Alliance Poses Serious Challenge to Microsoft, Intel
Gateway Inc.’s announcement Tuesday that it will use a microprocessor from Transmeta Corp. and the Linux operating system to power a new line of Internet appliances is the latest sign that Microsoft and Intel face serious competition in an emerging world where PCs compete against more simple devices.
Gateway’s products, under development in partnership with America Online, are due out this year. They will be designed for easy Web surfing and e-mail, such as wireless touch-screen-based Web pads.
“Let’s call it a warning flag for ‘Wintel,’ ” said analyst Roger Kay with International Data Corp. in Framingham, Mass., using the industry term for the Microsoft Windows-Intel dyad that dominates the PC industry.
Microsoft may face antitrust sanctions as early as this week, and Intel is trying to develop products for information appliances while it protects a huge franchise in processors for full-fledged PCs. Given such challenges, each industry titan may be losing the initiative in the appliance market to more nimble competitors, such as Transmeta, Kay said.
Analysts called the announcement a breakthrough for Transmeta, a privately held Santa Clara, Calif.-based company whose chips are reasonably powerful and compatible with Intel’s products, but give off less heat and require a fraction of the power--key considerations for the battery-operated hand-held devices expected to dominate the Internet appliance industry.
When Transmeta announced its first processors in January, it received substantial attention, partly because it had been highly secretive about its work since its founding in 1995.
The company also boasts high-profile backers, including Microsoft co-founder Paul Allen and financier George Soros. In April, it raised additional capital from Gateway and America Online, as well as Compaq Computer, Sony and others.
One of Transmeta’s chief engineers is Linus Torvalds, originator of the Linux operating system, an insurgent competitor to Windows. Torvalds has helped the company create a streamlined version of Linux suited to small, portable devices.
But before Monday’s announcement, Transmeta had yet to demonstrate that it could land a contract to supply a major PC company.
Even with Gateway on board, experts believe that the Internet appliance market will need at least two or three years to begin to overtake the PC market and threaten the Intel-Microsoft PC franchise.
“How much skin are they going to take out of [Intel’s] hide? It won’t be noticeable,” said Jonathan Joseph, analyst with the investment bank Salomon Smith Barney in San Francisco.
“We think that Internet appliance will ultimately be bigger than today’s PC market,” said John Spelich, a spokesman for Gateway. “But you don’t make political statements with moves like this,” he added, downplaying the significance of the company’s increasing independence from Intel and Microsoft.
“Intel is and remains one of our largest suppliers and will for the foreseeable future,” Spelich said, but Transmeta was tapped for its superior suitability to small devices and because it is optimized for the Linux system.
Shares in San Diego-based Gateway were up sharply, along with many other tech issues, rising $5.81 to close at $52.63 in NYSE trading Tuesday.
Joseph compared Transmeta--led by former Sun Microsystems processor expert David Ditzel--to “a mammal in the age of dinosaurs.”
As new forms of hardware for Web-based activities emerge, such companies will inevitably force today’s leaders to evolve or face a loss of dominance, he added.
