INTEL STRATEGY

Intel's credentials in business strategy, technological prowess and people are impeccable.

But are there any reasons to doubt about the future? Industry observers don't think so.

It is difficult not to be im-

pressed by Intel Corporation.

It is difficult not to be impressed by its business strategy, technological prowess and people. Factors that have helped it chart a course to the top in a very difficult and competitive business. Famous Andy Grovenisms like 'point of inflexion' and 'only the paranoid survive' aside, Intel is today best placed to meet any challenge that the future might bring.

Making the pie grow

Could something upset the apple cart? Industry observers don't think so. "The game is still being played out. It is clear that Intel is taking steps to address this. They are not slow. They are buying new companies and looking at the growth opportunities, which are not necessarily in the high-end server business. If you could be in every router, every networking device, every gadget, every consumer appliance then that is where the growth opportunity is. The real threat to them is not that someone would come and take over this monopoly that they have. Its how to grow the pie," says an analyst based in Silicon Valley. True to that aim Intel has moved into networking chips, embedded processors and e-commerce services, to turn itself into, "a building block supplier to the computer and communication industry," as Atul Vijaykar, Director, South Asia put it.

Since Craig Barrett took over from Andy Grove the company has been investing heavily in companies and technologies it believes will help it meet the challenge of the Internet economy. In a deal which attracted a lot of attention, Intel acquired Level One Communications, a leader in network chip technology, in March. Earlier the company had acquired the StrongArm division of Digital Equipment. With both under its belt Intel has access to a number of interesting technologies. Although the StrongArm implementation is best suited to power information appliances, Intel is said to be working on a version of StrongArm that will be used for high-end switches and routers. The company has already announced that it will develop a line of chips called network processors, which are described as, "software programmable forwarding and control engines." With these Intel is set to become a supplier of interface, processing and controller chips-the three essential categories which consist networking chips.

Also into venture funding

On the ecommerce front, Intel is using its $11 billion in cash to invest in a host of startups making it one of the largest venture funds in the US. The company has recently invested in online toy retailer Etoys, search engine technology developer Inktomi and inked a deal with Excite for a web-based shopping service.

Intel's derives its tremendous financial strength by keeping its average selling price (ASP) and gross margin more or less constant. A May editorial by Michael Slater in Microprocessor Report, a highly regarded industry newsletter, estimated Intel's ASP to be around $227. It is able to do this by offsetting low Celeron prices by growth in high priced Xeon processors. The company offers such a broad range of products that it can position itself aggressively in competitive markets without affecting its bottom line. Says Vijaykar, "If you look at the market right now we have competition in the low-end and in the high-end. There really isn't much competition in the mainstream part of the market." To put Intel's ASP in perspective, its closest competitor in the x86 business, AMD's ASP hovers around $78. Intel ended last quarter with revenues of $6.75 billion-and was the only x86 player to earn profits.

Success formula in India

In India the situation is even better. AMD has, at best, a weak presence. Cyrix, turned on the heat last year, but has fallen by the wayside with major distributors abandoning the brand."Cyrix has gone from a gray market product to a regular product and back to the gray market," says DS Rekhi, Regional Manager, Sujata Infotech Ltd, an erstwhile Cyrix distributor, "But at least Cyrix was aggressive for a short period of time, AMD has not even done that".

Another factor that contributes to Intel's success in the country is its channel programs. Intel's channel strategy is replete with innovative programs that make it tougher for other players to gain a foothold. Whether its the Genuine Intel Dealer (GID) program or the latest ISP initiative, Intel has earned the respect of the reseller community. In the Asia/Pacific region, India has been one of the first countries where these programs have been launched, a clear indication of the importance and size of this market. "Our estimates of the market size are on the higher side, even beyond the MAIT/IMRB estimates. We also beleive that the market growth is also on the higher side than what is being presented.

That shows why there is so much commitment to the business in India from a worldwide perspective. There is a very strong belief that India is a very strategic market for us," says Kanwaljit Singh, General Manager, Marketing, Intel India. The recent MAIT (Manufacturers' Association for Information Technology) and IMRB (Indian Market research Bureau) Annual Performance Review of the IT sector for the year 1998-99 put the total computer market (desktops, notebooks and servers) at 10,85,981.

The venture capital fund is active in India as well with four companies having received funding so far. These include Bangalore-based Rediff.com and Network Solutions, Delhi-based Eastern Software Systems and Chennai-based Avigna solutions. Ten more companies are said to be under consideration.

A combination of investing heavily in companies and technologies that meet the challenge of the internet economy, looking at growth opportunities, buying new companies, investing in a host of start-ups using heavy cash reserves and innovative programs in channel strategy. These have been the pivots on which Intel strategy has based itself. Now it's a question of waiting and watching to see if the processor business will still continue to be played out or can something really upset the apple cart.

ABHAY SINGH





Cyber News Service