INTEL FLAP SHIFTING POWER TO PCS

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IBM Corp.'s new ad tagline boasts "There is a difference," and Big Blue proved the truth in advertising when it moved swiftly to protect IBM customers using the Pentium chip.

Intel Corp. squirmed and most personal computer marketers seemed stymied when news of a small flaw in Intel's flagship computer chip erupted in November. But IBM took the lead in protecting Pentium owners' interests by announcing plans to replace chips and halting its Pentium PC sales.

IBM's action-and Intel's inaction-foreshadows a shift in marketing clout away from Intel and back toward PC sellers.

This is good news for strong PC marketers, including Compaq Computer Corp., IBM and Packard Bell Electronics. It's bad news for lesser names with no point of differentiation. But Intel, as the dominant chip supplier, still can prosper in a changing and more competitive chip market.

"Nobody is going to displace Intel overnight," said Dirk Heinen, division marketing manager at Advanced Micro Devices.

The company this quarter begins its first corporate campaign to sell Advanced Micro chips.

PC buyers had good reason to be confused about whether Pentium flaws were irrelevant for most users, as Intel claimed, or a potentially serious problem, as IBM claimed. After first not disclosing the chip flaw and then downplaying it, Intel in late December belatedly offered to install replacement chips for Pentium owners.

Pentium PC sales remained strong throughout the crisis, and most observers think sales will grow rapidly next year because Pentium remains the fastest mainstream chip.

But the chip market next year is poised to get more crowded and confusing. In the next year, Intel will introduce Pentium's successor even as Pentium continues on its sales ascent. Two rivals, Advanced Micro and Cyrix Corp., also will introduce chips that could be faster than Pentium.

"What we anticipate is just an explosion of confusion on the part of consumers and PC" companies, said Dean McCarron, principal in Mercury Research, a Scottsdale, Ariz., chip market research consultancy. "So the opportunity passes back to the PC manufacturer."

One clear example of how this can work: Compaq's Presario has become one of the hottest-selling PCs (and one of Advertising Age's 1994 products of the year). What chip is inside? It happens to be a 486-model chip made by Advanced Micro, but it's the Compaq brand that sells the machine.

And Presario became a smash hit despite the hundreds of millions of dollars spent by Intel in recent years to get buyers to seek out the "Intel inside" logo.

Intel isn't altering its heavy Pentium ad campaign from Dahlin Smith White, Salt Lake City, and it has largely removed doubts about the chip by offering to replace existing chips. But Intel has stopped short of a lifetime warranty on Intel chips, a proactive move that could give buyers a real reason to seek "Intel inside."

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