Intel's Mix-and-Match Computing

By Olga Kharif At Intel's (INTC) annual meeting on May 18, the chip giant formally passed the crown from Craig Barrett to Paul Otellini. While kudos and a slide show of "then and now" photos of various top execs took up most of the meeting, a little-noticed announcement of new desktop chips could provide clues to the direction in which newly minted CEO Otellini will take the chip giant.

Tentatively called Professional Business Platform, the new chips consist of a Pentium 4 processor, a chipset, and other components and will also offer support for 64-bit computing. This marks the first time since Intel's successful Centrino package that the company will market a package of chips, vs. the one-size-fits-all approach of a single processor handling a variety of jobs.

The chips, designed for desktop PCs priced from $800 to $1,000, will let manufacturers build computers to target different groups of users by mixing and matching components. The idea is to increase the distinction between business users, who typically want to be able to manage PCs remotely, and consumers, who often don't require such capabilities. The chipsets in this new package will allow corporations to remotely manage PCs to a greater extent than ever before.

TURF WAR. The new desktop package could be just the beginning. Eventually, Intel may market different chip packages for business users based on their needs. For example, a salesperson showing lots of PowerPoint presentations could get a computer with greater graphics capabilities. An engineer could get a PC that's perfect for virtual drafting.

The same segmentation for business users could soon work its way into consumer PCs. Dean McCarron, founder of chip consultancy Mercury Research in Cave Creek, Ariz., says Intel might eventually segment its Centrino family the same way -- offering separate chip packages optimized for business users and consumers. After all, more corporations are opting for laptop PCs over desktop machines -- and Intel's main rival, AMD (AMD), has made it clear that it plans a strong push into the notebook arena where Intel is strongest.

Indeed, the new chips could be Intel's attempt to strike a blow against AMD, which has been steadily eating away at its market share. From the first quarter of 2004 to the same period this year, Intel's overall share of the processor market declined from 83.5% to 81.7%, while AMD's rose from 15% to 16.9%, estimates McCarron. Usually, the market-share standings of the two longtime rivals shift by no more than 1% a year.

CASH PILE. Intel's strategy of PC market segmentation could be a real headache for AMD, which clearly lacks Intel's clout and resources. The greater segmentation will mean more supply-chain management work and more marketing expenditures, says Brian Matas, an analyst with chip consultancy IC Insights in Scottsdale, Ariz. And AMD -- losing money because of unfavorable pricing for its flash memory -- might not have the funds to match Intel in either. (AMD says it's working to spin off the memory business, which lost $110 million in the first quarter alone.)

Intel has the dough to make this ambitious undertaking work: The chipmaker holds $13.7 billion in cash and equivalents to AMD's $1.1 billion. And while Intel doesn't plan to spend anything close to the whopping $300 million it forked over promoting Centrino, its marketing efforts behind the Professional Business Platform will be "substantial," says Mike Ferron-Jones, director of Intel's digital office platforms division.

AMD says Intel's strategy will confuse and irritate customers. "Most of our IT customers have a standard desktop system that they deploy throughout the enterprise," says Hal Speed, senior marketing manager for AMD in Austin, Tex. "They want to standardize their hardware. This is just adding complexity for the IT departments, [whose budgets have already been cut]."

A MATTER OF CHOICE. Yet some corporate customers say they wouldn't mind buying a PC designed specifically for them, vs. a one-size-fits-all machine. "If this can lead to decreasing the cost of managing PCs, then this will be of great value," says Mort Rahimi, chief technology officer at Northwestern University in Evanston, Ill.

And many small businesses, which can't afford to replace all their PCs at the same time, would appreciate the opportunity to pick and choose computers that better fit their needs, says Mercury Research's McCarron. Intel hopes he's right -- and that a new age of customized computing is dawning. Kharif is a BusinessWeek Online reporter in Portland, Ore.

The Good Business Issue
blog comments powered by Disqus