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Why Does Intel Care About WiMAX?
I had a long conversation with someone who posed this question. I know little about WiMAX but I know people who know great deal, people who have put their money where their mouth is. The question I pose isn’t whether WiMAX is going to be successful, but why is Intel (INTC) pouring so much money into making it a reality?
I’m not trying to start a debate about whether WiMAX will succeed. My cycling buddy would define success as 5M WiMAX subscriber adds in a single year (not total). What isn’t clear is how Intel benefits even if the large investment they are sinking into WiMAX pays off.
Intel has a poor history of developing any successful products in the communication space, let alone mixed signal communication. Historically, Broadcom (BRCM) and TI (TXN) (among others) are far more capable. Odds are these vendors would seize the infant technology from the cradle and produce a superior product.
Even if Intel manages to be a leader in WiMAX chipsets, the market opportunity is a pimple when compared to their existing $35BB business of mostly CPU’s and companion chipsets. Even if WiMAX chips generate $1BB, it is still noise. Intel lacks a whole suite of products to wrap around this hard-won hypothetical WiMAX market share to generate additional pull through revenue. They sold their mobile CPU business to Marvell (MRVL). PC CPU’s and chipsets don’t count because they would have won those anyway.
When I asked someone at Intel not involved with WiMAX this question, his response was that Intel sees ultra mobile computing as a key initiative, and WiMAX is the enabler. This makes sense if you ignore the fact existing wireless carriers don’t want WiMAX.
Virtually all carriers are divided between UMTS (HSDPA) and CDMA2000 (EV-DO) as evolutionary 3G technologies. They don’t care about WiMAX because they have a big installed base (2G) they must migrate. There is Clearwire (aborted S-1 excepts here), and Sprint (S ), which has committed to building out a WiMAX infrastructure. There is also Korea, which never met a communication infrastructure it didn’t love (ATM, ISDN, DSL, two flavors of FTTH, 3G – what haven’t those guys deployed?). But the opportunity is dwarfed by the size of the existing mobile voice and data standards.
If Intel was really committed to growing a mobile wireless business they would identify a product that could both fill their fabs AND meet the needs of existing carriers – not build something counter to their desires.
Here are my three possible theories:
- Intel has concluded that WiMAX will be an incredibly disruptive technology with undeniable performance/price advantages. New carriers will rise as the incumbent carriers foolishly embrace their legacy technology. I don’t have the technical firepower to form a conclusion here, but I doubt that the Intel Borg-collective has figured out what many others have not. Perhaps too many WiMAX guys at Intel have read “” and jumped the gun.
- The big push for WiMAX has nothing to do with making lots of money. Instead, it is an initiative that will allow Intel to build a new, separate corporate division focused on mobility and wireless, allowing them to compete in many other markets. As a culture, they prefer to lead rather than follow, so better to champion a new standard than chase competitors who are already established. Even if WiMAX doesn’t pan out, they can move their new wireless R&D Death Star into another market and start taking share.
- Emerging Markets. There are huge untapped expanses of the world devoid of Internet connectivity and more importantly, Intel CPUs. WiMAX as a greenfield technology can bring low cost connectivity to these markets and enable the sale of more PCs. Existing markets already awash with connectivity just aren’t that important.
I think WiMAX is destined to be what I call a crack filler, an alternative technology that fills in the areas where incumbents are too expensive or not available. WiMAX will be to 3G what Satellite is to Cable – best case.
Either Intel is pouring hundreds of millions of dollars into a foolish endeavor or something is unseen.
Like most things Intel, the real end game is likely the CPU. The mobility market below the laptop/notebook market is owned by ARM and Intel’s heart was was never really in this game with their StrongARM license from DEC (yikes). In the game of integration, you can either go from the CPU out or from the peripherals in. A good example might be Broadcom, who are fighting their way into the mobile phone market with Bluetooth and WiFi, then bringing the baseband processor onto the chip.
