Low-cost chips a grey area for Intel, vendors

Cost drives corporate buyers, and, according to one analyst, that means the current flurry of inexpensive Intel Corp. Celeron-based desktops will continue unabated.

But that doesn’t mean users, PC vendors or even Intel are happy about it.

“I don’t think it was Intel’s intention to put Celeron in the commercial marketplace,” said Kevin Knox, senior research analyst at Stamford, Conn.-based Gartner Group Inc.

“From Intel’s perspective, this is really a consumer-driven phenomenon. Celeron is in direct competition with AMD (Advanced Micro Devices) processors and Cyrix processors, where price is a much more important thing…than in the commercial market.”

A study by San Jose, Calif.-based Dataquest Inc. shows that Intel’s hold on the sub-US$1,000 PC was 40 per cent in 1997. And other studies show AMD to be a strong competitor of Intel in the low-cost PC market.

But demand for low-cost corporate computing, combined with PC makers’ desire to use any edge to stay ahead of each other, means vendors are offering Celeron processors as an alternative to the beefier Xeon and Pentium II and Pentium III processors, aimed primarily at corporate users, Knox said.

Intel released the first Celeron microprocessor early last year, featuring 266MHz speed and 32Kb of Level 1 cache, but no Level 2 cache. That was followed in August with two new chips: a 300MHz and 333MHz, each with 128Kb of Level 2 cache, after similar chips from AMD cut into Intel’s business. A 400MHz Celeron is expected in March.

That leaves Intel with a marketing dilemma, Knox said. The company has to help users distinguish between lower-end Pentium II chips and higher-end Celerons – something that not even Intel may be able to do.

“Part of the problem is we don’t always make it very clear what the differences are, and what the benefits are. So what is happening is [customers] will walk into the retail store, and all other things being equal…they’ll focus on megahertz, and that’s where it gets confusing,” said Doug Cooper, Intel of Canada Ltd.’s Canadian marketing manager, based in Toronto.

As lower-speed processors in the Pentium II family retire, the differences between Celerons and Pentiums will become more distinct, Cooper said. With its superior cache ability, a 300MHz Pentium II is “about five to 10 per cent faster” than a 333MHz Celeron, he said.

A change in buyers’ attitudes over the past several years has affected Intel’s processor release strategy, Cooper noted. Where once a Pentium chip was designed for powerful servers, then slowly worked its way down the computing food chain as newer chips became available until it finally hit the retail PC sector, Intel is now segmenting its market into price and power-sensitive groups.

This leaves PC vendors with little choice but to keep up with Intel’s release strategy as best they can. Peter Bassani, commercial desktop product manager with Compaq Canada Inc. in Richmond Hill, Ont. , which features Celeron processors in its EN and EP line of corporate desktops, said balancing the needs of users with Compaq’s need to keep up with competitors is not easy.

It’s one reason why Compaq chose not to include the 366MHz Celeron in its products. “The reason Compaq didn’t go with the 366MHz is because of its short life span,” Bassani said. “The 366MHz processors didn’t’ really make sense, and we also got [other] attractive processors from Intel to make [our products] really attractive in terms of processors. So for us, it kind of squeezed out the 366MHz.”

Bassani said customers of the EN and EP line rarely delay purchases to take advantage of new Intel technology. Instead, Bassani said customers benefit from the “more bang for the buck” approach that Intel takes with its low-end release strategy, giving consumers assurances that the PC they’re buying has the maximum power available in their preferred price range.

Mike Oreskovic, extended desktop business product manger with Hewlett-Packard (Canada) Ltd., also in Mississauga, said regardless of how customers feel about the steady releases of Intel processors, HP — which features Celeron chips in its Brio and Vectra family of corporate PCs – has no choice but to offer them.

“To have the latest Intel processing, or any technology for that matter, incorporated into our PCs is a definite must…[but] it becomes a challenge for HP to be able to offer a consistent product line for a certain period.”

Gartner’s Knox said Intel’s strategy has been successful thus far, evidenced by the positive response to the Celeron. But he said users, desperate for platform stability, are losing their patience with the pace of hardware releases, and that’s why Knox is predicting slow but steady changes for Intel and its partners.

“I think as we go forward into 1999 and 2000, that is going to be one of the major areas that you’re going to see Intel and the major OEMs address: to produce longer product life cycles, and a greater ability of organizations to standardize over a longer period of time on a single system image.”