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THE CUTING EDGE

Microsoft, Intel Still a Power Couple

Despite Occasional Tiffs, the 'Wintel' Duopoly Remains a PC Force to Be Reckoned With

October 26, 1998|LESLIE HELM and CHARLES PILLER | TIMES STAFF WRITERS

SEATTLE — As trustbusters lay out their case against Microsoft Corp. in a highly publicized antitrust trial, they have opened a window into what is arguably the technology world's most powerful alliance: the nexus between Intel Corp. and Microsoft, feared and revered everywhere as the "Wintel" duopoly.

As part of its case, the Justice Department will try to show in the coming weeks that Microsoft threatened Intel in an effort to bully the chip maker into abandoning a multimedia technology that the software giant opposed.

That's juicy stuff considering Intel is a powerful monopolist in its own right, according to the Federal Trade Commission. That agency charged Intel in June in a separate case with using its monopoly power to pressure a rival into sharing its technology.

Coming at a time when Intel and Microsoft both have taken steps that appear to undercut each other, some observers point to the Justice Department's evidence as further signs that computerdom's grand alliance is beginning to crack.

Over the last month, Intel has invested in a company that distributes Linux, a competitor to Microsoft's Windows NT operating system, and signed a technology- sharing deal with RealNetworks, Microsoft's rival in the business of supplying software to play audio and video over the Internet.

The notion that these two great computer powers are at loggerheads is gaining currency as both come under fire for their business practices. But experts and industry insiders say that while the two partners often quarrel, their common interests remain startlingly close in the personal computer business that is at the core of each company's earnings.

"If anything, they are consolidating their strength," says Mitch Ratcliffe, president of Internet/Media Strategies Inc., a Lakewood, Wash.-based consulting firm and longtime observer of the two companies.

Microsoft and Intel executives admit their companies' interests are parallel in 80% to 90% of the markets in which they participate.

"There is more interchange today [with Intel] than there ever was before," says Carl Stork, general manager of hardware strategy and business development at Redmond, Wash.-based Microsoft.

Adds Patrick Gelsinger, general manager of Intel's desktop products group: "We have a common view of where we're trying to take the industry."

A Union Formed Over IBM Deal

The Wintel duopoly was born in 1981 when Armonk, N.Y.-based IBM Corp. chose Intel to supply the microprocessor brains for its new IBM PC and turned to Microsoft for the machine's software operating system.

As the personal computer industry grew, IBM's role shrunk while Intel and Microsoft flourished as suppliers and standard-bearers for the booming high-tech sector. Now, however, some observers believe the Wintel era may be coming to an end as new growth markets begin to overshadow the traditional PC industry in importance.

"Since both [companies] need to grow faster than the PC's 15% growth rate, both are looking for new markets," says Jim Davidson, managing director for technology at the San Francisco-based investment house Hambrecht & Quist. As the two companies explore new areas of growth, the potential for differences grows, Davidson argues.

In the new under-$1,000 PC segment, for example, Santa Clara, Calif.-based Intel has been slow to come up with low-cost chips, leaving an opening for Advanced Micro Devices and National Semiconductor Corp. to increase their share with competing chips. Microsoft, which is happy to see vigorous growth in that market, has worked closely with the Intel rivals.

And as the market for "Internet appliances" takes off, experts say Intel and Microsoft are likely to find themselves more often competing with each other. Framingham, Mass.-based research firm IDC predicts the market for such devices as televisions, phones and hand-held computers linked to the Web will climb from just 3 million last year to more than 50 million by 2002.

Microsoft's Windows CE software for WebTV and other consumer devices is designed primarily to run on non-Intel chips, for example.

Intel, in turn, is trying to persuade vendors of large computer systems that use Unix, a competitor to Windows NT, to put their software on Intel-based machines. Intel is shooting for a greater share of the profitable and rapidly growing market for servers--computers used to run networks.

The company has been a heavy supporter, for example, of companies using Sun Microsystems' Java language to write server software. Microsoft sees Java as a threat because programs written in the software can run on all types of computer systems, potentially undercutting the value of Microsoft's crown jewel, its Windows brand.

Intel has a testing laboratory to help companies improve the performance of their Java programs on Intel chips. "Intel's goal was to make sure our software runs best on Intel's chips," says David Dewan, vice president of product strategy for SilverStream, whose software is written in Java.

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