Kate Burleigh talks about chip maker Intel’s strategic wins, its setbacks and why it can win again.
Intel Australia managing director Kate Burleigh argues that the company, set back by the arrival of smartphones and tablets,
will win again in the era of the Internet of Things.
Few companies live under the same strategic pressure as the makers of semiconductor chips, the electronic brain inside every computing device. Intel, the world’s largest chip-maker, must place bets of up to US$7 billion to design each new generation of manufacturing plants, four years before the first chips roll off the lines. In the fast-moving world of technology, four years is a lifetime: the iPhone launched just seven years ago.
Intel has excelled at the chip game, winning a near-monopoly in PC desktops and laptops. Yet today its lead is in doubt. A change in demand towards low-cost, low-power chips has left Intel exposed to new players.
Those players now include device manufacturers themselves. Apple makes all its own processors for iPhones and iPads, and rumours persist that it will soon dump Intel chips from its Mac desktop and laptop lines. Samsung, the number two mobile device manufacturer, is also the number two chip-maker behind Intel.
Kate Burleigh, Intel’s managing director for Australia, has worked under this renewed pressure for all of her nearly three years in the top job.
“It was quite inspired of the early founders of Intel to say ‘I just don’t want the sale, I also want the credit’.” Kate Burleigh
She started out in the industry in the early 1990s. As head of Dick Smith Electronics’ computer club, Burleigh sold computers for A$6000, complete with in-home installation and weeknight instructional classes at Dick Smith’s head office in Sydney. This was the era when Intel and Microsoft cemented their hold on desktops. The companies transitioned their respective monopolies to laptops in the 2000s.
Burleigh insists this was not a jointly planned exercise. “It looks like strategy in hindsight, but it was just the development of the industry was happening in lockstep. It was more ... serendipitous,” she says.
The “Wintel” relationship still thrives: 90 per cent of PC desktops and laptops are running the Windows operating system on Intel chips.
Then came the industry’s biggest transformation in more than two decades.
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When Apple’s then CEO Steve Jobs unveiled the first iPhone in 2007 it wasn’t running on an Intel chip. Instead it had a low-powered Samsung processor on a rival architecture, called ARM, that drew less power than Intel’s chip and gave the phone a longer battery life. The iPhone sold 1 million units in its first quarter.
It would be another two years before Intel released its competing smartphone chip, the Intel Atom. Intel and Microsoft were again in step, but now they were both on the back foot, struggling to transfer their PC dominance to smartphones and tablets.
Was the smartphone stumble a failure of strategy?
“No, I don’t see that as a failure of strategy,” Burleigh says. She counters that the market for desktop and server processors was exploding, and Intel’s biggest challenge was maintaining growth in a very strong category while carving off resources to tackle new areas.
While analysts have predicted the death of the desktop computer every year, Intel has sold more and more chips for servers, desktops and laptops.
“We’re doing a very good job to stay at a very strong market share. And that takes a tremendous amount of work. Innovation hasn’t stopped in those platforms,” says Burleigh.
Burleigh admits Intel was late to the smartphone and tablet market in the manner sketched out by Clayton Christensen, perhaps the world’s foremost thinker on disruptive innovation. The company faced the Harvard professor’s “innovator’s dilemma”: the problem of the successful company so keen to serve its customers’ current needs that it fails to adopt new technology or business models for their unstated or future needs.
Christensen’s theory explains why Intel succeeded in the laptop market and then stalled in smartphones – and why it may yet win again in the market’s next phase, known as “the Internet of Things”.
Intel’s history is dominated by big bets. In a booming desktop market the chip manufacturer decided to go big on a future market called laptops. A laptop processor was much harder to make than a desktop chip – it had to be thinner, faster and use less power.
In 2000, although Intel was making “tonnes of money” on desktops, it decided that laptops would become important enough to warrant their own processor. And it doubled down on the bet by advocating for wireless networking, confident that people would want to use their laptops on the move.
Intel took two major strategic steps that would help pave its way to success, Burleigh says. In 2003, it released its Centrino mobile technology for laptops, which included a new chip, chipset and wireless networking feature. Essentially, it “unwired” the PC.
And in Australia, Intel made deals with McDonald’s, Qantas, even independent cafes, to install routers that would create the wireless networks for Centrino-powered laptops to use. Within two years the ratio of desktop computers to laptops switched from 70:30 to 40:60.
Burleugh argues that the company, set back by the arrival of smartphones and tablets, will win again in the era of the Internet of Things
That decision to bolster sales of its own chips by fast-tracking environmental changes – in this case, the adoption of wireless routers – is a classic Intel strategy, Burleigh says.
When development cycles aligned for Intel’s next hand, it appears to have bet too conservatively on smartphones, although Burleigh denies this was the case. Intel was unimpressed when competitors started making low-cost, low-power chips; it thought the market was too limited.
“We ran the numbers [on smartphones and tablets] and we thought, ‘I don’t think that business is going to be that big. I don’t want to take my eye off the ball. I’ve still got a lot of growth here [in desktops and servers]’. In hindsight you could argue that we should have done both. Easy to say, hard to do.”
But are the number of opportunities increasing too quickly for any one company to dominate? How many bets can Intel make at one time?
Burleigh sees this more as an opportunity than a challenge. However, she agrees that Intel’s latest bet on the Internet of Things – where every bridge, fridge and car sends data about its physical state and environment – will not play out like laptops and desktops.
“That market is so gigantic that to think that anyone would ever have a 90 per cent share of it is pretty astounding,” she says.
