Intel's Kilroy Tells Partners To 'Race Ahead' in 2002

VARBusiness

Despite the fact that 2001 was one of the worst periods in recent history for Intel as a company--not to mention the high-tech sector as a whole--Intel's solution provider channel provided a shining ray of light, with performance that outpaced most expectations.

Intel's channel strength has been so impressive that during Intel's earnings announcements for 2001, Intel execs, including new president and COO Paul Otellini, noted channel sales in the fourth quarter set a record and outgrew non-channel sales in virtually every area of the company's business. And while the PC industry in general saw a significant slump in sales, units sold through Intel's channel partners were up a full 25 percent in 2001, say channel managers.

One of the men who's responsible for that record growth and who is spearheading Intel's efforts to capitalize on it in 2002 is Kilroy. Kilroy, who takes a certain amount of pride in hearing executives as high up as Otellini and Intel CEO Craig Barrett increasingly recognize the solution provider community as such a big part of Intel's go-to-market strategy, says the overall company is now firmly behind the channel, making it an unprecedented period of opportunity for Intel partners. Supporting that notion is the fact that Otellini joined Kilroy and a host of other Intel executives who headed down to Phoenix this week for Intel Solutions Summit 2002, a three-day meeting specifically geared to Intel's premiere partners. Their main message to partners: build on the successes of 2001 and keep growing business around Intel-based products.

Here are some of Kilroy's thoughts on Intel and the industry.

VARBusiness: What are you planning to talk about today during your address to Intel's premiere partners?
Kilroy: The key message is that the channel outperformed every other segment within Intel last year. Paul [Otellini, Intel president and COO hit on that this morning in his address, and for the president of the company to hit on the fact that the channel was the highlight of 2001 is a big deal. So the theme of my pitch is racing ahead in 2002. 2001 was the breakaway year for the channel when the whole industry was sucking wind.

So the theme of my pitch is that there's no big surprise to us in the room. It may be a big surprise to the people who aren't as familiar with channels, but the people in the room understand that it's more than commodity and hardware sales at the best price. It's about efficiency, which is inherent in the channel's build-to-order model, as well as solutions. As long as the channel remains efficient with time-to-market, build-to-order solutions for their customers it's basically recession-proof and will continue to grow and become a bigger part of Intel's business.

That's what Paul said in his keynote. His expectation is it is only going to get bigger. So my message to partners is to keep running ahead, being the rabbit if you will, and outperform. The way that's done is efficiency, build-to-order solutions, services and generally being closer to the customer.

VB: Looking back at 2001, are there any factors in particular that contributed to it being a breakout year for the channel's performance? Did the economy itself contribute by changing Intel's go-to-market focus?
Kilroy: There are a couple. One, which is outside of North America, is emerging markets. We saw real strong growth in emerging markets like Latin America, Eastern Europe and then, of course, most of Asia. You go there and they don't know what a recession is because business demand was very strong. So that's factor number one.

Number two, from an end-customer standpoint, even in the U.S., if you look at the segments that were underwater last year, it was consumer and enterprise. Those are more oriented towards OEM multinational sales. But when you look at the segments that did reasonably well, it's education, government and small to midsized business. That's where the channel is the strongest.

And the third one is simply that this is a good business model. It's efficient. When you look at Intel's business mix, build-to-order is winning. Everybody looks at Dell and says, 'Oh my God, how can Dell be doing as good as they are? They must be getting preferential treatment.' But like Paul said this morning, they aren't. We have been very adamant in having an even, level playing field, because it's good for Intel and it's good for the industry. Let the channel themselves differentiate. And what's happened is the build-to-order efficient business model of Dell and the channel are doing well. What is the icing on the cake as to why the channel did better last year absolutely has to do with services and a solution stack. Look at the average implementation, even VARBusiness' State of the Market study said a typical project includes four applications. So it's about pulling it all together.

VB: From your point of view, what can you do in 2002 to expand those partner relationships and make them even more productive?
Kilroy: Keep doing what we did last year. It's important that we don't have strategy du jour in the sense of shifting fast and ignoring partners. We've got to look at what we did last year; we won a lot of awards for the programs we have in place. We've got to keep focused in doing what we have been doing. As much as Intel is committed to innovating on the platform--we are an engineering-driven company--we have the same will relative to innovating with channel programs.

I challenge my team constantly. To me, the best channel marketing programs are ones that are somewhat predictable so you don't jump in and jump out. That way the channel has confidence.

The other is creativity. So we will continue to segment our programs, which I think we did a great job with last year. Looking at the mobile segment, how do we get a mobile channel leader initiative going? How do we help capture a more vertical focus in the areas of, say, government or education? This is a little bit of a different slant. Even though the channel themselves meets the end customer, if we can help tailor a proposition around verticals for them, we think that will be helpful. It's especially in the area of mobile and wireless, because those applications are very oriented towards vertical markets.

