Intel adds networking expertise to silicon business

Intel Corp.’s US$2.2 billion stock-for-stock merger with Level One Communications is part of Intel’s plans to provide building blocks for intranets and the Internet, said a company executive.

“Our goal is to provide advanced networking capabilities by offering increased bandwidth and functionality, by integrating these capabilities into silicon components,” said Mark Christensen, vice-president and general manager of Intel’s Network Communications Group.

Level One will become part of Intel’s Network Communications Group as a wholly owned subsidiary, Christensen said.

Allen Liebovitch, senior analyst with the semiconductor group of International Data Corp. in Mountain View, Calif., said the major story here is companies are moving toward vertical integration of networking products.

“Originally it was a horizontal integration where people would try to build products that did more and more ports…Now you’re seeing a vertical integration where this one can do physical layer, MAC layer and switch fabric,” Liebovitch said.

He said the acquisition demonstrates Intel is serious about driving farther into the networking hardware market beyond network interface cards and small office hubs.

“They weren’t really a chip provider in the network space, which is really odd for the world’s largest chip company,” Liebovitch said.

“By acquiring Level One, they’re not only getting a lot of new product lines, but they’re going to turn Level One into their networking chip division…with the Level One management team in charge.”

Intel’s press release stated that all Level One employees will continue as employees of the subsidiary.

Liebovitch said Intel will likely continue Level One’s product line, but added there is room for expansion because of earlier acquisitions by Level One. In 1998, Level One acquired Acclaim Communications, which Liebovitch described as a chip technology company, and Jato Technologies, which he said makes gigabit Ethernet controller chips.

“Level One had integrated these other companies but not really integrated them too well yet,” Liebovitch said. “Intel will be able to do a much better job of integrating that…Intel already had the physical layer for the LANs, but not a very compelling one. Level One had a much more advanced path as far as gigabit.”

Intel’s Christensen said despite this acquisition, the company has no plans to move into the market for telco voice switching equipment.

Robert Pepper, CEO and president of Level One, who will become the vice-president of Intel’s Network Communications Group and general manager of the Level One components division, said the two companies have collaborated before and know their teams work well together.

“We got to know each other very well long before the merger concept came up, and that was really good because we saw that not only were there interesting things to do, but the culture and the vision were very similar,” Pepper said.

The merger is expected to be completed by the end of the second quarter of 1999, according to Intel.