Branding gets the big sell as rivals chip at leader: Malcolm Wheatley explains why the top manufacturer of microprocessors is buying advertising

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INTEL, the computer chip manufacturer, is spending millions on advertising. What is surprising about this spending is that Intel has already made the microprocessors for just about every IBM-compatible personal computer in the world, and has recently overtaken Motorola to become the leading producer of semiconductors. Last month, Intel reported record annual profits above dollars 1bn. So why the big sell?

The answer is simple. After having poured billions since 1980 into developing faster and more powerful microprocessors for the IBM PC-compatible industry, Intel no longer has the market to itself. Just as the IBM PC spawned clones, so too have the chips that power them.

Intel's current flagship chip, the 486DX found in top-of-the- range PCs, sells for more than dollars 300 but reportedly costs dollars 20 to make. Mark-ups like that make Intel the 10th most profitable big public company in the world in terms of net margin.

Up to 1990, Intel had it all. Now three competitors have emerged, prompting, among other responses, the 'Intel Inside' advertising campaign in an effort to make Intel to chips what Hoover was to vacuum cleaners.

Product differentiation has become necessary for Intel because, in classic fashion, a competitor's products are marketed as offering more power for less money. Consequently, Intel's prices for its 386DX range have been forced down by 43 per cent since American Micro Devices (AMD) launched its versions.

Intel challenged AMD in court, but lost because AMD had a licensing agreement with Intel. Name differentiation came next. Intel's Nick Wood, responsible for marketing the company's products throughout much of Europe, explains the company's view that the chip sold by competitor Cyrix as a 486 is really a souped-up 386, rather than a 486 proper. The influential Byte magazine agrees. There is obvious potential for customer confusion.

Some PC manufacturers, such as CompuAdd, a direct- mail operation, explain fully the differences and offer customers a choice of 486 processors. Others are less forthcoming, and still others, like Dell, the direct-mail market leader, remain firmly in the Intel-only camp.

A US court last year threw out Intel's complaint that competitors, by calling their chips '386' and '486', were infringing its copyright. You can't copyright a number, the court ruled.

Next came a change in the name of Intel's newest generation of microprocessor - after the 286, 386 and 486 comes the 'Pentium'. For those who know their Latin, the link is preserved. AMD and Cyrix, meanwhile, contemplate christening their equivalent processors, when launched, as 586s - confusing matters further. Another plank in the Intel strategy was a return to the courts, this time successfully, to assert that AMD was using Intel's microcode (the built-in program that makes a chip work) inside its version of the 486. So back to the drawing board for AMD - and a dead stop for a fledgeling competitor, Chips & Technologies, which decided to abandon 486 development altogether.

Analysts estimate it will take AMD at least six months to 'reverse engineer' a different microcode, and even then PC makers are likely to be cautious about adopting it. The breathing space will be welcomed by Intel, as it provides an opportunity to delay price cuts and consolidate market share.

The 'Intel Inside' campaign, according to Mr Wood, aims to to make an Intel processor 'a check-list item' in the minds of the customers, something they will use to cut through confusion about standardisation and compatibility.

Does it all really matter to the average business user? It is hard to say. Microprocessor technology is still evolving, and Intel itself still trips across obscure bugs in its products. With each chip containing several million transistors, this is not surprising. But it does raise subtle problems of competitor compatibility. A chip that meets an Intel specification may not perfectly emulate the Intel chip itself. So which should a manufacturer copy?

Intel is bound to profit from such debates in the minds of PC users, and the TV advertising campaign is doing its best to raise them.