Barry and ALL, Article...Pentium Push: Is Faster Really Better In Chip Wars?
Date: 1/29/98 Investors Business Daily
Author: Nick Turner
Is Intel Corp. pushing the envelope too hard?
The Santa Clara, Calif., chip giant raised the bar again this week -unveiling a Pentium II microprocessor that runs at a blazing 333 megahertz.
That may be great for computer enthusiasts, but Intel's relentless advancements leave some market watchers wondering: Is there enough software to take advantage of all this power? And do personal computer users have a reason to upgrade to the burly Pentium II?
With Pentium-powered PCs available for just $799, many consumers and businesses are content to stick with the Pentium. Plus, users are more focused on obtaining high-speed access to the Internet.
''The Pentium II is a fine chip,'' said Drew Peck, an analyst at Cowen & Co. in Boston, ''but the average user can't tell the difference between the Pentium and the Pentium II. People are screaming for higher bandwidth. The processor is not the issue.''
That's not to say the Pentium II won't have a major presence in the market. By midyear, half of all microprocessors Intel sells will be Pentium IIs. The question is whether current computer owners will feel compelled to upgrade. There is no data to show which way the computer-buying public will lean.
PCs with older 200-megahertz Pentium microprocessors start at $800. The cheapest Pentium II machines cost about $1,500. Analysts say Intel is having trouble finding compelling software applications that prove the Pentium II's worth.
So it may take deep price cuts to speed the Pentium II's adoption. Intel expects price tags on Pentium II PCs to drop below $1,000 by the second half of '98.
Intel has always cut prices aggressively, but there's even more pressure now. Its legendary gross margins -often running near 60% - could suffer, analysts say.
The company also is facing more competition at the low end of the market. Houston-based Compaq Computer Corp., the No. 1 PC maker, is using a chip from Sunnyvale, Calif.-based Advanced Micro Devices Inc. in its $799 model. Cyrix Corp., a unit of National Semiconductor Corp. of Santa Clara, Calif., also sells a competing chip through Compaq.
Analysts say the Asian chip powerhouses may someday enter the market.
''It used to be customers would leap at buying a PC with a new Intel processor,'' said Peck. ''Now the company is relying on price cutting and advertising to generate excitement.''
Indeed, Intel is advertising like never before. Last weekend, the company aired an elaborate, interactive commercial during the Super Bowl. Viewers were asked to log on to the Internet and help solve a mystery involving a stolen Pentium II.
Although the microprocessor is the heart of a PC, it's more critical to have a quick conduit to the Internet for many users. Without fast modems, even Web surfers with a Pentium II just plod along.
Intel recognizes this problem. The company is working with other high-tech giants to speed the adoption of digital subscriber line technology. DSL will provide consumers with much faster access than what they get over ordinary phone lines.
The corporate world also is focusing on upgrading its networks. For companies, getting the latest PCs and microprocessors is less of a priority, says Dave Vellante, an analyst at International Data Corp. in Framingham, Mass.
''Enthusiasm for the latest processor is not going to be as great as it was for previous generations,'' he said. ''There's only so much money to spend, and networking issues are a lot more important.''
There also is the question of software. Most programs are designed to run on a Pentium. There are certain programs that benefit from more processing power - multimedia games and education titles, for instance. Intel officials say most of the best-selling software titles run better with the Pentium II.
But the difference isn't always that noticeable. And with business software such as spreadsheet and word- processing programs, the difference is negligible, say analysts and Intel officials.
Intel always is pushing for the development of demanding software. For the past four years, it's sponsored a program encouraging software firms to take advantage of new processor power.
''Users need to have software that explores the processor's capabilities,'' said Claude Leglise, vice president of Intel's content group and director of developer relations. Games with three-dimensional graphics are improved significantly by a Pentium II, he notes.
Intel also now is reaching out to Internet content developers. As part of its ''Optimized Content'' initiative, it's helping to sponsor Web sites that run best with a Pentium II.
The program has drawn some criticism because the sites, which feature snazzy graphics, take longer to access with older computers. Some wonder if Intel isn't strong-arming popular Internet locations into using its technology.
Leglise scoffs at that notion.
''We're allowing Web sites to create more exciting content. It's the same as when TV went to color from black and white,'' he said.
It may take some time, though, before Optimized Content is one of the Pentium II's big selling points. In the meantime, the hope is that consumers will buy a PC with room to grow. Maybe they don't need all that processing power now, but they may someday.
Analysts say not all PC buyers like to look that far ahead. Consumers expect any high-tech equipment to quickly become obsolete, so many would rather make a smaller investment.
''People are saying, 'I don't need that much headroom. I've got more than enough already,' '' said Nathan Brookwood, an analyst at Dataquest Inc. in San Jose, Calif.
By the same token, Brookwood doesn't see sub-$1,000 PCs impressing everyone. They typically lack good sound and video cards, he says.
''By the time you upgrade those, adding a beefier microprocessor hardly changes the system costs,'' he said.
Even if the installed base of computer users is reluctant to accept the Pentium II, Intel is far from slowing down. Its next major processor - a chip code named ''Merced'' - should hit the market next year.
That will be a major and possibly risky transition, says Mark Kirstein, an analyst at market research firm In- Stat Inc. in Scottsdale, Ariz. The Merced will be a 64-bit processor, up from today's 32-bit fare. The chip is likely to be used in high-end applications at first.
Merced may take a while to wind up in consumer products because it will be pricey, and much more powerful than the Pentium II.
''That's a much larger step than the one from Pentium to Pentium II,'' Kirstein said.
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Regards, Michael |
