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(Nikkei BP Group)

(No.1 High-Tech News Site in Japanese)

  • Intel KK Looks to Serve Growing LCD PC Market, Pres. Says
  • January 21 , 1999 (TOKYO) — Japan should take the lead in establishing industry standards for desktop personal computers equipped with liquid crystal display (LCD) monitors, said Nobuyuki Denda, president of Intel KK of Japan.
    Denda noted that, looking back, the launch of the original Celeron microprocessor without secondary cache represented a misjudgment on the part of Intel Corp., the parent company of Intel K.K.

    The Tokyo-based unit has announced many new products so far in January. Denda spoke about trends in the Japanese PC market in an interview with BizTech.

    BizTech: In the spring of 1998, Intel Corp. announced a new strategy of launching different brands of microprocessors for different segments of the market: Xeon for servers and other machines at the top-end segment, Pentium II for the desktop PC market, Celeron for entry-level personal computers and the Mobile Pentium II for notebook PCs.

    The first Celeron offering to hit the market was the chip code-named Covington. But because it lacked a secondary cache the Covington performed poorly and got poor reviews. It gave the impression of being a cheap chip, which means that Intel’s strategy had failed, wouldn’t you say?

    Denda: We were the only Intel subsidiary in the world to oppose the launch of the Covington. In fact, only one vendor in Japan released a Covington-based machine. I strongly advised that we should go with the Mendocino (code name) chip, which has an on-chip secondary cache, right from the start. As it turned out I was right.

    It takes time for a brand to penetrate the market. In Japan, we spent five months talking to PC manufacturers and sales channels about the new brand. Intel-compatible chips are not as common in Japan as in the U.S. market. The Pentium II was selling well here, which was another reason for not aggressively promoting the Covington chip.

    BizTech: Was the threat of Intel-compatible chips putting your parent company under pressure?

    Denda: That might have been part of it. If we would have failed with the Mendocino chip, I would have lost my job.

    BizTech: How will the markets develop this year for notebook PCs and for desktop PCs equipped with LCD monitors?

    Denda: The share of notebooks in Japan’s PC market has stayed around 50 percent since the second quarter of 1998. But we’ve seen a steady rise in sales of LCD desktop PCs. They now account for 25 percent of desktop sales, and are eating into the market for desktop PCs with cathode-ray tube (CRT) monitors and into the notebook market.

    BizTech: Is Intel Japan looking to standardize LCD desktop PCs?

    Denda: LCD desktop PCs are a thriving market here, and I hope that Japan will take the lead in setting industry standards. I have suggested to Intel in the United States that the company’s microprocessor roadmap needs a category specifically for LCD desktops. LCD desktops are grouped haphazardly with notebooks or desktops, as the case may be.

    BizTech: There are no microprocessors specifically for LCD desktop PCs as of now.

    Denda: We are considering specifications for them. Pricing and packaging, for example, might be characteristics that would distinguish them from microprocessors for conventional desktops or notebooks.

    LCD desktop PCs present unique problems. LCD monitors cost more than CRT monitors, but PCs won’t sell if they’re too expensive. The market for LCD desktops has taken some effort to develop. For this reason, microprocessors for LCD desktops need to be priced at a level to keep the flame alive.

    BizTech: Won’t you need the cooperation of other PC manufacturers in Japan to set industry standards for LCD desktop PCs?

    Denda: Exactly.

    BizTech: A tie-up with about five companies perhaps?

    Denda: That’s probably too many.

    BizTech: Around three, then?

    Denda: I can’t say for sure.

    BizTech: How is Intel’s mainstay microprocessor, the Pentium II, performing now?

    Denda: The big news in Japan recently is the unbranded personal computer, or “white box.” This includes the so-called “shop brands” that computer retailers sell under their own brand name. White box PCs have taken off like a rocket. Quarterly shipments of x86 processors for white boxes have reached the six figures.

    BizTech: White box shipments would be around 400,000 units for 1998?

