Intel CEO Says 3Com Wouldn’t Fit Its Plans

Intel Corp. Chief Executive Craig Barrett suggested Tuesday that his company’s rumored acquisition of the networking giant 3Com Corp. would conflict with Intel’s business plans.

“We’re very interested in the networking market,” Barrett said in a conference call, “especially in the home and small business side. We’re not particularly interested in the enterprise backbone side.” Barrett declined to comment on the 3Com rumors directly.

Backbone technology, a principle business of Santa Clara, Calif.-based 3Com and the market leader, San Jose-based Cisco Systems Inc., and a number of major telecommunications companies, supports large corporate networks and Internet traffic.

Analysts agreed that a purchase of 3Com, whose stock has been bid up recently on the take-over rumors, could prove a dangerous distraction for the chip giant. On Tuesday, 3Com shares gained $2.88--more than 10%--to close at $30.31 on Nasdaq. Intel shares edged up 13 cents to $85.94, also on Nasdaq.

Barrett said Intel would aggressively pursue the home and small office network markets, however. Pursuant to this strategy, Intel on Tuesday announced a single-chip local-area-network product designed to link two or more home PCs over standard phone lines.

Barrett also discounted any confusion regarding overlaps in price and performance between the Celeron processor family for low-cost PCs and mainstream Pentium II series.

“We have a long history of aggressive introduction of new products and new technologies, and eating our own children,” Barrett said.

Linley Gwennap, a chip analyst with MicroDesign Resources in Sebastopol, Calif., agreed that any confusion from the overlapping product lines should end by early next year, when older versions of the Pentium II chip will be phased out. The real confusion for computer makers, he said, pertains to whether to build their economy PCs around Intel chips or K6-family processors from Sunnyvale, Calif.-based Advanced Micro Devices, which has recently taken a big share of the low-cost PC market.

“Intel’s genius is marketing over technology,” as the current product lineup demonstrates, said Jonathan Joseph of San Francisco investment bank NationsBanc Montgomery Securities.

Intel subsidizes low-margin chips with its more highly profitable processors, an advantage most competitors lack, he said. “They’ve made it very difficult for competitors to break into Intel’s sweet spot, no matter what their performance.”

Chips that sell to computer manufacturers for $150 or less account for only 20% of Intel’s unit sales, 10% of its revenue, and 5% of its profit, according to Joseph. “That tells you a little about the importance to Intel’s profitability of the sub-$1,000 PC.”