Shhhh! Intel quietly launches Pentium 4

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There was a time when the launch of Intel Corp.'s latest microprocessor created the same sort of frenzy as the release of a new Harry Potter novel. It was a cultural and economic happening.

Not any more.

Intel quietly introduced its latest chip, the Pentium 4, on Nov. 20 and so far has given it no advertising support. Instead, it is spending tens of millions of dollars on a TV branding campaign for the Pentium III featuring Blue Man Group.

Intel press relations manager Joann OBrien acknowledged that the company was taking a different marketing approach in advertising Pentium III. "In the past we usually advertised the new chip," she said. "In this case, we're using a different marketing strategy initially. In 2001, we'll put more of a marketing voice behind the Pentium 4."

But some analysts suspect the Blue Man Group campaign is, in part, an effort to help original equipment manufacturers move Pentium III boxes that are crowding the shelves during what is now acknowledged to be an industrywide slowdown.

"There's been a huge buildup of inventory," said Rob Enderle, a Giga Information Group Inc. analyst.

More broadly, Intel's advertising of a prior and lower-priced chip reflects a major shift in the personal computer sector, other analysts said.

"I would say that the market dynamics have changed," said Josephine Mong, senior research analyst with IDC Inc. "Not that many people were anticipating the launch of the Pentium 4. It's not as big a deal as when the 486 came out or when there was the move to the [original] Pentium."

Changing marketplace

Motivating Intel's current marketing strategy is a constellation of complex reasons, including the maturing of the industry and the maturing of Intel as a business.

Like the rest of the PC industry, Intel faces a changed market. No longer is a new, faster microprocessor a guarantee that millions of business people and consumers will abandon their old PCs for the latest model.

For most applications, there is a surplus of processing power. Previous Intel chips received a sales boost by enabling PCs to handle gargantuan Microsoft Windows applications. The current chips on the market, including the high-speed Athlon from Intel competitor Advanced Micro Devices Inc., are more than capable of handling the latest applications.

"Traditionally, you always wanted the newest, fastest microprocessor, but people have come to realize that's not the only game in town,"said Dan Scovel, semiconductor analyst for Needham & Co.

Meanwhile, the PC market is suffering. Not only have Intel and AMD issued profit warnings, so have OEMs such as Apple Computer Inc., Compaq Computer Corp. and Gateway Inc.

Intel seems to have contributed to its own financial difficulties with a several-month delay in introducing the new Pentium chip, which was launched in time to take full advantage of the Christmas selling season.

"They should have delayed it until after the first of the year," Enderle said.

The industrywide slowdown has only added to the woes, as original equipment manufacturers have Pentium III boxes piling up in inventory, Enderle said.

In such an environment, a Pentium III ad campaign appears to make perfect sense.

Intel, however, insists the Pentium III campaign was not intended to clear inventories so that OEMs could begin purchasing the Pentium 4 in earnest. "This does not have to do with slow demand," Intel's OBrien said.

Intel grows up

Indeed, some analysts believe Intel's decision to run ads for the previous chip, even after introducing the Pentium 4, may be less reactive than forward-thinking. It shows Intel's maturity as a company, said Peter Christy, Jupiter Research analyst.

Ranked 39th among the Fortune 500 with $29.4 billion in revenues, Intel over the past decade has powered itself into a league with IBM Corp. and other established tech companies. No longer is Intel solely peddling the wonders of the next new thing. Intel is no longer looking to displace mainframes and supercomputers; it is looking to maintain the established order, which rests on the PC's primacy.

Seen in this light, Intel's continued advertising support of the Pentium III is only logical, Christy said. And there is a purely financial motive for continuing to advertise the Pentium III, he said. Older chips, while lacking the price margins of newer ones, provide nearly pure profit, because the investment in the microprocessor fabrication lines has been largely paid off.

Marketing a wide line of microprocessors also reflects the fact that Intel no longer caters exclusively to a techie crowd looking for the latest and fastest PCs-buyers who crave new chips like the Pentium 4. The company also serves computer novices who use their machines as high-tech typewriters or as on ramps to the Internet. These consumers are content with slower Pentium III or Celeron chips.

But down the line, a constituency satisfied with a two- or three-year-old computer may pose a serious threat to Intel and the PC industry

"Look at the replacement tire business," Jupiter's Christy said. "One thing that kept tire companies from going to steel-belted radial for so long was that they lasted too long. You couldn't make any money."

While Intel hasn't advertised the Pentium 4 yet, the company has marketed it aggressively to OEMs.

"We've been getting the word out primarily through our sales force," OBrien said.

For now, the Pentium III is the focus of Intel's advertising, even though it is a foregone conclusion the Pentium 4 will replace it as the centerpiece of Intel's marketing efforts. The question is when. "Today, the sweet spot is the Pentium III, and it may stick around longer than we think," Scovel said.

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