Intel Banks On The ’Net
Anita Devasahayam , 1-Sep-2001

Never mind if it did not hit the high notes over the last 13 quarters or that chip sales have slowed down. In the second quarter this year, semiconductor giant Intel’s net income was US$854 million, down 76% from the second quarter of 2000. Although the company was not spared from the economic downturn, it is unlikely to cave in any time soon either.

As the lights continue to blink and black out for many companies amidst the dotcom meltdown, Intel’s President and CEO Craig Barrett has his viewfinder set on the big picture that technology will continue to move forward. He espoused the creation of new products and investments in new technology as ways to emerge stronger from a recession.

Though sceptics view Intel’s attention on Internet-related products as a shift in focus of its core competency in manufacturing microprocessors, Barrett is confident of the payoffs in the strategy.

He also believes that Asia will play a huge part in the recovery even though North America has been historically Intel’s largest geographic market. In the fourth quarter of 2000, however, greater Asia (Asia-Pacific combined with Japan), contributed significantly to Intel’s revenue because of accelerating growth in China and India. Overall, more than 60% of the company’s revenue comes from overseas, outside of the US.

Barrett said the region will also continue to grow in importance as a manufacturing arm. “For years, major US PC manufacturers have outsourced desktop and notebook production to Asia. More cell phone manufacturers are turning to Asia for strategic partnerships and Intel is currently sealing deals with Asian companies to use Intel processors. A total of 26 Asian contract manufacturers just agreed to endorse Intel’s Personal Internet Client Architecture (PICA), a blueprint for cell phones and handheld computers,” said Barrett.

Innovate, not save

Spending on capital equipment and research will continue alongside efforts to reduce administrative costs. Barrett said that research and development (R&D) initiatives are key, especially in the current environment, and the company has set aside US$4.2 billion for it.

“You never save your way out of a recession,” he said during the Intel Developer Conference in February this year. “We are going to grow our way out of the recession with great new products and the Internet is key to that growth.”

By 2002, Gartner estimated that revenues from e-commerce will top one trillion dollars. So despite economic uncertainties, what is definite is that the Internet and Internet-based commerce are here to stay, said Ketan Sampat, director, Asia e-Business Group at Intel Asia-Pacific.

Instead of merely setting up a Web site to display its goods and share news with the community, Intel embraced the Web openly—it used the Web to restructure business processes and trim overheads.

“Intel looks to e-business and the Internet to enhance its relationship with customers rather than as a source of alternative revenue. For example, customers can now gain access to order information like price and availability in real-time, any time [they want], instead of making phone calls during business hours.”

He added that enhancing its Internet infrastructure worldwide remains an important strategy for continuing growth. “Right from the beginning, Intel’s e-business strategy was implemented in all the geographies we operate in,” said Sampat.

When Intel first launched its B2B online sales portal for its suppliers and large customers in 1998, sales hit US$2.5 billion, exceeding the company’s expectations of US$1 billion. And for the Web-savvy company, its very first Internet-based order came from Taiwan in July 1998.

Sampat pointed out that e-business is more than just gaining dollar volume. “There are many other kinds of B2B transactions that benefited from the Internet. For example, the Internet allows our suppliers to look at defect analysis and information, and interact with our engineers in real-time.”

Halfway across the globe, the 24 x 7 communication link between engineers in Santa Clara, US, and Penang, Malaysia, has helped reduced the time it takes to fix problems at the respective production floors. “The ’Net has allowed us to share materials failure data with our suppliers in real-time. And our engineers collaborate over the ’Net with our suppliers’ engineers, solving problems in hours versus days or weeks.”

He added that for the most part, automation of production processes allowed the company to move its employees from routine, mechanical tasks to more strategic work that has higher value. Such cost-cutting measures have resulted in gains for the supply chain and elimination of redundant processes within the organisation.

The same strategy of automating the manufacturing process was adopted in extending the supply chain efficiency to the suppliers and customers using the ’Net.

Sampat reiterated that Intel’s e-business programme is about delivering value for Intel, its customers and suppliers by restructuring business processes. “For example, we now deliver a majority of our highly confidential design documentation to our customers securely over the Web rather than by hand. This has significantly reduced throughput time, reduced cost and shortened the time it takes to design products for our customers. This also allows our sales people to focus on our customers’ needs rather than provide a courier service,” he said.

Essentially, the online programmes are more about maximising business value and returns. Currently, almost 7000 of its clients are online worldwide.

Next level

Having gained the trust and confidence of its suppliers, the chip giant is concentrating on improving ties with its channel partners on this side of the globe. According to Yohani Yusof, Intel’s e-business channel manager for Asia Pacific, channel partners were mobilised gradually.

“We did it step by step. We spent time discussing the potential of the ’Net with them and then moved on to do pilots to get their feet wet,” she said, adding that the handholding process was a great comfort to partners.

She added that the channel partners did not feel a loss of their roles as the administrative task of checking stocks and tracking invoices has evolved to one that is more customer-centric—which is focused on the core competency of marketing and sales.

With Asian cultures steeped in tradition, channel partners will continue to be important for Intel especially in Asia-Pacific. The Internet simply extends their worth by allowing the chip giant to enhance its relationship with them.

“For example, the Internet allows us to deliver training and marketing information cost-effectively and in real-time to our channel partners.”
A transaction and interactive engine was set up in Asia to cater for online procurement as well. “Our customers are mainly the distributors and original equipment manufacturers (OEMs) and all of them are already conducting e-commerce with Intel,” she added.
The success of Intel’s B2B model with the early adopters also simplified matters when the programme was introduced to channel partners.

Yohani said that mind-sets—or the wait-and-see attitude—still stand in the way of its Web strategy in Asia. “The concern is with the lack of know-how and high cost [of implementation],” she said, adding that the Asian portal was tailored and customised as closely as possible to fit regional needs.

Sampat said that the large OEM customers, smaller channel partners and suppliers, however, were willing to move to new ways of doing business with Intel.

“We have had good success in getting our smaller channel partner to use the Web to communicate with us.”

He added that the business benefit was key in prompting the channel partners to adopt new practices. “Some of them already possessed the technical sophistication which made adoption much easier.”

To ensure that they stay on the right track, customer surveys on the benefits of Intel’s e-business capability are conducted regularly as part of its Vendor of Choice programme. “We are seeing consistently good ratings,” claimed Sampat.

Though the journey has been fairly smooth, the path is not free of potholes and infrastructure issues will hopefully be resolved over time. Sampat said that the main infrastructure problems are related to the availability and reliability of connectivity—something which is not uniform across Asia. “It is still problematic in parts of Asia.”

Anita Devasahayam can be reached at anitadm@pc.