Intel's Role Reversed

In a remarkable turnabout, Intel (Nasdaq: INTC  ) , pioneer of the microprocessor, confirmed Tuesday evening that it would follow rival Advanced Micro Devices (NYSE: AMD  ) and tune its Xeon chip for 32- and 64-bit computing.

What does that mean? Most microprocessors, like the current Xeon, can eat only 32 bits of information at a time. A 64-bit chip effectively doubles a computer's appetite. The faster a computer digests information, the faster it crunches numbers, processes online purchases, or pushes Web pages. The next generation Xeon, expected in the second quarter, will be able to handle 32 and 64 bits simultaneously -- a processing smorgasbord, if you will.

Since AMD built this capability into its Opteron chips last April, investors may be wondering why Intel remained on the sidelines.

Well, for one, 64-bit chips need software designed to send information in 64-bit chunks to take full advantage of the breakthrough. Not much of this kind of software exists today, so it's notable that Xeon is expected to run software tuned for AMD's 64-bit chips. Microsoft (Nasdaq: MSFT  ) will lend a hand by tuning its Windows XP and Windows Server 2003 operating systems, both of which are already designed for Opteron.

And then there's Intel's partnership with Hewlett-Packard (NYSE: HPQ  ) . The two spent 10 years creating a pure 64-bit chip called Itanium. Intel may have thought Itanium alone would be enough. That view probably changed after IBM (NYSE: IBM  ) announced systems based on Opteron. Sun Microsystems (Nasdaq: SUNW  ) , which still makes its own 64-bit processors, has followed suit, and published reports say Hewlett-Packard is also considering the chip.

What's next? Intel reiterated its support for Itanium even as it announced the new Xeon at its semi-annual conference for developers, which leaves computer makers with tough choices regarding which chip to choose. Usually, ambiguity isn't good in the computer industry.

But, as an investor, it's tough not to like Intel's response to AMD. CEO Craig Barrett came just short of declaring war on his rival, pledging to help build an "ecosystem" for Xeon. That created quick action in the industry. IBM, HP, and Unisys Corp. (NYSE: UIS  ) all have agreed to build systems around Xeon and Itanium. And, most importantly, Dell (Nasdaq: DELL  ) plans servers based on the new Xeon before year's end.

Give AMD round one, but this bout should go the distance, and Intel looks prepared to fight. You might want to grab a ringside seat.

Is Intel on the run? Can AMD capitalize? Give us your take at the Intel and Advanced Micro Devices discussion boards. Only at Fool.com.

Motley Fool contributor Tim Beyers is a tech geek but prefers his chips with salsa. He doesn't own shares of any of the companies mentioned here.


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