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IBM, COMPAQ TIRE OF ' INTEL INSIDE' TRACK PC GIANT EXITS CHIP CAMPAIGN; ANOTHER MAY FOLLOW

By Published on .

"Intel inside" is out with two of the chipmaker's biggest customers.

IBM Corp. is abandoning the controversial computer-chip branding program, and Compaq Computer Corp. is waging war against Intel.

With two of the industry's most powerful players weighing in, the innovative chip branding program is facing a serious challenge. But Intel Corp. doesn't see a problem, contending that what's good for Intel is good for PC marketers.

IBM is quietly exiting the program, forgoing millions of dollars in co-op ad money by declining to include the "Intel inside" logo in ads and packaging.

"There is one brand, and it's IBM as far as IBM is concerned," a company spokesman said. "We want to focus on what makes IBM computers different, not what makes them the same."

That mirrors a tag starting to appear in IBM ads from new agency Ogilvy & Mather Worldwide, New York: "There is a difference."

The decision to jettison the chip logo meshes with IBM Chairman Louis V. Gerstner Jr.'s intent to focus on the IBM brand.

Ironically, the first place at Big Blue where "Intel inside" will be absent is on the IBM Aptiva Personal Computer home line being introduced today-Aptiva is powered solely by Intel-brand chips.

IBM executives stressed they don't want to pick a fight with Intel. Still, IBM, which put Intel on the fast track by selecting its chip for the original 1981 IBM PC, has been developing alternatives to Intel-brand chips, such as the new PowerPC chip. That has reduced ties between the two companies.

There's also trouble at Intel's biggest customer. Compaq is making sounds like it may bail out of the Intel co-op program.

Compaq President-CEO Eckhard Pfeiffer last week blasted Intel at a computer conference in Spain, claiming among other points that "Intel inside" detracts from the Compaq brand.

Last spring, Compaq scaled back participation in the program (AA, March 21) so it could focus more on its own brand. Mark Rosen, Compaq's director of advertising, last week said his company is evaluating whether it should stay in.

"We're now in the beginnings of 1995 planning," he said. "That question will come up again."

The computer industry has had a love/hate relationship since Intel introduced its marketing program in 1990. Intel credits about 5% of the purchase price of a chip to help pay for a PC marketer's advertising-if the marketer displays the Intel logo.

That 5% works out to about $4 to $50 for each Intel-based PC sold; Compaq last year shipped an estimated 1.5 million Intel-powered PCs in the U.S., generating millions of dollars in ad money.

"It's like drug money ... the way they get you," said Michael Baldwin, senior VP at Compaq agency Ammirati & Puris/Lintas, New York.

Linley Gwennap, editor of The Microprocessor Report, Santa Clara, Calif., expects Compaq to exit the Intel co-op program. But he doesn't think it will hurt Intel because its brand is so well-established.

Still, Mr. Gwennap said it's open to debate whether "Intel inside" has worked.

"If you talk to consumers, they certainly have heard of the Intel brand name, but it's not necessarily convincing them that they should buy Intel," he said, noting the strong sales of PCs powered by Intel clones.

Mr. Gwennap credited Intel for shifting its attention more to a specific product, Pentium, that has a strong selling point: speed. This fall, Intel introduced an alternative logo marrying "Intel inside" and "Pentium," giving buyers a clearer reason to seek out Intel.

PC marketers have long groused that the focus on Intel has turned their products into commodities. But IBM and Compaq are the first major PC marketers to publicly disclose they're dropping out or scaling back.

Sally Fundakowski, Intel's director of processor brand marketing, contended the Intel logo enhances a PC brand, adding, "As things play out, I hope ... [IBM and Compaq will] come to agree" and rejoin the program.

Meanwhile, Intel is forging ahead. Worldwide, some 1,700 PC marketers, including most major and minor players, take Intel's money. Intel now offers co-op money to retailers. And it's trying to get a logo on software packages.

"I don't draw the conclusion that the `Intel inside' program is in trouble," Ms. Fundakowski said.

She said consumers increasingly are asking for Intel-based PCs, especially those using the flagship Pentium chip. Intel will spend $40 million through yearend, via Dahlin Smith White, Salt Lake City, in ads and promotion, with a TV campaign breaking today to push Pentium. That makes Intel the PC market's biggest spender.

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