Intels branding faux pas?
Intel hasnt transitioned a chip brand since 1992, and Prudential Equity Group analyst Mark Lipacis believes the playbook is a bit dusty.
In an Aug. 6 re–search note, Lipacis said the ramp of Intels desktop performance chip Core 2 Duo will be slower than expected due to brand confusion and tight chip inventories. The biggest challenge with the transition to Core 2 Duo (code-named Conroe) from the Pentium: Intels pricing of the Pentium, designed to clear inventory, is causing customers to do double takes. Customers are asking, “Why spend $180 for a Conroe when you can get a Pentium for $80?” said Lipacis in San Francisco.
What does it all mean? According to Lipacis, Intels transition to make Core 2 Duo its primary brand is fraught with risks. The big ones:
• In addition to the costs associated with the introduction of the new brand, there is a risk that the new brand will freeze sales of the older brand or vice versa, said Lipacis.
• If Intel doesnt handle inventory correctly, it faces pricing inconsistencies, an excess supply of old chips and possibly shortages of the new ones.
• Customers may get confused. Intel typically has supported two desktop brands: Pentium, its performance brand, and Celeron, its value brand. Lipacis said Intel has at least three brands targeted at the desktop market: Core 2 Duo, Pentium 4 and Celeron. Thats not counting Pentium D, Pentium 4 EE (Extreme Edition), Core 2 Duo EE and Core Duo. “By flooding the desktop PC market with so many brands, we fear that Intel may be complicating, and thereby delaying, the buying process,” said Lipacis.
“Our own empirical observation is that there is a high correlation between product transitions and earnings misses—it is no wonder you dont see many major brand transitions to the scale Intel is executing now,” said Lipacis.
Sprint goes WiMax; Wall Street goes flat
Theres never a good time to tell investors that you plan to spend about $3 billion on a new technology platform, but its really bad timing after a disappointing quarter.
Thats the take-away from Sprint Nextels Aug. 8 announcement that it will build a WiMax network with help from Intel, Samsung and Motorola. While Sprint Nextels announcement was big news in technology circles, those following the money had mixed reviews.
Among the dos and donts cited by observers:
• Do undertake a big effort with major players riding shotgun. Wall Street analysts said Intel, Motorola and Samsung are high-quality partners that can lend credibility to Sprints attempts to build a new network, dubbed 4G, for those following the industry. Why does Sprint need big names behind it? “Sprint is currently being criticized for failure to establish the quality of its network in consumers minds and poor handset selection,” said Jeffrey Halpern, an analyst at New York-based Sanford Bernstein, in a research report.
• Do tell industry watchers about how WiMax can leapfrog the competition. Thats no small issue given doubts that Sprint Nextel can hang tough with the likes of Verizon Wireless and Cingular Wireless.
• Dont hype the impact of WiMax if you have a spotty track record. Halpern said its too early to tell if Sprints WiMax effort is the equivalent of its ION, which wiped out $3 billion in Sprints shareholder value between 1998 and 2001, or Nextels Direct Connect, which was a big enough hit to persuade Sprint to buy Nextel.
• Dont pitch a new project when the house is burning. The biggest knock on Sprint Nextels WiMax announcement is that the company has other issues—churn, declining revenue per subscriber, declining gross additions, poor marketing, inferior handsets, and uncertain network integration between Sprint and Nextel—to worry about, said Halpern. “Our sense, right or wrong, is that investors would prefer to see management focus on any one (or all) of these issues rather than promoting new services based on unproven technologies that may be available in 2008,” said Halpern.
—Compiled by Larry Dignan
By the Numbers
As time goes by
Average time per person spent on MySpace.com in June
Source: Nielsen/NetRatings, July 2006