Back On Track

Earlier this summer, Intel disclosed it had problems serious enough to require ripping up its product road map, now the chip giant must assure partners it knows where it's going and how it's going to get there.

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Later this week, Intel President AND COO Paul Otellini will clip on a microphone at the Intel Developer Forum, step under the bright lights, and do some talking.

Otellini often gives the keynote address at Intel's twice-a-year developer forum, but what will make this speech interesting is its timing.

For the past two months, Intel, Santa Clara, Calif., has been reeling from a series of execution missteps, product delays and manufacturing glitches at the very time it has seen its toughest competition in years.

>> 'Intel has been shooting themselves in the fot.'


Things got so bad that Otellini and other Intel executives decided to put the company's entire product road map on the table and review each processor, chipset, motherboard and peripheral to make sure there would be no more detours.

As Otellini's boss, Intel CEO Craig Barrett, put it in a companywide e-mail to employees: "I do believe, as do you, that this is not the Intel we all know, and that it is not acceptable."

What Otellini says this week about those missteps--and the company's plans to correct them--could present solution providers and system builders with one more reason to either take another look at Intel rival Advanced Micro Devices, or remain on the Intel highway.

The road-map review, though, hasn't helped Intel's image.

"In the time they're doing that, AMD is making major headway," said Mark Choo, a marketing manager for Channel Micro, a Somerset, N.J.-based system builder and solution provider. "If some of our customers can't get the Intel stuff, the next [company] they'll look at is AMD."

To make matters worse, last week, Intel said poor processor sales had forced it to significantly reduce its third-quarter revenue expectations.

Intel, though, continues to have its size, scale and brand recognition behind it, Choo noted. "They're a big company," he said. "Customers love them. Even though AMD has a better price, even though they have the 64-bit technology, a lot of customers still like Intel."

Still, the list of flubs and execution problems revealed this summer reads like a "How To Execute Poorly" guidebook:

Under pressure from AMD's high-performance, 64-bit desktop and server processors, and AMD's plans to produce dual-core chips, Intel announced it would scrap its single-core "Jayhawk" and "Tejas" processors for desktops and servers due in late 2004 or early 2005. Instead, executives said, Intel will bring its first dual-core chips to market in early 2005;

After touting its "Grantsdale" desktop chipset for more than a year, Intel had to begin telling OEMs that a manufacturing flaw had been found in the product after an initial small amount had been shipped to market. Suspect units were recalled;

Intel said it will delay its forthcoming 4GHz Pentium 4 processor to ensure both manufacturing quality and adequate supply by the time it ships. The chip's launch, originally slated for the fourth quarter, was pushed into early 2005;

For its second quarter ended June 26, Intel turned in earnings numbers that disappointed some Wall Street analysts and said an inventory imbalance related to chips from its new 300mm-wafer production process--combined with softer-than-expected sales during part of the quarter--hurt its performance. Company executives said they may have to reduce prices to correct the imbalance;

Citing reasons similar to those attributed to the 4GHz Pentium 4 delay, Intel said it will delay its forthcoming "Sonoma" processor for its Centrino architecture--a long-awaited, significant upgrade to its flagship mobile and wireless platform;

And, almost nine months after Otellini drew excited gasps at the Consumer Electronics Show in Las Vegas by promising a Liquid Crystal on Silicon (LCOS) processor for LCDs and LCD-TVs this year, the company said it will delay the LCOS chips indefinitely to ensure that the technology and the market are ready for the new platform.

Steve Dallman, Intel's director of North American channel marketing, said he believes the move to push some launches into early 2005 will give system builders an opportunity to migrate to new platforms without the pressure of dealing with typical, busy fourth-quarter issues.

However, Dallman did say Intel should be on track for a number of other performance enhancements--doubling system cache, adding a 1-Gbyte front-side bus, among other things--that will provide a strong boost without adding complexity to the product lineup.

"We've undergone multiple platform transitions this year," Dallman said. "I just think some resellers are saying, 'Whoa, Nellie. Enough is enough.' " The other performance enhancements, he said, will eventually be tough for competitors like AMD to match, even if product delays have opened the door for them. "I understand what [solution providers are] saying--that this might open a door [for AMD]," Dallman said. "But I'm also going to close that door."

Some solution providers expressed concern about the impact delays would have on margins.

"Every time they release a new processor, it raises margin on the midlevel [CPU]," said Frank Pivonka, co-CEO of Assured Computing Technologies, a Bedford, N.H.-based system builder and solution provider. A delay in a new processor could prevent some in the channel from raising margins in the "sweet spot" of the Intel chip lineup, some solution providers suggested.

However, other system builders sounded relieved that Intel would actually put some of its products on hold and enact a companywide review of its product portfolio, saying they hoped it might lead to streamlining and improvements.

"It's about time," said John Boghosian, owner of JWB Associates, a system builder and solution provider in Atlanta. "There are too many different products. There are six versions of one motherboard, and that's ridiculous."

Earlier this year, when Intel began shipping an "Extreme" version of its Pentium 4 processor aimed at high-performance users and gamers, it further and needlessly complicated the product line for system builders, Boghosian said.

"The Pentium 4 is a good processor, but people really got [ticked off] when they came out with Extreme," Boghosian said. "Basically, the software is still way behind in terms of the computing power that's available. Gamers need it, but I wouldn't want to have my living based on the gaming market."

Les Arnold, CEO of Americad, an Alpharetta, Ga.-based system builder, added that Intel at times brings unnecessary complexity to the table, which can lead to execution mistakes on Intel's end as well as confusion and coordination issues in the channel.

"What I'm more concerned with is change in the form factors and other components that Intel is constantly putting people through every couple of years," Arnold said. "If the boards are available, but the CPUs are not, what am I going to do?"

Intel's product lineup--from motherboards to chipsets to processors--has become a complex maze of compatibility issues, changing functions and upgrades, he said.

That is a piece of the larger issue that even some people inside Intel have admitted they need to fix.
Like Choo, other solution providers said they believe Intel's missteps will provide more opportunity for its growing rival, AMD, the maker of the 64-bit Opteron processor for servers and workstations.

"Intel has been shooting themselves in the foot," said Daryl Rito, a network engineer for Rito Networking Technology, Slidell, La. Most of the solutions Rito's company provides are based on AMD's processing platforms. While he has considered increasing his use of Intel processors on occasion, Rito said Intel has not made itself competitive with AMD in an area that's critical to him: price.

Intel's pricing this quarter may lead to a double-whammy for solution providers and system builders. After Intel executives said the company had built up too much inventory at the close of the second quarter, they acknowledged they might have to soften pricing to balance things. Late last month, the company enacted a price cut on some of its Pentium 4 processors--slashing some by as much as 35 percent.

Mike Zabaneh, COO of Tangent Computer, a Burlingame, Calif.-based system builder and solution provider, said the pricing move was not unexpected, but it could contribute to an environment already made volatile by price wars on desktop systems between Hewlett-Packard, Palo Alto, Calif., and Dell, Round Rock, Texas.

And then there's the more flattering take on Intel's travails: that the company has merely been a victim of some of its major successes in recent years. Doug Petrocelli, head of sales for Compucraft, a Lansdown, Pa.-based system builder, said Intel's current technology is so good that it's harder to achieve "a quantum leap" in computing that will get customers to open up their pocketbooks.

Intel's partners may not hear about that "really big leap" this week when Otellini addresses them. They may be forced to settle for a more reasonable road map and product delivery schedule. That may cause some solution providers to decide to take an extended look at AMD. For others, it may be just enough for them to stay the course.

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