Inside Intel

Still, Intel's first big success in diversification was only a half-step away from the core PC market. Will it be able to do as well in other areas? Consider Viiv. In the consumer electronics market where Viiv devices will be positioned as an all-in-one DVD player, game console, TiVo, and music jukebox, it faces plenty of big-name competitors. Meanwhile, brand-new challengers are appearing on the horizon. Sony Corp., with its PlayStation 3 due out in just a few months, aims to offer games, movies, and music on the device, which uses chips from IBM. Cable and satellite providers such as Comcast Corp. and DirecTV Group Inc. are adding more features and services to their set-top boxes, such as on-demand television shows and XM satellite radio.

Cutting through the clutter of competitive activity is why Otellini and Kim have lifted branding to new heights at Intel. But for a huge company like Intel, it will be especially tough. "In many ways, it's like trying to change the engines on an airplane when you're flying it," says Russ Meyer, chief strategy officer for branding consultancy Landor Associates. Companies must try not only to differentiate themselves from competitors but also to align internally to make sure the same message is clear to employees. For an "ingredient" brand like Intel with no products that a consumer actually can pick up from the local Best Buy or Wal-Mart, the trick also is to convince new customers of the value of using its products.

With that in mind, Otellini's Digital Home team has struck some of the biggest content deals to date with major Hollywood players and music services to entice both customers and consumers to the Viiv platform. The hundreds of millions it will dole out for marketing Viiv has partners like Sony and Philips Electronics salivating. They also seem to be genuinely impressed with the new attitude at Otellini's Intel. "I have seen more flexibility, more of an open mindset than in years past," says Sony Vice-President Mike Abary, who heads the company's Vaio PC business. "They realize that times have changed, that they don't have all the answers. So it has been much more collaborative working with them."

Otellini also has gone to great lengths to win over marketing maestro Steve Jobs. It's quite a reversal. For years, Grove and Barrett pooh-poohed Apple as a niche company whose products had sleek form, but nowhere near the function of computers with Intel's chips. Yet Otellini set about wooing Jobs almost from the start. In June, a month after Otellini took over, the two companies announced Apple would begin shipping Macs and other products with Intel chips inside in 2006. Otellini aims to use the Apple relationship to force PC makers to step up their innovation. "They've always been a front-runner in design," he says. "As they start taking advantage of some of our lower-power products, that form factor will improve significantly. I think it will help drive a trend toward smaller, cheaper, cooler."

Jobs's influence extends beyond design. At Otellini's urging, Apple's "Think Different" vernacular is beginning to take root inside Intel. The two chief executives also appear to be developing a real friendship. Intel insiders say they talk regularly. And when Prince Charles and his wife, Camilla, visited Silicon Valley in late November, Jobs and Otellini were side by side, hobnobbing with the royals.

The Apple relationship could create some strain with Intel's two old compadres in the PC business, Dell and Microsoft. Dell has been one of Intel's most loyal customers: It's the only major U.S. maker of PCs that hasn't come out with boxes powered by AMD chips. So if Intel provides strong support for Apple in the PC business, it could prompt Dell to do business with AMD'S Ruiz. Dell is going after more consumer business, Apple's primary turf. In late 2005, Dell introduced a higher-end XPS line and it plans to ship Viiv PCs.

Meantime, Intel execs seem open to easing their once ironclad ties to Microsoft. At the start, PC makers will have to use Microsoft's Windows Media Center Edition operating system to earn the Viiv brand -- and Intel's co-marketing dollars. But Intel says this may not continue, opening the door to Viiv machines with the Linux open-source operating system or even Apple's. Indeed, Kim says he expects some PC companies to ship Viiv boxes, without Windows.

Another budding relationship in Intel's march on new markets is with Google. Otellini joined the search company's board in April, 2004, and has found a few areas of joint interest. For one, Otellini heard that Google's energy bill for its servers now exceeds the cost of the equipment. (With 100,000 servers, Google's electricity bill probably tops $50 million a year.) That prompted Otellini to explore the prospects for energy-efficient chips. In August, Intel announced it would dump its old architecture in favor of lower-power chips in 2006.

The two companies also have a shared interest in wireless broadband. Google is exploring whether to set up free Wi-Fi "hot spots" in San Francisco and other cities. Footing the bill for Net access may make sense for Google, since it allows the company to show digital ads to any Web surfers who use the service. Intel would benefit because free Wi-Fi could further sales of Centrino laptops. Google execs have also said they're interested in WiMax, another wireless technology Intel is backing. Intel plans to imbed WiMax, which is similar to Wi-Fi but works over greater distances, into PC chips late this year.

MORE FROM BUSINESSWEEK

BusinessWeek Section Front

Stock Picks: Microsoft, TiVo, J.Crew Stocks Gain on Recovery Optimism Central Bank Buying Spurs a Gold Rush Experts Talk About FOMC Minutes, GDP, and Home Prices Stock Picks: Hewlett-Packard, Analog Devices Stocks Fall on Economic Data Checking the Health of the Housing Recovery Stocks Gain on Home-Sales Data Unions, Business Oppose Tax on 'Cadillac' Care Wall Street: Is It Good to Apologize for Greed? BusinessWeek Section Front