IBM MOVES BACK TO INTEL CO-OP DEAL: SAW DISADVANTAGE IN BEING ONLY PCMARKETER NOT USING PROGRAM

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IBM Corp.'s PCs always have had Intel inside. But IBM once again is promoting that fact-and taking Intel Corp.'s co-op money.

IBM has quietly rejoined the "Intel inside" program, which now includes the world's top 10 makers of Intel-type PCs and nearly 1,400 PC makers of all sizes worldwide.

LARGEST CO-OP PROGRAM

Intel's global co-op spending this year is estimated to be $750 million, making "Intel inside" by far the world's largest co-op ad program. Not even adding in the $150 million Intel will spend globally this year on its own advertising, the co-op program makes Intel the world's largest technology ad spender-ahead of IBM's $700 million global budget.

Compaq Computer Corp., the world's largest PC marketer, and No. 2 IBM quit "Intel inside" in 1994, contending the program boosted Intel's brand at their expense.

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

Compaq returned to the fold in January 1996, saying its brand stature had grown to the point that taking Intel money outweighed risk to the Compaq brand. Now IBM is back, and the "Intel inside" logo is starting to appear in IBM ads and in stickers on its PCs.

"IBM conducted new research, and it basically showed that participation in campaigns like this helps to communicate that IBM PCs are based on open standards as opposed to being proprietary technology," an IBM spokesman said. "That is the major factor" in rejoining.

BIG VICTORY

IBM's return is a big victory for Intel.

"The 'Intel inside' program has been a wonderful success from our perspective," said Dennis Carter, VP-corporate marketing at Intel. "It has drawn the attention of the consumer to the importance of the processor."

Intel's co-op program allows PC makers to get back 6% of what they spend to buy Intel chips-4% to subsidize print ads featuring the "Intel inside" logo and 2% for TV, radio or in-flight ads featuring an Intel audio/video tag.

That money can be applied to cover 66% of the cost of a print ad and 50% of a broadcast spot, according to industry executives.

Intel cuts reimbursements in half for any ad featuring a third-party logo, so most feature only Intel. That eliminates the logo proliferation that made PC ads look like race cars a few years ago.

As the only major PC marketer that wouldn't take the money, IBM put itself at a competitive disadvantage financially and possibly in wooing customers.

"It wasn't helping us" to be on the sidelines, said Brian Connors, VP-consumer systems in IBM's Consumer Division. "There's just no reason not to" rejoin.

Mike Feibus, principal at Mercury Research, said PC buyers will pay a small premium to have Intel inside as an assurance of compatibility.

LESS RELIANCE ON INTEL

Despite the ubiquity of "Intel inside," PC marketers actually are reducing their dependence on Intel. The company's share of the growing microprocessor market this year likely will fall to around 75%, from 81.5% in the fourth quarter, Mr. Feibus estimated.

That's because PC marketers are turning to cheaper alternatives from Cyrix Corp. and Advanced Micro Devices. Compaq, for example, features a Cyrix chip in a new $999 entry PC.

Low-price PCs are getting a lot of attention, but Mr. Feibus attributes Intel's falling market share largely to product transition: Intel this summer is expected to introduce Pentium II, a new flagship chip featuring Intel's much-

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