Yet isn’t this a similar pattern to desktops? After all, early pioneers in computing thought the world would only need half a dozen computers. We ended up with hundreds of millions, most of which run on Intel chips.
“There’s a very virtuous cycle around the Internet of Things and the data it drives and the servers it needs. It plays into Intel’s core competency.” Kate Burleigh
The difference is that the desktop market grew slowly as the product won acceptance among consumers and businesses. The conditions for an Internet of Things, such as high-speed broadband and dirt-cheap processors, are already in place, Burleigh says.
“The question is not ‘Will this ever take off?’ It’s just more of a reality. The development cycle is so much shorter,” she explains.
“If you look at desktops to laptops you are talking about 10-year transition cycles, whereas we were late to the tablet market by just two years.”
Still, Intel claims it is in pole position to take advantage of the Internet of Things. Each “thing” will require a sensor to make it a smart device, but Intel is also looking upstream at the cloud-computing data centres that collect and store these vast volumes of data, and at the analytical tools needed to interpret all that information.
Intel will sell processors at each of these three steps in a virtually unlimited market.
“There’s a very virtuous cycle around the Internet of Things and the data it drives and the servers it needs. It plays into Intel’s core competency,” Burleigh says. Already the Internet of Things and the data it generates are strong contributors to Intel’s earnings, she adds.
The key to Intel’s continued success will be convincing business partners and consumers that a smart device will last longer, work faster or weigh less if it has an Intel chip. Witness the amount of advertising Intel spends on its iconic “Intel Inside” campaign.
Intel also spends a lot of effort training sales staff at retailers to explain to customers that Intel-powered laptops cost more because they have higher performance or battery life.
As well, it runs an extensive marketing program where retailers accrue marketing dollars based on the number of units they sell. Combined with an ongoing global advertising campaign, the high awareness of Intel makes it easier to convince new players that it is the highest quality, brand-preferred option.
“It was quite inspired of the early founders of Intel to say ‘I just don’t want the sale, I also want the credit. I’ve put a huge amount of capital investment, a huge amount of IP [intellectual property], engineering and skills into this product, and I’m happy to get the sale but only if I get the credit for it as well’,” Burleigh says.
"We're doing a very good job to stay at a very strong market share."
Given that professional services firms are forming partnerships with specialists in related fields such as financial planning, superannuation and lending, should they also make sure they receive credit for the work they do for others?
Absolutely, Burleigh says. “Partnering as a trend is here to stay, it doesn’t matter which industry you’re in. It’s all about scale and sticking to what you do best. You see accounting firms and law firms [and] consulting firms as well really trying to highlight their areas of expertise.”
But don’t dare copy “Intel Inside” exactly: “We’ll go and sue,” she laughs.
So how do you make sure that your partner keeps recommending you over cheaper competitors? A simple financial analysis, she suggests, might ask: “Do you really need to spend all that money on promoting the Intel brand because you got the sale anyway? You already have 90 per cent share of the market. Why are you wasting your money advertising Intel Inside?”
Burleigh responds to the question by saying there’s a necessity to invest in your own success.
“It’s a discussion I might even have from time to time with my finance team. Investing in that brand around an area of strength then gives you entree to go into new businesses, because you’ve built credibility in one space.”
While Intel remains the player with the most chips at the table, it is determined to maintain its winning average.
Kate Burleigh on
the work of strategy
INTHEBLACK: Does good strategy come down to good forecasting, good intelligence?
Burleigh: A lot [does], but it’s also understanding the market and market trends. Australia tends to be very in line with world markets. Sometimes we’re a little bit ahead, so my typical experience is that I don’t have to push back too hard on strategy because normally we’re already seeing it. So you go, “OK, it’s already moving, I’m so glad to hear you say that ’cause I’m there already.”
INTHEBLACK: So how much time do you spend reading and researching to understand the market?
Burleigh: Thirty per cent of my time is raw analysis, research – finding it, getting it, looking at worldwide trends, what’s happening in Japan, North America, Canada, to see if there are any differences. So you become quite an expert on everyone else’s markets as well as your own.
And then the rest of the time will be talking to the customers and managing my team. The big, large SIs [systems integrators] or supermarket chains or airlines or the big-end customers – what are their pain points? Speaking to the chief information officers and where they feel their business might be going, and synthesising that. On the consumer side, talking to the retailers, researching into end customers, understanding the trends, doing a lot of work with the telcos.
It’s just so broad, it’s triangulation of that ecosystem and the end customer point and that data and where we think it should go. It’s constant. It’s like painting the [Sydney] Harbour Bridge. You just don’t get to say, “I can stop now, I’ve done it”.
I should be more exhausted!
INTHEBLACK: So how do you break down your time?
Burleigh: Thirty per cent research, 40 per cent talking to customers or higher, the rest managing my team.
INTHEBLACK: And that gives you confidence when you’re setting strategy?
Intel’s three steps for entering a new market
Understand the customer’s needs. Often this involves watching the customer to find points of frustration rather than asking what they want, as they won’t be aware of what’s technically possible.
Understand the ecosystem. Intel sells its parts to PC manufacturers and system integrators and it needs to take into account their concerns and needs.
Understand fellow travellers. Intel’s products are heavily impacted by the moves of other players such as telcos, standards bodies and other technology providers.
The top chip-makers
Source: IHS iSuppli Semiconductor. Figures for 2013 calendar year.
This article is from the March 2015 issue of INTHEBLACK.