Even as Intel’s position looks strong in the desktop area, recent moves by the giant into devices and other markets have not been very rewarding. Intel is pushing hard in the 64-bit processor market and increasing focus on the telecom and networking space. Dataquest spoke to Rob Enderle of the Giga Information Group. Enderle, among the most respected analysts in the PC market and related technologies, believes that Intel will have to work very hard to hold on to its marketshare in the desktop space. Excerpts:

‘An image like IBM’s would help...’ Rob Enderle is an analyst providing IT advice for the desktop. His current client activities include helping companies work with Microsoft, anticipating future changes in personal computing technology and identifying and helping resolve problems between the company and their primary desktop hardware vendor. Rob’s research focus includes: Emerging desktop technologies and the impact on employees Anticipating changes in Microsoft products and organizational direction Selecting the best desktop and mobile products and vendors Choosing between mobile and static personal technology The identification of the best-in-class PC peripherals

AMD is said to have increased its marketshare to 22% (from 18%) in 2001. How do you view these numbers with respect to Intel?
Intel continues to polarize itself away from the hardware OEMs, who then use AMD as their way to push back. As Intel gets more desperate to show revenue growth, the harder they are on OEMs, the more the OEMs want to use AMD. The problem has been that AMD doesn’t make its own chipset—VIA, the leading AMD chipmaker, is not acceptable to most large business buyers. They will accept NVIDIA though, and several large OEMs are looking at this as a way to move AMD desktops into the corporate market.

Why has Intel been losing marketshare?
Intel doesn’t appeal to the tuners, people who build and enhance, or over-clock, their PCs. These tuners are growing up to become buyers loyal to AMD, not to Intel. In addition, the ‘Intel Inside’ campaign has languished of late and has almost no value in the consumer or corporate market segments. AMD is reaping the spinoffs—it is not as negatively perceived because it is not Intel Inside. What you have then is a growing number of business buyers actually asking for AMD components.

Do you see Intel’s marketshare getting further eroded over the years? If yes, by how much…
Yes, and substantially so, if the company cannot address its marketing and vendor relationship problems. As for how much Intel will fall to in terms of sheer numbers, that’s hard to say. But as marketshare declines, there’ll arise a need for staff and policy/strategy changes—these will be the determinant, either accelerating or mitigating the problem, depending on the change and the execution.  

Which is Intel’s weak point in terms of market segments, and why?
Undoubtedly, it is the home segment where Intel is weaker. This is because the company has a price disadvantage and because the tuners, who have an affinity for AMD, are key influencers in this market segment.

What went wrong for Intel in the home and Internet appliances market?
This market segment was mostly hype and created in the minds of vendors who spent little quality time with consumers. When Intel first proposed it, we said it was poorly thought-out and that price and value were not matched enough to make for a successful line. This happens a lot in companies where bright, articulate people get excited about an idea and jump to the conclusion that it will be successful without doing the required research, turning the product itself into an expensive research program. As it turned out, there was no market yet for a device in this price range. Conversely, it wasn’t possible to build an acceptable product using this device at a price range the market was looking for.

Do you see Intel entering these segments again?
Perhaps…people do retire and organizations do forget why a mistake was made, or even that there was one made in the first place. It will take five to ten years for this to happen, though. By then, the price of components may drop to a point where price and value can match, but Intel’s entry will cause channel conflict and be seen as a mistake because of the conflict it will create with OEMs. In the near term, I expect Intel to avoid this stuff like the plague.

Why does Dell continue to snub AMD? It is the only major OEM that does not make AMD-based PCs…
Dell is a late adapter of technology and some if its cost advantages have been in the level of standardization that it uses. It has standardized on Intel and because AMD is not plug compatible with Intel, doing AMD would damage Dell’s model.

Do you see Dell changing over to accommodate other chipmakers at any point?
To do that, Dell would have to be really upset with Intel. To some extent, the two companies do have their differences, but this hasn’t crossed the threshold where their lack of comfort with AMD is mitigated. Dell is likely to always be the last to try out new processor types and emerging technologies.

What challenges does Intel face in its entry into the telecom space?
The telecom space is one that’s in deep trouble, and Intel has little experience here. This is putting the company at odds with other telecom suppliers, and they may end up favoring AMD as a partner, going forward.  Intel also faces the threat of losing focus on its core business.

In light of this situation, does it make sense for Intel to make a major telecom push?
Not really…this level of diversification into a failing market, one in which they have little experience, has historically resulted in sharp declines in marketshare for Intel. It could create brand confusion because so far, marketing campaigns have always connected Intel to microprocess-ors. On the other hand, client-side technology is less risky because it is so commoditized, and anyway, much of this ends up on the motherboard over time. Networking initiatives are far riskier and could lead to unforeseen costs and hurt Intel’s primary business. It would be best if they did this work at arms length under a separate brand.

How’s Intel doing in the mobile phone market?
Intel is not considered a real player at this time. As phones get smarter, there’s a chance that their ARM initiative could deepen penetration in this segment as well.

Has Intel been able to make a mark in the 64-bit processor market?
No, at least not yet. The Microsoft data center is not mature enough and Itanium was both very late (by two years) and an underperformer. The next version of the Itanium is expected to be better received, but this may take another three to five years to find its stride, due to long sales cycles and the conservative nature of platforms that use this technology. Applications are mission-critical and buyers are risk adverse—therefore, they tend not to go with spanking new products. To succeed in the 64-bit market, Intel will have to get around its ‘PC company’ image and create an image of related products, more in line with IBM. And that’s not easy to do once people think they know what you do best.

Will a bigger HP (after the Compaq acquisition) help the Itanium initiative?
Given that we expect this merger to result in one of the biggest failures in the history of mergers, I’m not sure that Intel stands to benefit. However, if the merger is successful, Intel will have a company somewhat larger than HP, which currently is advocating the product for the high end. If it makes it into the Tandem line, it could do a lot to overcome the image problems it currently has.

How much competition does Transmeta offer to Intel in mobile computing and mobile Internet devices?
Not too much, thanks to Transmeta’s inability to execute at year-end 2001. Currently, vendors don’t trust Transmeta to execute and it is clearly fighting for its life as a result of its own mistakes. Intel has moved up Banias, designed to be the Transmeta killer (due in January of 2003). If this date is met, Transmeta will need to do something dramatic to stay relevant.

Reports say IBM and others were virtually forced to give up production of their Transmeta-based laptops. Has Intel been ruling like a big brother in the market?
Yes, but OEMs are really upset with Intel and consequentially, it only has so much play right now.

So what does the future hold for Intel in relation to sheer numbers?
Intel is the dominant provider and could improve its relationships with the OEMs, spin out or discontinue distracting business initiatives, and finally come out with a marketing campaign like their ‘Old Bunny Man’ effort.  But despite all these possibilities, AMD seems likely to continue to gain marketshare if it doesn’t stumble and fall.

Manoj Chandran in San Francisco

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