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:
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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