“They don’t care about WiMAX because they have a big installed base (2G) they must migrate.”
Very US centric statement. Outside of US, other countries in addition to Korea such as India, Taiwan, etc. do care a lot about WiMax. One resistance towards WiMax in US is that only Sprint owns the majority of licensed spectrum for WiMax. Others will either have to buy from Sprint or risk running on unlicensed spectrum. Overall, I think that WiMax will be a compelling greenfield solution first and eventually replace celluar in developed countries.
Andrew,
I’ve never been able to figure out what Intel expects to get out of the networking business. Their inclusion of wireless LAN technology didn’t suddenly kill off pesky AMD, and I doubt either will the inclusion of a mobile WiMax interface. As you imply, the sum total market for WiMax chipsets for WiMax base stations is pretty tiny compared to Intel’s overall sales volume. The one argument that could be made is that Intel sees room for a new type of palmtop device that will be halfway between a smartphone and a laptop in terms of both physical and computing size, and they really want to dominate this market. Some of this was shown at the 2006 WiMax World in Boston, in which Samsung demonstrated a Windows XP PC with widescreen 7″ LCD, a mobile Pentium-class CPU, and of course an Intel mobile WiMax chipset. That chipset, incidentally, costs about $600 (!) currently, so don’t expect to see these uber-palmtops at your local WalMart anytime soon.
I think that one of the big challenges for mobile WiMax is going to be spectrum – quality, availability, normalization, and of course price. The best spectrum in the 2.3/2.5GHz band is not-so-great, and the 3.5GHz band available outside of North America and Asia is just plain lousy when in comes to penetrating interior spaces. The real reason why WiMax will probably be a fringe technology inspite of its lower cost vis a vis CDMA and GSM is that mobile operators are still paying for their 2G and 3G spectrum. This is true around the world – not just the US, BTW. Mobile operators have told me that they’re investigating WiMax, but not many are committed to it in the way that Sprint and a few others are.
Albert
What’s in it for Intel?
A very experienced recently retired telecom professional explained to me recently why he believes Intel has devoted to much time and energy to the development of Wi-MAX. He said that Intel, who yes, as their core business produce chips for computers, understands that their technologies, those chips and the devices that run those chips, and the computing power they contain, has outpaced the ability of networks to run the applications that customers want. And, consumers want, and increasingly want, mobile connectivity, not just wired connectivity. So, Intel did not trust the folks who deploy networks to devote the resources necessary to move the capacity of their networks (especially wireless networks) forward to keep pace with the advancing computing power of their chips and consumer demand.
So, Intel took matters into their own hands and are busy birthing the new technology for those networks. That same experienced individual, who has experience in the management and deployments of cellular technology, without hesitation, believes Wi-MAX will blow celluar technologies out of the water in the near future.
As far as I am concerned, I don’t care which technologies or companies win this foot race. I just want to see rural communities get the connectivity they need to diversify their economies and enjoy the myriad benefits of broadband. May the best technolgoy win.
The WiMAX bandwagon may have far more to do with creating a technology such that adopters are not paying Qualcommm patent royalties for CDMA-based standards.
A strange question – in light of Intel’s major success with the Centrino (Wi-Fi) platform…
Boris – Centrino was a pure marketing success and was devoid of the technical trailblazing characterized by the Wimax effort. 802.1b was well developed before Intel got into the game. That’s why Aple deployed it a good 18 months ahead of the Intel platform. They are not comparable.
Bob and Onno make good points. Intel feels passionately they can disrupt the mobile business and is betting big (my theory #1). Or they are trying to re-balance the supply chain by providing pricing pressure to Qualcomm (though I still don’t know how this benefits Intel- it certainly benefits the incumbents).
I’m not so sure its a wireless vs. wired issue. It’s a service to billions of people and owning the infrastructure issue.
With only 2 players here, intel and Fujitsu, there’s a lot at stake for both companies.
WiMax has tremendous range and bandwidth that is untouched by any other technology today.
