.'s push to create and boost new categories of small, cheap Internet-connected devices is taking the world's largest chip maker in some unusual directions.

Intel is investing in wireless networks, or even buying them outright. It's relying on software that isn't from Microsoft. And it's looking at making processors cheaper and smaller rather than faster and faster.

To chief executive Paul Otellini, it's all part of bringing the Internet to new places and people, and computer makers are responding.

“I've not seen energy like this from our customers in a long, long time,” Otellini told The Associated Press on Wednesday. “Everyone views this as being sort of hyperexpansive to the existing market.”

A centerpiece of the strategy is the Atom processor, which packs the power of a PC-class processor from six years ago into the smallest space yet — 25 Atoms will fit on a square inch. It's intended for Mobile Internet Devices — iPhone-like tablets that provide a “full” Internet experience, better than what's available on cell phones.

Somewhat larger than the MID is what Intel calls the “netbook,” a small, cheap laptop. Taiwan's AsusTek has had a breakout hit in this category with its eeePC, which starts at $300 and uses an Intel chip. Other manufacturers, like Hewlett-Packard Co., are entering the space too, though HP is using a chip from Via Technologies Inc.

Otellini isn't concerned that low-power processors could “cannibalize,” or steal, sales from Intel's high-end, high-margin products.

“If a higher-priced notebook isn't substantially better and doesn't offer more utility, shame on us,” he said. “If there's cannibalization, I'd rather be the cannibal than someone else.”

Bill Hughes, an analyst at the research firm In-Stat, noted that a relatively small group is behind the demand for netbooks, which some stores have had trouble keeping in stock.

“It's growing fast because it's very small,” Hughes said. “It will continue to be a niche for the foreseeable future.”

As for MIDs, Hughes said the firm's surveys indicate that consumers are much more likely to want a “smart” phone than to carry another gadget along with a cell phone.

“Mobile Internet Devices are going to struggle in the U.S., but that doesn't mean they aren't going to be wildly popular in other markets,” he said.

To connect these portable gadgets to the Internet, Intel is backing WiMax, a wireless technology sometimes described as a long-range version of Wi-Fi. Like Wi-Fi, it has its roots in the PC industry, but it's really a competitor to cellular wireless technologies.

Most major wireless carriers are skipping WiMax, planning instead to build out networks using Long Term Evolution, a successor to current cellular technology. To keep WiMax in the running, Intel is contributing $1 billion to a $14.5 billion venture controlled by Sprint Nextel Corp. that will build a WiMax network across the U.S., with a commercial launch sometime this year.