Fool.com: IBM Steals Intel's Networking Chip Thunder (Breakfast News) September 2, 1999

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Thursday, September 2, 1999

"When you're green, you're growing. When you're ripe, you rot."
-- Ray Kroc

IBM Steals Intel's Networking Chip Thunder

By Brian Graney (TMF Panic)

Confirming reports from earlier this week, computing products and services company IBM (NYSE: IBM) followed up its recent networking deal with Cisco Systems (Nasdaq: CSCO) by officially unveiling a new line of programmable networking chips this morning in an effort to become "a major technology supplier to the communications industry."

If this strategy sounds vaguely familiar, give yourself a gold star -- chipmaker Intel Corp. (Nasdaq: INTC) has been saying essentially the same thing all week at its developer forum in Palm Springs, California. Today's announcement by IBM steals some of the PR thunder away from Intel's recent networking chip-related announcements, which included the outlining of its Internet Exchange Architecture (IXA) development blueprint and the establishment of a $200 million in-house investment fund for IXA-friendly communications start-ups.

While much will be made of the head-to-head networking chip competition of the two technology giants by a mainstream business press that sees everything through winner-take-all glasses, the battle lines are still sketchy at this point. "Broadband" is nothing new and has been a favorite Wall Street buzzword for years now. And while the recent moves by IBM and Intel in the broadband space underscore the enormous potential to be realized from the networked world of the future, it's not like the networking chip market suddenly appeared overnight. Demand for broadband infrastructure chips has been exploding, which goes a long way to explain the triple-digit percentage share price gains of chip developers like PMC-Sierra (Nasdaq: PMCS) and Broadcom (Nasdaq: BRCM) this year.

Both Intel and IBM will be looking to outfit infrastructure gear such as switches, routers, and hubs with programmable integrated circuits, moving the chip industry further away from application-specific integrated circuits (ASIC). The real battle in the short term will be trying to develop an industry standard for programmable chips that could potentially give one of the two giants a competitive advantage over the other. "The entire infrastructure of the Internet will upgrade over time, and we want that to be with Intel technology," Intel networking communications chief Mark Christensen reportedly said earlier this week, according to EETimes. "By offering a more standardized set of chips with the flexibility to alter their function through software, we're making it possible for network providers to upgrade their equipment faster and easier,'' IBM responded this morning. Expect to hear more double-talk from the companies in the future.

News to Go

Department store operator Sears, Roebuck & Co. (NYSE: S) warned that soft retail sales trends and lower gross margins will result in Q3 EPS between $0.63 and $0.67 (excluding one-time items), down from last year's $0.76 and shy of the First Call mean estimate of $0.82. In an effort to revive sales growth, the company is shuffling several members of its upper-level management team into new responsibilities.

Machinists at aircraft maker Boeing (NYSE: BA) voted overwhelmingly to approve a three-year labor contract negotiated by the company and the workers' union last week. The new contract bars subcontracting-related layoffs and raises wages by 11%, the union said.

Themed restaurant operator Rainforest Cafe (Nasdaq: RAIN) reported that its same-store sales dropped 6.1% in August compared to a year ago. Net domestic sales increased 28% year-over-year to $23.7 million.

Office supplies provider and Mail Boxes Etc. parent U.S. Office Products (Nasdaq: OFIS) reported a fiscal first quarter loss of $0.75 per share, not quite as bad as last year's loss of $2.38 per share (before charges) but worse than the loss of $0.53 per share expected by the sole analyst surveyed by Zacks.

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