Lehman: Relationships Key to Intel in Home

(Business News & Technology News, 12 Jul 2005)

The industry can expect to hear a lot from Intel Corp. on the digital home in the second half, according to a recent Lehman Brothers report.
In an update, the firm said that new form factors, focus on home entertainment, Longhorn and Virtualization will be likely drivers for the MPU giant into 2006.
“We believe Intel's digital home division is currently focused on a variety of initiatives aimed at creating hardware as well as software solutions or ecosystems targeted at the entertainment experience in the living room,” Tim Luke, a managing director in the wireless and semiconductor arena, said in the update.
“A key component of this strategy is establishing relationships with content and service providers in addition to current key software partners such as Microsoft,” he added.
Partners and competitors in the specific areas Intel is aiming to penetrate are different than its typical PC vertical. For that reason, “We expect Intel and Sony to compete more directly in efforts to own the digital home, and expect Intel to spend more energy exploring relationships with service providers in order to demonstrate how Intel's technology could be of value,” Luke noted.
He examples Intel’s Virtualization technology, which could allow a cable provider to bypass a separate set top box and instead use the PC, as Virtualization allows for more than one operating system and the ability for an operating system to be closed (the consumer would not be able to control or enter the cable providers operating system for security). Intel's Active Management Technology could then be used to remotely administer support for the cable subscriber, Luke said.
“While these efforts are in nascent stages, we believe Intel may have success with smaller players and/or in emerging markets.
“In addition, we believe Intel could more intently focus on the $70 billion TAM of the consumer electronics market, using its core processing expertise to apply to applications such as DVRs, digital TV and set top boxes. In this respect, Intel is likely to focus on system-on-a-chip solutions and leverage the broader companies R&D and manufacturing prowess to bring down cost.”
Lehman’s estimates for the current quarter are $9.2 billion in sales, down 2.5 percent sequentially, and a 57 percent gross margin. For Intel’s full year, the firm expects revenue around $38.85 billion. Intel reports Q2 earnings after market close on July 19.