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Intel May Get Pummeled from Unlikely Sources

Amid the Apple hoopla, Intel plots a course to world domination. But is it covering all its bases?



hotel in downtown San Francisco is filled this week with Steve Jobs disciples attending MacWorld, but in a small room on the fifth floor of the same hotel, executives from


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laid out a strategy of how the chip maker plans to reign over the technological world. Not just PCs, but servers, workstations and just about every machine that computes and processes data will boast of Intel inside.

Conspiracy theorists might wonder at the timing and setting, but John Miner, vice president and general manager of Intel's Enterprise Server Group, insisted the Intel gathering was purely coincidental.

Still, the message out of Intel's two-day press briefing was, Forget the Mac hype; the techno-future belongs to Intel. On the low end, the company will crush

Advanced Micro Devices

(AMD) - Get Free Report

, on the high end it will crush

Sun Microsystems

(SUNW) - Get Free Report


Apple Computer

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was barely worth mentioning.

Hearing Intel execs tell it, the company has no worries. "The march has begun," Miner said. He described his company's Xeon chip for servers as the backbone of Web companies. This top-line chip will be the engine of the e-commerce world, he said.

Miner suggested that it is just a matter of time before Sun Microsystems will put Intel chips in its servers and workstations in place of its own UltraSparc chip, because customers will demand to move from Sun's proprietary technology to the all-pervasive Intel architecture.

Look at the numbers, Miner said. According to

International Data

, Intel now takes a 10% market share for servers that cost between $50,000 and $100,000, but that share will increase to 58% within four years. And it has a 40% market share now for servers that cost between $25,000 and $50,000 -- a share that will grow to 70% in four years. Below $25,000 it already holds 80% of the market. Unlike the desktop PC market, servers mean high profits for Intel since it will be selling its top-line Xeon, priced at $3,600 each. This is one area where Intel's fabulous margins can be maintained.

Analysts such as

Morgan Stanley Dean Witter's

Mark Edelstone share Miner's confidence that the company can eat market share in the high-margin market. Edelstone is convinced that Intel, which closed at 123 1/4 Tuesday after a 60% price run-up in three months, could rise to $150 within the next 12 months. (Morgan Stanley is an underwriter for Intel.)

Wait just one minute, said Nathan Brookwood, an analyst at

Insight 64

who compiled similar numbers while previously at


. Intel's rivals are gearing up to challenge the Santa Clara, Calif., giant. The anticipated entry of AMD into the server market, which plans to release the K-7 chip later this year, could change all the projections. K-7 is rumored to be better than any chip that Intel has on the market and will be sold at a discount to Intel's.

AMD already rules the low end of the desktop market and will likely continue to do so despite new price cuts on Intel's Celeron and Pentium II. AMD's K6-3 chip (nicknamed Sharptooth), to debut later this month, is already faster than Intel's fastest desktop chip, the 450-MHz Pentium II, Brookwood said. Investors too have given AMD a vote of confidence, pumping up the stock from a mere 14 on Oct. 8 to 32 on Dec. 8, an increase of 128%. AMD stock closed lower at 27 11/16 Tuesday.

Besides AMD, there are some small up-and-coming players in Silicon Valley, Brookwood says, such as

Whistler Communications


Cobalt Networks

who are selling low-priced high-performance servers for Intranets and the Internet that aren't beholden to the Intel.

So while Intel is confident it can displace competitor Sun Microsystems at the top end, it is facing challenges from unexpected quarters.

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