Intel Inside the Third World

Is getting computers to poor kids charity—or big business?

by Bruce Einhorn

Middle school #156 in Malinalco, an hour and a half drive from Mexico City, is so strapped for cash that it can't even keep the lavatories stocked with toilet paper. Nearly half of the school's 211 students live below the poverty line. But on this June morning, 30 eighth graders are hunched over their desks, tapping on the keyboards of pint-size laptops donated by Intel Corp. (INTC) Chemistry teacher Martina Rosas is giving the students a crash course on Web searching. "The kids participate more in class and are much more interested in reading and investigating online," says Rosas, who herself recently completed 60 hours of computer training.

Intel wants to bridge the Digital Divide and pioneer a whole new market by filling classrooms in poor countries around the world with low-cost PCs. Priced at about $320 each, the new Classmate laptops on the desks in Malinalco are still too expensive for governments in most developing countries to purchase. Even so, they have allowed the chipmaker to steal a march on Massachusetts Institute of Technology professor Nicholas Negroponte, whose foundation, One Laptop per Child (OLPC), is on a mission to build easy-to-use, energy-efficient computers that will eventually sell for $100 or less. While Negroponte's OLPC is still trying to work out all the kinks in its XO laptop, now projected to cost $175, thousands of Intel Classmate machines have been rolling off the production line since March at a Chinese factory owned by Taiwanese manufacturer Elitegroup Computer Systems Co. (ECS). Intel already has trials under way in more than 10 countries, with 25 planned by yearend.

The contest between Intel and OLPC has been an odd one, not least because the two sides are so unevenly matched. In one corner stands one of the world's most powerful tech giants, and in the other, a tiny philanthropy that has drummed up modest backing from the likes of Google, eBay, News Corp., and Advanced Micro Devices. (AMC) Negroponte has repeatedly criticized Intel for what he considers its hardball tactics. And yet the rivals may be ready to bury the hatchet: BusinessWeek has learned that Intel and OLPC executives are in talks regarding how they can work together.

It's unclear what the cooperation might involve. It's also not certain the two programs—either individually or in some kind of joint venture—will improve education or succeed in spreading useful technology through the developing world. But the race already has shed important light on how Intel plans to grapple with sluggish growth in the global PC market. The company's swift response to Negroponte also reveals how nimbly Intel can maneuver when necessary.

Under CEO Paul S. Otellini, Intel has been going through a painful transition. Its microprocessors still dominate the PC landscape, but the world of cell phones and other mobile gadgets is expanding much faster. Such products consume more chips than PCs do, perform many of the same functions, and are more popular throughout much of the world.

`NEXT BILLION'
A marginal player in cellular markets, Intel must find a way to sell to the "next billion," industry lingo for consumers in the developing world who don't yet have easy access to the Internet. The education market—and products such as the Classmate—presents a major opportunity, says Martin Gilliland, Asia-Pacific research director for Gartner Inc. (IT), because even if Intel's margins on such devices are razor-thin, volumes could soar into the hundreds of millions. Intel could expand the PC user base "not by fractions, but by high double-digit percentages," Gilliland says.

The first big challenge for Intel is bringing down the Classmate's costs. Unlike Negroponte's XO device, whose specially designed user interface aimed at first-time computer users is a deliberate break from the world of Intel chips and Microsoft software, Intel's machines are largely stripped-down versions of today's "Wintel" PCs.