Intel Corp president and chief executive Andy Grove was in Japan last week speaking at the Downsizing Japan conference in Makuhari, near Tokyom, and delivered a few comments about the future of the industry in which Intel is such as major player, and about semiconductors as a trade issue. The fact that this was the first downsizing show to be held in Japan is in itself an indication of the major change taking place in the Japanese computer market, which has been even more mainframe-centric than the US and Europe, and indicates the strong power of the economics of small computing. Regarding developments on the Pentium chip front, Dr Grove said he expected that Pentium-based machines would become as ubiquitous as the 80486 machines, and that the chip would be offered not only in servers but in desktop machines. He emphasised the investment which Intel is making in the production of the Pentium – the re-tooling of the two plants and the construction of the new plants in Ireland and Albuquerque. While not giving details of the pricing, he said that the price-performance curve on the 80486 is the basis for pricing of the Pentium and that he expected the sort of dynamic that applied to the 80486 to apply to the Pentium as well – the 80486 being introduced at $900 to $1,000 and falling to $200 over a period of four years – at a rate of 30% per year. Grove expects Intel to invest $1,600m on capital equipment this year.
Polarisation
Looking back over the years at the relative strengths of Japan versus the US in the semiconductor industry – a polarisation that will always make the news in Japan – during the 1970s, the US had an advantage, Grove said, which faded in the 1980s when Japanese manufacturing disciplines, just-in-time and its clearly superior semiconductor manufacturing equipment led to the Japanese gaining the upper hand, particularly in memory chips. Initiatives such as Sematech helped US industry to catch up, but Grove sees this as having only held the advance of Japanese manufacturers. Little has changed at the components level, Grove said. All microprocessors are from the US, all memories are from Asia, all displays come from Japan. I go into my office and the single product name that stares at me is NEC on my monitor, he said. While the current situation in chip fabrication capability appears to be parity, the next frontier for the industry will be the portable devices known as Personal Digital Assistants; since miniaturisation is a skill of Japanese manufacturers, these can be expected to be made in Japan, and all the strategic alliances made to date reflect this. Software will come from the US however, Grove believed. The more interesting challenge to Japanese manufacturers is posed by the arrival of personal computer vendors such as Compaq Computer Corp and Dell Computer Corp – good customers of Intel – into the Japanese market. Dell has begun a direct marketing operation in Japan similar to its operation in the US, and this, to Grove, is a more fundamental threat to the traditional Japanese multi-tier distribution system. The speed at which direct marketers such as Dell can move is unparalleled, thanks to their knowledge of the customers’ wants and needs, and has resulted in the development of a whole class of computer-literate users. It will be interesting to see if the same thing will happen in Japan; the Japanese manufacturers belief in the preference of the client for service over a cheaper product is already being tested in the marketplace – to their chagrin, according to contacts within the Japanese manufacturers. Intel’s business in Japan comprises only 8% of its total worldwide revenue of $5,840m, compared with 24% for Europe and 16% from the rest of Asia. According to Intel Japan president Bill Howe, Intel’s business in Japan has not been affected by the strong yen, and any bad effect from the recession is more than counteracted by the movement to the high-speed 80486 currently going on in Japan. – Anita Byrnes
