Intel Remains Aggressive in Asia, Says Barrett

Posted on April 6, 1998 
Filed Under AsiaBizTech, Julian

By Julian Matthews

April 7, 1998 (PENANG, Malaysia) — Intel Corp. will continue to invest in the Asia Pacific region despite the regional economic crisis, said CEO- designate Craig Barrett.

“The Asia Pacific region is a major growth area for PCs. We are extremely optimistic about prospects for growth and we will continue to look for more opportunities to invest,” he said.

Barrett said Intel plans to invest US$1.3 billion in Asia in 1998, or more than a quarter of the chip giant’s total capital investment of US$5 billion.

Those investments are mainly for its assembly and test plants in Malaysia, China and the Philippines. About US$430 million has been allocated for increasing production of Pentium II microprocessors at its Malaysian plants in Penang and Kulim, and for an integrated warehouse near the Bayan Lepas airport.

Barrett, who is Intel’s president and chief operating officer, spoke here as part of his Asian tour, with stopovers in Korea, the Philippines, Thailand and Australia.

He said the financial crisis will only hurt personal computer sales in the region in the short term.

“I expect a rebound once the currencies and economies stabilize, just as they did in countries like Mexico and Brazil,” he said. Barrett said the region as a whole is buoyed by strong growth in emerging PC markets such as China and India.

“I anticipate that the Chinese market will surpass Japan’s market relatively soon, especially if the Japanese market continues to be weak. The PC market in Japan, the second largest after the United States, has been weak for the past two years. Korea has been weak for over a year,” he said.

Barrett said that in countries that were hardest hit — Indonesia, Thailand and Malaysia — growth may have slowed, but those markets comprise relatively small parts of Intel’s business.

In March, Intel rattled the industry when it warned that its first quarter revenues would fall 10 percent short of previous expectations.

Barrett said it is “too simplistic” to blame the slump on the Asian crisis, and suggested that a combination of factors may have hurt the company.

The reasons included a fall in orders from its major customers, the rise in demand for sub- US$1000 PCs, and the fact that leading PC makers may have “stuffed the channels.” Barrett, who succeeds Andrew Grove as CEO in May, told reporters that the biggest challenge for him now is getting the company back on the growth track.

“Revenues have been flat for the past five quarters. It was a jolt to us after historically having 30 percent growth rates,” he said.

Barrett explained that the only way to recover from a crisis and become stronger is to continue to invest, and accelerate development of new technologies and new products.

Intel plans to stimulate the PC market worldwide through its new line of Pentium II processors that address all segments of the market from “lean PCs,” to high- performance workstations and servers.

“Also expect to see us being aggressive in areas in and around the PC, such as networking, graphics, digital imaging, electronic commerce and content development. Those are all growth markets for us,” he said.

Barrett said Intel plans to spend US$2.8 billion on research and development worldwide in 1998, up from US$2.4 billion in 1997. In Asia, the company will continue to invest in its chip design center in Penang, software development lab in Shanghai, and technology center in Bangalore.

In 1997, Intel invested more than US$300 million in seed money in about 100 companies. “Expect us to spend more this year,” he said. The equity investments are seen by industry analysts as a hedge against losing out to emerging technologies.

Barrett said that in the last decade, the Asia Pacific region had become an increasingly important market for the company. Excluding Japan, the region commanded 19 percent of Intel’s revenues in 1997, up from only 6 percent in 1987. Japan’s share was unchanged at 10 percent, while that of North America had declined from 61 percent to 44 percent.

“The region has also become the hub not just for low-cost manufacturing but for designing and developing next-generation products,” he said.

Barrett said Taiwan is notable in that it has risen to become a major force in supplying PC components and peripheral equipment.

Barrett also singled out India, for its potentially large market and because it promises to be a key player in the future.

“India has a strong education base and wonderful technical talents to do high value- added work such as hardware design and software engineering, and if its infrastructure continues to improve, to eventually do more manufacturing,” he said.

Barrett said he also is encouraged by government initiatives in the region to continue to place emphasis on developing broadband infrastructure, such as Malaysia’s Multimedia Super Corridor (MSC).

Malaysia has promised to put in place an optical-fiber broadband network operating at 2.5Gbps to 10 Gbps to support companies creating and delivering multimedia content and services in the high-tech zone. Barrett said Intel is committed to participating in the MSC, located just south of Kuala Lumpur, but that the company had yet to finalize its plans.

Published in Asia BizTech, Apr 06, 1998

by Julian Matthews, Asia BizTech Correspondent

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