Tomorrow's Intel is not the Intel of the past. Since providing the brains for the first IBM personal computers, Intel has gone on to dominate the world's market for microprocessors. Now the company, which transitioned from memory chips to microprocessors in the mid 1980s with the crash of the market, is once again in the midst of a major transition.

Leading the aggressive change is CEO Craig Barrett, who is widening his company's focus from PC processors to the global Internet economy. 'As the Internet continues to grow and reshape how the world does business,' Barrett says, 'Intel is working to transform itself into a supplier of key building blocks at many points within the Internet infrastructure, from networks to chips to services.'

Intel's strategy calls for major involvement in the area of networking and communications, which began in 1990 with the creation of the company's networking group. Since then, Intel has created three additional divisions to provide silicon, systems, and software products for networking and communications. In the past year, the company has made billions of dollars worth of acquisitions in a campaign to broaden its expertise in several areas, as well as to widen product offerings.

'We have invested in all segments of our business and created new segments,' Barrett says. 'In 1999 we purchased 12 companies for about $6 billion to augment our capabilities in a number of key product areas, including networking, communications products, and wireless and cellular technologies.'

Intel is also focusing on providing solutions and services for successful e-commerce. Although quite a stray from chips, Intel is not a stranger in this area. The company generates $1 billion a month in online sales of chips and other products on intel.com. In an attempt to share this knowledge, Intel founded its first Intel Online Services facility in 1999. The San Jose outfit provides a wide scope of Internet services to businesses, among them Web hosting and rapid development of e-business systems. The company plans to set up similar facilities in Virginia, England, and Japan.

Intel has also moved ambitiously to place itself at the center of the wireless revolution. Intel acquired DSP Communications, a wireless telephone company, in 1999, and announced the next generation of its StrongArm technology for advanced computing products. Intel also announced a Web appliance strategy, which aims to manufacture Intel-branded machines that will tie together Internet access and telephony functions. The strategy relies on the Linux operating system.

Besides expanding and developing new customers and markets, Intel is using its clout and its pocketbook to provide venture capital support to companies that will support its initiatives and enhance sales of Intel products and services. By the end of 1999, the company had invested in 350 software and Internet companies worldwide through its investment program, Intel Capital.

Evolution a must

The change in focus was inevitable. Intel recognized that it could not continue its record growth by focusing solely on the PC microprocessor, especially in the wake of the changing Internet economy. 'As the Internet grew in importance in the mid to late '90s, we realized that the future lay in providing building blocks for the Internet infrastructure and Internet economy, not just in providing the hearts and brains of PCs,' Barrett says.

With 1999 revenues of nearly $30 billion and 80-percent ownership of the microprocessor market, Intel is by no means abandoning the business that has made it so successful. Intel plans to spend $6 billion this year to boost chip production to meet the global demand for computer chips, particularly in the areas of high-speed communications, networking, and consumer electronics. In March, Intel unleashed the 1-GHz Pentium III. And the company plans to unveil the much anticipated 64-bit Itanium chip later this year despite earlier delays.

At the moment, it seems that Intel has nothing to worry about. Compared with 1998, 1999 revenues notched a 12 percent gain, and net income rose 29 percent (excluding acquisition related costs). However, as we watch Intel's plan unfold in the unpredictable Internet economy, only time will tell if the company's metamorphosis will succeed.