“We had much higher demand in Q3 for Pentium III's, and started to see the ramp-up in Pentium 4's toward the end of the third quarter,” Chien said.
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Channel sales boom as Intel focuses on smaller users
By Laurie Sullivan, EBN
Nov 5, 2001 (10:33 AM)
URL: ebnews.com
Despite a tough economy, Intel Corp. reported that it set record channel sales in the first three quarters and expects growth to continue through the remainder of the year.
The reason? The leading PC processor maker, with a 79% market share in terms of total units sold, is focusing its distribution sales efforts on small and midsize businesses and emerging markets such as China. Archrival Advanced Micro Devices Inc. has a similar distribution strategy.
In a call with financial analysts, Intel last week reported that its sales through distribution grew 46% in the third quarter, compared with the year-ago period. Sales through the channel accounted for 24% of Pentium 4 shipments and will account for 40% in the fourth quarter, the company said.
Overall, approximately 55% of Intel's processors are sold through distribution, according to Douglas K. Lee, an analyst at Banc of America Securities LLC, San Francisco.
“Intel made a concerted effort in the second quarter to revamp its channel program and look at segmentation to offer specific program benefits based on different channel segments,” said Tom Kilroy, vice president, Intel Reseller Channel Organization. “White-box sales have always been strongest in the channel because small businesses typically buy products through distribution in all geographies.”
Moving along faster
Consistent with past product launches, sales through the channel helped get Intel's Pentium III into the hands of white-box resellers and system builders at a faster rate this year, according to Kilroy. It also significantly helped the transition in the third quarter from the Pentium III to the Pentium 4, he added.
Likewise, AMD has always invested in a strategy to push sales through distribution, said Jeff Erhart, director of AMD's worldwide distributor operations. “We've seen strong growth through the channel into our target markets such as the desktop white-box market,” Erhart said.
Worldwide sales through distribution represent 30% to 40% of AMD's total sales, according to Erhart. “In North America, we've picked up about 10 percentage points for processors through distribution during the last year,” he said.
Pioneer-Standard Electronics Inc. has felt the uptick in Intel processor demand. Sales to integrators and small value-added resellers have been strong, with processor sales in the third quarter growing 31.5% sequentially, according to Al Chien, director of the PC market segment for the Industrial Electronics Division (IED) at Pioneer-Standard in Cleveland.
“We had much higher demand in Q3 for Pentium III's, and started to see the ramp-up in Pentium 4's toward the end of the third quarter,” Chien said.
The shift that began earlier this year at Intel capitalizes on distribution's major focus on small and midsize businesses. Most larger multinational companies buy product direct from suppliers. Although large U.S. companies have cut back on capital information technology spending this year, smaller businesses in the United States have continued to procure equipment.
Additionally, Intel's PC segment this year has seen growth in Africa, Central and South America, China, India, and the Middle East, said Eric Ross, an analyst at Thomas Weisel Partners LLC in New York.
“Emerging markets are more likely to get shipments through distributors than direct because they have many more specialized white-box manufacturers in each of those regions,” Ross said. “The U.S. has traditionally been the strongest, with Korea and Europe following. This year the U.S. is the weakest.”
Distributors accounted for 56% of Intel's processor sales in emerging markets such as China and India, growing to 60% in the third quarter, compared with the same period a year ago. Distributor shipments in Latin America grew 100%. Sales through distribution outside North America account for roughly 80% in sales, Kilroy said.
“We're seeing a market-share shift from the large PC OEMs to the white-box manufacturers worldwide,” said Eric Rothdeutsch, an analyst at Robertson Stephens Inc. in San Francisco.
“When component supply is tight, the large PC OEMs typically get better allocations, and in that environment the OEMs tend to gain share from the local suppliers,” he said.
But the reverse is true now because product supply is plentiful, prices have come down, and the local supplier is on a more equal footing with the large PC OEM.
Analysts expect IT spending to pick up in the second half of 2002. But at the same time, many are skeptical about the longevity of the percentage increases of sales through distribution.
The big question, according to analysts, is whether the gains smaller white-box makers have made this year will be sustainable once the market recovers, or will the pendulum swing back in favor of direct sales to large PC manufacturers? |
