Competitors seek to topple microprocessor-maker from No. 1 spot

CHALLENGING INTEL

August 19, 1991|By Valerie Rice | Valerie Rice,Knight-Ridder News Service

At a rate of 200 per minute of every working day, customers around the world are buying computers using microprocessors made by Intel Corp.

That fact has made the $4 billion Santa Clara, Calif., chip-maker the largest manufacturer of microprocessors in the world, with an almost 60 percent share of the market.

It also has given competitors, hungry for some of those sales, a target to shoot for.

As recently as last year, it was almost unthinkable that Intel could have any challengers. The company had a monopoly on 80386 chips, the world's most popular microprocessors and the "brains" of all the advanced IBM and IBM-compatible personal computers.

But a fundamental shift is taking place in the computer industry. Bold new steps from the Advanced Computing Environment, or ACE, initiative, and the partnership between Apple Computer Inc. and International Business Machines Corp. threaten to change the basic rules by which microprocessor-buying decisions aremade, industry observers say. Both ACE and the IBM-Apple alliance aim to develop a new generation of high-performance computers using advanced software and ultra-fast chips. Both alliances hope to create software that will easily run on any microprocessor.

"The personal computer of the future is going to have a choice of microprocessors, either from ACE or Intel, or someone else," said Tom Kurlak, an analyst with Merrill Lynch in New York. "What this means is that Intel will have competition for its socket in the computer for the first time in years."

How Intel responds to these threats, particularly after what one analyst called a very long "fat and happy" period, is the key to how long the company can remain dominant and richly profitable. While some argue Intel is too well entrenched to be quickly toppled as the leading supplier, others fear competition ultimately will mean severe price-cutting, dramatically flattening the company's profits and hindering its growth.

But Intel is not taking these challenges lightly and has taken a series of steps in recent months to ensure that the company will remain the leading microprocessor supplier.

Although Andrew S. Grove, chief executive of Intel, acknowledges the rapid changes in the marketplace, he plays ** down their direct impact on the company. Mr. Grove refused to be interviewed for this article but spoke at length in an interview several weeks ago as well as at the company's most recent quarterly meeting.

Mr. Grove dismisses the idea that his company is under siege by saying, "So what else is new? A lot of other people have said that. We've earned our large market share despite other attempts to take it away from us, and we intend to be competing 10 years from now."

One reason Mr. Grove says Intel can escape the brunt of the changes is because the focus of tension in this decade is going to be software, rather than microprocessors.

In response, the company's strategy will be "to continue to embellish" its microprocessors and to be a "port of choice" for all software.

To make sure the company can respond to the challenges, Mr. Grove and his executive team orchestrated some swift and dramatic changes in Intel's competitive strategies.

* Intel reorganized in May, disbanding its large product groups and creating a number of smaller, streamlined operations that report directly to the executive staff. In addition, the company created several new groups, including one to oversee developments in software technology to help ensure that Intel is not left out of any software plans.

* To help counter the threat from archrival Advanced Micro Devices Inc.'s version of the 386, now widely available, Intel began an aggressive advertising campaign to get customers to look for the "Intel Inside" logo on the boxes of personal computers.

* The company will start selling a version of the 80486 chip directly to customers through retail stores. Instead of buying a new computer, a user can just plug in a new processor to !B upgrade the oldone, which may not sit well with some of Intel's computer customers because they may lose sales as a result.

* Intel has not only spent a lot of time talking about its upcoming 80586 chip, but also will make it available by mid-1992, much sooner than originally expected. The chip, which is described as a "reduced instruction set computing" (RISC) microprocessor, will be about five times faster than the company's current chips and is set up to be a clear competitor to offerings from ACE initiative leader Mips Computer Systems Inc., as well as the SPARC chip from Sun Microsystems Inc., and the new Power PC chip from IBM and Apple.

Some industry observers question whether these steps will be sufficient to keep the company well ahead of its competition.

Bob Herwick, an analyst with Hambrecht & Quist in San Francisco, said Intel's 586 does not have the "sure bet" status its previous products did.

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