We don't just dream this stuff up. A lot of it comes from listening. That's what I get out of this type of conference. Last night I walked around the showcase and saw great examples of our solution providers who were showing exactly what I want to talk about today. So it makes my presentation a lot easier, because I am just going to keep referring to the fact that these guys have it out there already. It's applications, it's form factors in terms of the hardware and it's all about putting it together and offering the solutions and service. So we need to keep doing what we are doing well and be more creative, listen and implement. The good news is we've got the company 110 percent behind us, which means we are going to have more resources to go out and do it.

VB: Are you finding that you have to get the message out to your solution providers that they should pursue this type of specialization or vertical focus? Or are they coming to you already doing that?
Kilroy: A little of both. That's the beauty of having a channel like this. These [solution providers at the summit are our more sophisticated channel partners; they are our premiere providers and a lot of them are doing it already. The way I look at it is this: Some of these guys are pure-play where they have an area of expertise, whether it's desktop, server, mobile networking, etc. And they do a great job and have a solid customer base and can be very successful doing that. Then there's another segment that has evolved their business model over the years where they have listened and have gotten more focused on services or outsourcing work or getting into higher-growth areas like mobile, server, wireless... So they have evolved their own business model. Then there's the third group of guys that need the help. They've listened, they know they are small and they feel threatened. They want to know what they need to go do, and they are listening to us for the direction. That's where the partnering comes in also, because no matter what we say or tell them, they might not have the resources to go diversify their business model. But the partnering element, if done right, gives them a virtual solution that can lock in their customer base, because they are going to be bringing it all together, even if it's not all from them.

VB: Looking at the different technology and solution areas Intel is playing in, where do you feel the most satisfied with your channel relationships and where do you see room for improvement?
Kilroy: When I look at 2001, it was so gratifying to see that in a down year--the first down year in PC sales since 1985--channel units were up 25 percent worldwide. We're talking about desktop business there. So this is alive and well in the channel. I'll refer again to your own State of the Market study, when you look at the platform itself, it's still the single largest contributor towards hardware sale--something like 20 percent. So clearly the services are important and the solutions are important, but as a platform to see desktop sales grow the way they did in the channel was very gratifying. What I am going to show the partners is that when you look at the Internet scale-out, the PC is still the on-ramp, which means there is a hell of a lot more growth left in it. Especially in the segments that the channel participates in.

That said, where I see big opportunity--although I wouldn't say it was a lowlight last year--is servers. There was more of an impact and slowdown in servers after the dot com aftermath, but I see unbelievable opportunity in entry-level and midrange servers for the channel. That's going to further increase the significance of the channel in terms of a platform for them to offer solutions to their customers.

VB: Lets talk about system builders--the second tier down to the smaller white-box guys. What's the feeling in that part of the channel on business right now?
Kilroy: We have a slide that shows consolidation. The consolidation that is happening is more in this middle. So you've got the multinationals, and you've got the tier three and four, which is more typical of what we call the channel or white-box builders. It's the second tier where there has been a bit more hollowing out and consolidation. Again it boils down to that if you aren't differentiated with solutions or services and you are competing on price, then you are at a high risk. That's what we saw last year, and it's what I think is going to continue to happen. If you think you can compete on volume and price alone, it's going to be very difficult.

VB: So we've talked about what you hope to accomplish with partners in 2002. What part of that strategy most concerns you or is keeping you up at night?
Kilroy: I think there is so much energy and focus on channels within Intel--not just my group--that the main concern is that we do things right. I've seen so much movement from groups within Intel that didn't know how to spell channel. What I don't want to do is cause a thrash within our channel. I want them to see the fruition of an Intel that is even more focused on channel, but in an orderly way. [I want them to see that our go-to-market model with the channel just gets better and we move faster. And [I want them to see that we don't let the fact that the company is big and has a lot more people getting interested slow us down. Part of the beauty of having a reseller organization is we can move fast and we are autonomous. Now that the big engine is going, my job is to make sure I can put that to work to help scale what we are doing and make us go faster, not slower. But I am very optimistic when I look externally and talk to these guys. Very few [premiere partners when I ask them how business was last year are putting their head down. Most of them are saying it's great.

VB: The solution providers we talk to regularly are looking at the second half of 2002 as a turning point. Is that in line with your experiences with partners?
Kilroy: Yeah I think so. The thing is, we don't know when this thing is going to turn and when it does turn how fast it is going to turn. But that doesn't keep me awake because I look at last year and see that the market sucked and look at what happened. Look at the numbers we put up. So I think nothing should be in our way. If we do things right, we should be able to turn it up a notch and not even worry about what goes on with the economy.