Intel Notebook: A Kinder, Gentler Chip Giant
By Marcy Burstiner
Staff Reporter
9/2/99 7:50 PM ET
PALM SPRINGS -- Any small business knows the inviolate rule for survival: The customer is always right. After 30 years in business, Intel (INTC:Nasdaq) is finally figuring that out.
For most of its history, Intel has dominated its markets, putting it in a position to write the rules. At this week's Intel Developers Forum, several key Intel executives indicated a growing awareness that Intel is entering an era when it must follow the same rules as everyone else.
Intel networking general manager Mark Christensen repeatedly emphasized that in creating a new network architecture, the company isn't dictating to communications customers what products they must buy.
Pete MacWilliams, an Intel fellow who heads Intel's memory technology efforts, said that after previously vowing to produce only Rambus (RMBS:Nasdaq) chipsets, the company would now respond to demands for an alternative technology, PC133 SDRAM. He told TheStreet.com: "Intel will never be able to lead in every technology all the time."
Regarding Intel's attempt to produce the perfect easy-to-use computer, a top priority for CEO Craig Barrett, Intel executive Steve Whalley admitted that a significant part of the problem rests in the software that goes into a computer. Intel, he said, can't dictate to computer makers what software to bundle on their systems or how they should do it.
Although a radical change for the world's biggest semiconductor company, a kinder, gentler Intel may ultimately be a stronger player in new, fast-changing markets.
"Intel, for a very long time, would tell instead of ask the customers what they wanted," says analyst Nathan Brookwood, of technology research firm Insight 64. For years Intel refused to acknowledge a growing trend toward low-priced PCs, and only entered the market aggressively in 1998 when arch rival Advanced Micro Devices (AMD:Nasdaq) began eating into its market share.
The classic example of Intel's arrogance came in 1994, when scientists discovered a bug in the Pentium chip that caused errors in calculating complex long division. "When that happened, Intel's initial response was that the bug would not affect too many people," Brookwood says. "They said 'Call us and we'll tell you if you have a problem and if we decide you do, we will send you a new chip.'"
Intel's changing attitude may stem from its changing leadership. Barrett, who became COO in 1993, president in 1997 and CEO last year, is much less confrontational than former and long-time CEO Andy Grove. "You see his influence in the [1997] settlement [of litigation] with Digital Equipment and Barrett was willing to settle with the FTC," Brookwood says.
Another reason: Intel's markets are consolidating. The company now has fewer customers in both computing and networking than in the past, giving the remaining customers have a stronger voice. In networking especially, the number of end users is much smaller than in PCs -- we're talking AT&T (T:NYSE) and the Baby Bells.
Even your average Joe computer buyer has a bigger voice these days, says Martin Reynolds, a semiconductor market analyst for Dataquest. That's because as the price of chips plummets, Intel needs to sell far more to produce the revenue and profits investors are accustomed to.
For a company as big as Intel, responding to the needs of finicky customers isn't easy. New chips often require a new fabrication plant, and that means three years before the chips are ready for sale. Customers rarely know how many chips they'll need three years in advance. So, Intel often has to define a need before it even exists. "You put a lot of faith forward," he says.
And even in an area like networking, Sullivan says, while customers might know what they need for a particular project at a particular time, they may not have a clear understanding of the long-term solution to their problems.
"Sometimes we really have to try to lead, but sometimes what people ask for as a solution is not really the solution to their needs," he says. "You have to lead but you also cannot ignore the customer's needs. You have to be pragmatic in your approach."
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