Last line on RIM/Intel
Pentium III launch a challenge for Intel
Competition from low-end rivals and a PR flop
could spell trouble for the new processor
Wednesday, February 17, 1999
MARK EVANS
Technology Reporter
The much-hyped launch today of Intel Corp.'s new Pentium III microprocessor is a significant strategic, marketing and sales challenge for a company that -- until recently -- had a near-monopoly on the $22-billion (U.S.) market for the chips that are the brains of a personal computer.
Intel is positioning the Pentium III as the "Internet chip," the first microprocessor designed to take advantage of the Internet's potential to deliver full-motion video and other advanced multimedia applications.
Enthusiastic computer users welcomed Intel's older Pentium processors with open arms. But Intel could have difficulty convincing consumers that they need an even faster chip when many people have barely scratched the surface of their existing technology.
Intel also has to deal with competition from a group of feisty rivals such as Advanced Micro Devices Inc. (AMD) and National Semiconductor Corp.'s Cyrix Corp. unit, which are taking away market share with lower-cost chips.
Not only is Pentium III an important product for Santa Clara, Calif.-based Intel, it's also a key growth issue for computer and software makers that are counting on the new chip to drive sales of coming products that need more "horsepower" to operate efficiently.
Carl Howe, director of corporate strategies with Forrester Research Inc. in Cambridge, Mass., said Intel has tried to create a buzz around Pentium III by marketing it as an "Internet chip" because it incorporates new technology that enhances the use of video and other multimedia applications such as games.
"I think that's wishful thinking," Mr. Howe said, adding that the problem with Intel's marketing approach is there are few products now on the market that can take advantage of Pentium III's new technology.
Intel's efforts to build some marketing momentum for Pentium III stalled earlier this month when privacy advocates complained about a feature that provides each chip with an identification number.
Intel included the identification feature because it wanted to add an additional layer of security to computerized documents such as electronic commerce transactions. Since each computer would have a specific serial number, Intel said it would be difficult for unauthorized computer users to gain access to that information.
But critics claimed this feature could allow companies to track visitors to their Web sites. The controversy prompted Intel to change the setting on the chips so that now the identification feature is disabled unless a user decides to activate it.
Despite Intel's early stumble, Rob Enderle, an analyst with Giga Information Group Inc. in San Francisco, said he believes Pentium III will find a sweet spot in the market with computer users who want high-performance technology, and are happy to pay a premium to get it. Pentium III chips will cost $800 to $900 while a Pentium II is $250 to $300.
"The Pentium III is the power option," he said. "It's the difference between driving a Chevrolet and a Ferrari."
Even though Intel still dominates the microprocessor industry, it can't afford to falter because its rivals are aggressively pursuing computer makers that have traditionally been Intel customers. According to International Data Corp., Intel's market share fell to 75.7 per cent in the fourth quarter from 87.1 per cent in the year-earlier period.
AMD of Sunnyvale, Calif., has been nipping at Intel's heels and starting to win over computer makers with its answer to Pentium III, a new technology called 3DNow, which improves the multimedia and three-dimensional performances of its K-6 chips.
Cyrix has been doing well in the sub-$1,000 segment of the personal computer market, selling low-cost chips (around $125) that offer enough power to satisfy bargain-hunting consumers.
Mr. Howe said the last time Intel faced a competitive challenge was a decade ago when it was the upstart battling market leaders Motorola Inc. of Schaumberg, Ill., and International Business Machines Corp. of Armonk, N.Y.
Now, Intel is the hunted rather than the hunter, and management, led by chief executive officer Craig Barrett, must develop a clear vision to remain the market leader, he said.
"Intel has a big bull's-eye on its forehead because everyone is gunning for it. But they have to be as nimble and aggressive as they were when they were a small company," Mr. Howe said. "It's easy to be nimble when you're a $5-billion company, it's a whole other thing when you're a $40-billion company."
A big challenge facing Intel and Mr. Barrett, who succeeded Andy Grove as CEO last April, is leading the company into new, high-growth markets such as the Internet and non-computer appliances such as hand-held organizers and pagers.
To its credit, Intel has become more than a microprocessor maker by branching out into networking equipment such as hubs and routers.
The company has also been active in the pursuit of new opportunities through technology alliances, partnerships and equity investments.
An example of this strategy is Intel's relationship with Waterloo, Ont.-based Research in Motion Ltd. It was just in the early 1990s that Intel's 386 chips were cutting-edge technology in personal computers. Now, Research in Motion is using Intel's older 386 processors in its two-way wireless pagers.
Intel also purchased a 1.5-per-cent stake in Research in Motion in 1997 to formalize the relationship.
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