Barry: from downunder, however from what I see going out of stores and showing up on the desks of small businesses that I visit it's P2 time....
Tuesday, December 2, 1997
Pentium II slow to take off
Disappointing sales of Intel's latest processor and a rapidly growing budget PC
market have prompted the chipmaker to change its sacred business model.
DAVID HIGGINS reports.
As the gift-giving season approaches, they are everywhere - striking John Travolta
dance poses on Web sites, hijacking Broadway chorus lines on TV ads, zooming off
magazine pages in an over-sized Tarago. At Intel's home page you can even buy
official Pentium II BunnyPeople merchandise (trademarked, of course): "A wide variety
of new, fun and exciting products, highlighting the Pentium II processor logo."
If Intel's multi-coloured dancing mascots have started to bug you, imagine how the
blanket advertising campaign must infuriate the other two major PC chipmakers, AMD
and Cyrix.
The dominant Intel brand has limited AMD and Cyrix to a combined market share of
between 5 and 10 per cent of new PCs in Australia, according to the computer
industry research firm Gartner Group/Dataquest.
That number lurched to the south recently when retailer Harvey Norman decided to
replace Cyrix 200MHz processors with slower Intel Pentium 166MHz processors in
its popular Signature line of budget PCs.
Imagine, then, the relative delight of Intel's competitors at recent reports that the
Pentium II has not lived up to sales or performance expectations in its initial marketing
phase.
Analyst studies, competitors' claims and even off-the-record remarks by Intel staff
were summed up in a recent headline, Pentium II: Dynamo or Dud?, on the C-Net
computer news Web site. C-Net quoted an analyst from the New York investment
banking firm Cowen & Company as saying: "The Pentium II does not dramatically
improve the performance for consumers."
Intel's Asia-Pacific vice-president, Sean Maloney, denied the Pentium II was anything
but outstanding in performance.
"The Pentium II's performance is wonderful," he said in Sydney last week. "This is the
cleanest, fastest-yielding, fastest-growing product we've ever had."
But Michael Slater, the founder of the Microprocessor Report newsletter, said the first
generation of Pentium II did not yield a quantum leap in performance.
"At a given clock rate, for example 233 MHz, the improvement from Pentium MMX to
Pentium II is modest on most applications," Slater told the Herald. "The real benefit of
Pentium II is that it is available at higher clock speeds, and it will continue to scale to
ever higher clock speeds."
Dataquest's local PC analyst, Bruce McCabe, confirmed that sales of the Pentium II,
which supersedes the Pentium MMX processor, had initially been slower than
expected.
"Regionally and in Australia, the Pentium II has been sluggish to date. The general feel
is it has been a little bit below Intel's expectations. They would have liked the transition
to take off more quickly than it has."
In the third quarter, Pentium II systems had about 5 per cent of the market.
Normally Intel would not be concerned that its newest processor was confined to the
top end of the market. The company has always followed a "trickle down" strategy,
allowing its new products to gradually float down into the consumer market as supply
ramps up and prices fall.
But almost from its introduction, Intel poured money into a consumer campaign for the
Pentium II, with no great rise in demand.
Ironically, according to Dataquest, the most popular Intel processor in the last quarter
was the company's cheapest and slowest: the 166MHz Pentium MMX.
Computer users didn't yet have a compelling reason to pay two or three times the price
for a Pentium II system, according to Linley Gwennap, the editor of the
Microprocessor Report.
Slater and McCabe say this is a short-lived trend. Slater points out that the Pentium II
will reach 450MHz by the end of 1998 and Intel only has to pull the price reduction
lever to ensure it inherits the original Pentium's market dominance.
But the big guy is taking no chances.
Intel last week announced it was abandoning its traditional business model and splitting
its operations into four divisions "to match segmentation trends in the marketplace". The
new divisions are the Consumer Products Group, the Business Platform Group, the
Small Business and Networking Group and the Digital Imaging and Video Division.
Intel's president, Craig Barrett, said in a statement the restructure would "allow us to
address multiple market segments more efficiently". Among other things, the consumer
group will next year release low-cost Pentium II models aimed at the budget PC
segment (sub-$US1,000 [$1,470] in the US), according to recent reports on C-Net.
Intel's decision to renew focus on the budget PC - the turf of Cyrix and AMD - did not
surprise Terry Lim, AMD's regional business development manager.
"It's a U-turn. In terms of the PC, you can't be saying every 18 months we will increase
the speed and halve the price. That formula can't go on forever."
AMD and Cyrix will have to work hard if Intel slashes its Pentium II prices, as
expected, said McCabe.
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