    Denda: Actually, the shipments were far greater, including machines with Intel-compatible chips from Advanced Micro Devices Inc. (AMD).

    Pricing appears to be the winning factor for the white box. When Intel launches a new Pentium II product, for instance, leading Japanese vendors using that product will have to price their machines at over 400,000 yen (US$3,550), once they account for costs related to distribution channels and other factors. That compares with about 300,000 yen (US$2,660) for a white box. That’s a big gap.

    BizTech: But novice users wouldn’t buy white box PC, would they?

    Denda: Customers purchasing their second or subsequent computers choose white box PCs. They mainly opt for Pentium II machines running at 400MHz or 450MHz. We’ll be pushing the Celeron hard in 1999, to combat AMD’s market share.

    BizTech: Is Intel Japan behind the white box boom?

    Denda: We systematized the white box industry. The market has more than 100 participating resellers. We provide backup, by way of information and support, so that such resellers don’t lag behind major domestic vendors in delivering machines equipped with the latest microprocessor.

    BizTech: In the United States, the current buzz is the sub-US$800 PC. And the average retail price of a personal computer in the United States is under $1,000. The machine specifications may differ here, but at 200,000 yen to 300,000 yen, PCs cost far too much in Japan. Aren’t prices a barrier to PC penetration?

    Denda: Certainly, there are customers who would buy a PC if they were cheaper. But that bracket would only be 10 percent-15 percent of the total PC market, and I doubt that it would ever account for 30 percent or 40 percent.

    The mainstream now consists of the group of users who enjoyed accessing the Internet on their first PC. When purchasing their second PC, these people look for a machine with greater processing performance, capable of replaying video. This is where the white box comes in.

    Also, the rise of the white box is behind the fears felt by household appliance stores. The products sold by the major PC manufacturers are just too expensive, even for the big retail stores to sell. And that’s where that direct sales vendors, such as Dell Computer Corp. of Japan and Gateway 2000 Japan Inc., step in and gain advantage. The retail stores believe that they’re missing business opportunities.

    Providing support services for the software that PC vendors bundle in their machines is a burden for retailers. But if it’s a white box that they are selling, they can decide the specifications themselves. They can decide how much support to offer, too.

    BizTech: If the PC market consists only of repeat customers, the market base won’t expand. The Pentium II will soon be replaced by the Katmai (development code name; and officially to be called the Pentium III). But isn’t a price drop unlikely?

    Denda: Some Japanese vendors are considering pricing their Katmai-based machines quite aggressively.

    Apple Computer’s iMac is a good lesson in attracting first-time customers. The important factors are to make PCs Internet-ready, and accessible for women.

    At Intel KK, we have instructed our staff to think of how we can make our products more appealing to women. What we were contemplating, the iMac achieved.

    BizTech: Next, I’d like to ask about operating systems. Intel Corp. is strengthening its orientation toward UNIX, having bought into the Linux distributor, Red Hat Software Inc.

    Denda: Internet service providers, for example, are very interested in combining the x86 architecture with Linux, or the x86 with Solaris.

    We are willing to provide solid support for Linux and Solaris. For Linux, we aim to finalize our support policy in Japan by March. I don’t know if the policy will be released publicly.

    BizTech: What about support for Windows NT?

    Denda: Many corporate customers want to build enterprise systems, using PC servers. Together with organizations such as Nomura Research Institute Ltd., we set up an industry group called the Enterprise Computing Association (ECA) in May 1998 to support these initiatives.

    The ECA expects to publish guidelines on building enterprise systems in late January or early February. The guidelines will provide specific ways of enhancing system availability. Detailed information will be available to manufacturers that belong to the ECA, and to their OEM customers.

    Related stories:
    ¥ Year-End Sales Season to Feature More Space-Saving PCs
    ¥ Sales of Desktop LCD PCs Brisk in Third Week of Nov.

    (BizTech’s x86 processor Web site)

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