Think of how many places not only abroad, but also domestically that need broadband, IPTV, video, audio, etc services that probably won’t get it because they are say 20 miles in any direction from a major city. And then say you have 5 acre ranches. WiMax is God sent to these type of situations.
Andrew,
It is possibility #3 and definitely not the other two. Explanation:
I founded Malibu Networks, one the first (if not the first) WiMax players back in 1999 on the premise that WiMax is a great access technology in un-served/underserved markets (read: the developing world) and I still believe that is the case. However, this reality does not require Intel’s involvement; if it happens it will happen without Intel (as did DSL/Cable/Satellite/Wireless). Intel is a rudderless ship ‘adrift, plain and simple.
Furthermore, regarding this – undeniable performance/price advantages (#1) – is this before or after one forks over $5B (conservative) for a nationwide WiMax network. And the concept of — New carriers will rise as the incumbent carriers foolishly embrace their legacy technology (#1) – implies total lack of awareness of recent telecom history. Do the acronyms CLEC/DLEC/BLEC and their subsequent failures mean anything? And Clearwire? Call me when Wall Street jumps on this empty bandwagon. Nothing so powerful as a denial syndrome. Yes, Sprint is going forward but do note that Sprint makes a lot of money from its wholesale wireless services so upgrading to WiMax is a solid future-proof investment for them.
Intel does not have a strategy, only a STRAGEDY (not a misspell). I cannot believe its board and shareholders still allow its management to continue to waste potential shareholders’ dividends. In a word: criminal! And it is way too late to — build a new, separate corporate division focused on mobility and wireless, allowing them to compete in many other markets (#2) – that battle is over.
Not only does Intel not know what it is doing, it does not know what to do so they try anything and everything. Remember ProShare, their video-conferencing initiative? How much money did they throw down that sink hole?
Sadly, Intel has replaced GM as the company that is truly lost in this age of globalization and markets transformation. GM was developing gas-guzzling station wagons in the dawn of the Oil Embargo Era; similarly, Intel continues to develop more powerful processor in the “less is more era” (i.e.: mobility). Talk about smoking your own silicon. It just goes to show you that when ‘one does not know what to do, one only does what one knows.’
Thanks to everyone for some really great feedback.
To Bill Baker, a quick question. What about all the other companies particpating in the Wi-MAX Forum. Are they all out to lunch and ruderless too? I have trouble following the logic of your commentary. You seem to say Wi-MAX is an important new technology that will expand the reach of bandwidth and future proofs Sprint in their involvement with their network. But then you seem to suggest Intel’s gone off the deep end working with others to develop it.
The beauty of Wi-MAX is compared to Qualcomm’s technology, its going to be an open system that doesn’t charge high licence fees.
Is your point that you don’t think Intel will make money with Wi-MAX? That, always, is a different matter. And, one last thought, I thought centrino made up 13% of their revenues in recent years. That’s not chopped liver.
Thanks for your feedback Bill. I admire anyone getting out there and deploying networks.
Onno Husing
This week I am meeting with wireless carriers (again). I am just coming back from dinner with several folks from a large multi-national mobile operator.
We touched upon all the themes described by Andrew in this blog entry over dinner. No one can answer the question about why Intel is doing this. Intel is also visiting mobile operators in an effort to get them to use mobile WiMax technology. Let’s just say that with this one operator, they are not biting.
Albert
Dear Onno,
Albert Lew (above) pre-empted my reply but still, let me clarify my comments:
Yes, WiMax is a terrific (access only for now) technology and having participated in the early standards-initiation process (Dr. Baseghi was my CSO at Malibu — http://www.ieee802.org/16/meetings/mtg10/reglist.html) I am a full card-carrying WiMax supporter.
