Also this of interest from today's WSJ:
Intel Shows Exposed Flank In Europe With 2Q Pft Warning
By Bill McIntosh
LONDON (AP-Dow Jones)--For Intel Corp. (INTC), the European market is throwing up a rarely exposed flank in its global dominance of the computer chip industry.
With an estimated 75% of the global micro-processor market, Intel seems all but immune to the winds of competition that buffet the PC and peripherals market - the destinations for most of its microprocessor output.
But a profit warning delivered Friday shows that Intel's performance in Europe may be slipping and that the European market is cooling.
The company said second-quarter revenue growth will be down 5% to 10% from the first quarter, due in part to weak demand for older microprocessors as new products are introduced and because of weak demand in Europe.
On Tuesday, Intel Chairman and Chief Executive Andrew Grove amplified the warning. Speaking to reporters in New York, Grove said 90% of global sales will come from new Pentium II products by the fourth quarter.
He also attributed the anticipated weakening in revenues to reduced demand in Europe. Europe typically is weak in the second quarter, but it is worse this year, Grove said.
'Europe always has a realignment in the second quarter, but this year there has been more of a decline than in other years,' Grove said.
Intel stock was down 3 1/2 at 146 1/4 at 1435 GMT Tuesday.
No one doubts that sluggish European economic growth is restraining PC shipments, in particular, to consumer buyers.
Industry research group Dataquest recently cut its forecast for 1997 PC shipments in western Europe to 18.05 million units from 18.36 million units, giving 10.6% year-on-year growth.
Industry watchers and rivals observe that Intel's spotty European performance is, in part, a byproduct of its own phenomenal success in dictating the direction and pace of change in the global PC market.
In May, Intel unveiled its latest micro-processor, the 266 megahertz Pentium II, which followed closely on the heels of its January rollout of the Pentium MMX. Such rapid change in the PC market seems to be quelling consumer's enthusiasm to either upgrade or buy their first PC, industry players acknowledge.
'There always been a dip in consumption when Intel brings in a new chip,' said Richard Baker, sales director for northern Europe with rival semi-conductor maker Advanced Micro Devices Inc. (AMD). 'This time it's exacerbated.'
Others note that Intel is facing a stiffer challenge in Europe than elsewhere from nimble competitors like Advanced Micro Devices, Cyrix Corp. (CYRX) and International Business Machines Corp. (IBM). Last week, for example, Cyrix announced plans to price its 6X86 MX chip 50% below Intel's comparable chips and 25% below Micro Devices'.
'I think there is indeed an issue that Intel is losing business to AMD and Cyrix, and it could be more advanced in Europe than elsewhere,' says Kees Dobbelaar, vice president of European PC market research with industry research group Dataquest.
PC clones, Dobbelaar says, are a bigger factor in Europe than in other markets due to their greater market share.
As well, the smaller production lines of European PC clone makers allows output to be quickly switched to take advantage of cheaper microprocessors. Finally, Intel's strong branding strategy - a big success in conditioning consumer preference in North America and building brand loyalty - has had a far more limited impact in Europe.
'Intel is slightly more exposed in Europe than anywhere else,' Dobbelaar says.
For its part, Intel last Friday assigned a large part of the blame for an expected shortfall in second-quarter earnings on a worse-than-expected lull in the European microprocessor market.
Hans Geyer, head of Intel's European operations, like Intel's Grove earlier this year, said weak European chip demand may cause Europe to fall further behind the U.S. and others in adopting technology. He also decried the torpid prospects for economic growth in Germany and Italy as well as a slowdown in investment and consumer spending in France and the U.K., blaming political uncertainty arising from recent national elections.
But amid that scenario, an Intel spokeswoman told Dow Jones Newswires that there is 'extremely strong demand' for its new Pentium chip products. 'We are making them as fast as we can because there's such huge demand.'
Indeed, Intel went out of its way to deny that competitors had affected its European performance. 'If you examine the performance of competitors, there's no way they could make an impact,' the spokeswoman said. 'They didn't have volume production.'
Competitors, for their part, are surprised by the impact Europe is having on Intel. 'The vast majority of desktop activity is not done in Europe,' says Steve Hanson, European General Manager with Motorola's Semi-Conductor Components Group, which supplies Power PC chips for computers made by Apple Computer Inc. 'I was a bit surprised to see it as such a big swing factor for Intel.'
Advanced Micro Device's Baker sounded a similar note. 'No matter how difficult or cagey things have been, they've always managed to make it up somewhere.'
Dobbelaar, meanwhile, sees Intel following a simple strategy in warning Europe about its competitiveness in new adaption new technology.
'I think they're trying to wake up the European Community and the national governments to promote high technology and get computers into schools,' he said. 'Intel is very keen on articulating that Europe is behind and is right to do so.'
Baker said Advanced Micro Devices is experiencing a swifter take-up of its new K6 chip in Europe than in the U.S. He also noted that Intel is vulnerable outside of the U.S. - where its branding is much weaker - to confusion among PC consumers due to the chip market's rapid evolution.
'The market is a little bit confused,' Baker said. 'Product change (in the market) is so rapid that nobody knows where it's going to go.' |
