Intel Inside the Third World

Monday, July 2, 2007

A marginal player in cellular markets, Intel must find a way to sell to the “next billion,” industry lingo for consumers in the developing world who don’t yet have easy access to the Internet. The education market?and products such as the Classmate?presents a major opportunity, says Martin Gilliland, Asia-Pacific research director for Gartner Inc. (IT ), because even if Intel’s margins on such devices are razor-thin, volumes could soar into the hundreds of millions. Intel could expand the PC user base “not by fractions, but by high double-digit percentages,” Gilliland says.

The first big challenge for Intel is bringing down the Classmate’s costs. Unlike Negroponte’s XO device, whose specially designed user interface aimed at first-time computer users is a deliberate break from the world of Intel chips and Microsoft software, Intel’s machines are largely stripped-down versions of today’s “Wintel” PCs. Intel’s formidable clout with Asian parts suppliers lets it buy key components practically at cost, allowing it to shoot for a sub-$300 price tag. “We have chosen to ride on the existing technology curve and drive down the cost that way,” says Michael T. Zhang, Intel’s general manager working on the project in Shanghai.

So far, the approach seems to be working. Intel was able to move the Classmate PC from the drawing boards into production in less than 18 months. In early June, the company announced that it had enlisted Taiwan’s Asustek Computer Inc. to make another laptop based on the Classmate design, but priced even lower, at $200. “This is what we do for a living,” says L. Wilton Agatstein, the Intel vice-president in charge of the Classmate initiative. Perhaps more important, the project has forced Intel to expand its frame of reference beyond hardware. In Mexico and elsewhere, Intel bundles its Classmates with education software and teacher-training support. “That’s something Intel needs to be credited for,” says Gartner’s Gilliland. “They have stretched beyond their normal area of interest without treading on anyone’s toes.”

Negroponte has said that he has no intention of ceding Mexico and other struggling nations to Intel. He has met with Mexican President Felipe Calder?n and has sought out Mexico’s richest man, telecom billionaire Carlos Slim, who says he’s interested in helping OLPC. But there is one obvious obstacle: Negroponte still has no commercial laptops to put into the kids’ hands, whereas Intel has signed up with a local distributor and launched two trials for the Classmate, in Guadalajara and Malinalco. The company plans to have ECS, its Taiwanese partner, produce over 1 million Classmates by the end of the year.

In the past, Negroponte has accused Intel of trying to crush his nonprofit, in part because OLPC buys its most important chips from Intel rival AMD. He also has complained that Intel is using its laptop program to pump up demand for its microprocessors in developing countries. “They look at it as a market,” he says. “But primary education in the developing world is not a market, it’s a human right. And I don’t think Intel is in the human-rights business.”

Collaboration, clearly, would erase some of the ill will. And a framework for this already exists. In earlier interviews, Intel’s Agatstein has said he gets along well with Negroponte and that the two talk regularly. Agatstein has praised the way Negroponte works with Linux software developers to come up with applications for his laptop. “We have learned from Nicholas,” he says. In a best-case scenario, a collaboration between Intel and Negroponte would greatly improve access to advanced technology in countries around the world.

But not everyone agrees laptops are the best way to go. “The phone itself is going to be the low-cost computer,” argues Irwin Jacobs, chairman of Qualcomm Inc. (QCOM ), the San Diego designer of chips for handsets.

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Source: BusinessWeek (link opens in a new window)