Having said that let me put things in perspective, as in Intel: WiMax Forum is not rudderless but has been directionless; it is only taken them over seven years to get to a “standard”. And just look at the definition of the word Forum – ‘the marketplace or public square of an ancient Roman city, the center of judicial and business affairs and a place of assembly for the people’ – and think Rome when you think of Intel. Intel’s only gain is if the world adopted WiMax, which would require more powerful processors, which Intel knows how to monetize. That is NOT going to happen (for various reasons). Bottom line: no successful emerging technology ever needed a Big Brother (Ethernet, IP, CDMA, Wi-Fi, MS-DOS, Apple, etc.). The ones that tried being a Big Brother failed miserably (such as IBM w/Token Ring, OS/2 and SNA; Data General w/mini-computers; Sun w/Unix; Sony w/Betamax; had enough?). Intel is fighting precedence (history). For more info, please read Andrew Grove’s book: “Only the Paranoid Survive”. Intel is no longer paranoid, it has switched to being delusional (as in delusions of grandeur). And if you really want to know how I feel about Qualcomm, here’s another link: http://www.networkworld.com/columnists/2007/010807letters.html?page=3 (No Second Act)
Unfortunately, I did NOT get to deploy this time but I will!
Continued success…
WiMax is and will stay marginal forever. WiFi and derivatives will never be a platform for any serious telecommunication services, so, there is no significant business/money there. Just look at the historical records.
As far as global significance of WiMax, I agree, you might find use for it in the third world countries together with 100$ PC and mosquito nets.
And by the way, you need to realize that using “Wi” (for wireless) in WiFi and WiMAx is purposely deceptive (i.e. marketing scam) thanks to WiFi community. WiFi is not wireless it is “Cordless”. Cordless does not sound to exciting and may not constitute basis for any serious business, but it may be fun and entertaining as much are these comments.
Andrew,
I agree WiMax is irrelevant for Intel as a product, however that does not mean that they do not derive substantial value from their strong association WiMax. WiMax is mysterious sexy path forward for their Mobility group, it allows an analyst to paint pretty pictures about Intel’s future revenue streams, the comparisons between WiMax and Qualcom are not lost on today’s corporate bond investors (remember these guys have just been burned by Ford and GM, they need to believe some US industries still have solid sustainable revenue streams). I’m certain that the effect Wimax has on lowering Intel’s “cost of capital” more than pays for itself. This view also makes WiMax more valuable as tomorrow’s technology than today’s product, which might go a long way towards explaining the slow progress.
A quick glance at Intel’s recent Q4 release shows a fast deteriorating desk-top revenue stream ($5.1B gross with $1.1B income for Q4 2006, down from $6,4B gross with $2.4B income for Q4 2005). The picture over at the Mobility group was much rosier, based on this, Intel needs a roadmap for future mobility revenue and earnings far more than it needs any product.
Robert
PPS
Boris,
Re: Centrino was an Intel success, ROTFLMAO is about all I bring myself to type. The original Centrino chips set was a licensed from Symbol Technologies and fabbed by TI and included TI ADC’s & DAC’s. I could tell you a VERY funny story about how much Intel was actually paying TI for its solution but I’d rather keep TI’s lawyers out of my life, for just a little longer.
Robert,
Intel Mobility is and will continue to remain an oxymoron, similar to saying ‘Apple Telecom’; just not going to happen. Intel missed the entry point on mobility about five years ago. Unfortunately, it opted to continue to pursue its faster GHz game plan. They should have foreseen ‘fast deteriorating desk-top revenues’ three years ago but they didn’t (stock down over 30% for the same period). Regrettably, Intel has become a prisoner of its own legacy (Moore’s Law) because it is the ONLY thing Intel knows how to do (see my Jan. 8 post).
The fact that Intel “needs a roadmap” means nothing, absolutely nothing. It takes more than just ‘a need’ to be successful; it takes strategic prowess, which Intel does not currently have. They spent more time (and a king’s ransom in PR) worrying about where the letter ‘e’ is positioned within its logo than they did on market (revenue) issues.
And speaking of oxymora, there will not be any ‘WiMax mobility’ (of any consequence) for the next five years. See you then…
bb
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