Intel China describes long-range strategy

Microprocessor vendor Intel Corp has enjoyed great success in China by partnering with domestic computer makers such as Lenovo, Founder and Haier.

The strategy has helped Intel and its partners win a major market share from foreign rivals during the past 10 years.

But as the global economic downturn has slowed the personal computer market in China, the world's largest chip maker is now hoping to profit more from the Chinese government's economic stimulus package.

Intel executives said the US-based company will expand its strength outside the personal computer arena in China and hopes to profit from the government's stimulus programs impacting railroad construction, rural improvements and healthcare reform.

Intel said these programs, which need huge investments in advanced technology, will promote the use of hi-tech products such as computers, servers and mobile devices for the world's largest population.

"It is the first time in 20 years that we plan to integrate our resources in China to fuel the country's long-term development," said Ian Yang, the president of Intel China.

Where China goes

Intel reported revenues of $8 billion in the second quarter of this year, down $1.4 billion from the same period last year. Bloomberg News

"The future development of Intel China will focus on where China goes. That's where we will have a bigger opportunity," he said.

As the economic slowdown reduced the demand for personal computers, worldwide PC processor unit shipments plunged by 10.9 percent in the first quarter of this year, according to research firm IDC.

Although shipments rose in the second quarter because of Intel and OEMs replenishing their inventories, IDC said the PC processor market likely will not see a recovery until the end of this year.

Intel, too, has suffered from the drop in demand.

According to its financial report, Intel reported revenues of $8 billion in the second quarter of this year, down $1.4 billion from the same period last year. Its profit declined to $1.3 billion from $4 billion in the quarter.

However, Yang said Intel has gained market share in China by partnering with domestic PC players, and he said the company plans to repeat that strategy when entering new markets in the country.

Hi-tech investments

The Chinese government's 4 trillion yuan economic stimulus was announced earlier this year in an effort to maintain the country's near 8 percent economic growth, since the global downturn has hurt the country's export-reliant economy.

Wang Zhiguo, vice minister of railways, said last week that China plans to invest more than 2 trillion yuan by 2012 to build high-speed railway networks that will connect Beijing and most Chinese capital cities within eight hours.

Li Yizhong, vice minister of the Ministry of Industrial and Information Technology, said China will spend 450 billion in the next three years to build the third-generation (3G) telecom network.

Yang of Intel China said these opportunities can help China surpass the United States as the world's largest PC market within the next three to four years.

He said China's more than 600 million mobile phone users represent a huge potential consumer base as Intel focuses more efforts on portable devices such as netbooks.

In line with the company's new strategy, Intel established a partnership earlier this year with the IT center of the Ministry of Railways to develop a technology blueprint for the new railway network.

Intel said it's a network in which hundreds of thousands of Intel-based laptops and desktop PCs and tens of thousands of servers will be used by 2012.

The company also announced plans last month to partner with Chinese airline advertiser AirMedia Group to develop next-generation digital signage solutions in China's fast-expanding airports.

"Intel has been trying to expand its strength outside its traditional arena due to the slowing growth in the personal computer market and competition from emerging markets such as netbooks and other portable devices," said James Lei, an analyst with the research firm In-Stat.

Lei said the Chinese government's stimulus package will accelerate the use of computers and other emerging technology devices in the country and will help boost the market's recovery.

R&D presence

Intel, which established operations in China in 1985, has more than 7,000 employees in the country.

The company has invested $4.5 billion in its China operations during the past two decades and is building its first Asia wafer fabrication factory in Dalian.

Bob Liang, general manager of the Intel Software and Services Group in China, said Intel's China team has played a greater role as China becomes an important country for the company -- not only as a huge consumer market, but also as an important R&D hub and manufacturing center.

"In the United States, many of our customers such as Google will do most of the work on their own, since they have strong capacities in research and development," Liang said.

"But we do a lot more for our customers in China, which has helped us gain a lot of experience that we didn't get in other markets," he said.

These experiences, Liang said, are crucial to Intel's long-term development, especially in areas such as the emerging portable computer device market.

Liang said 66 percent of the research capacity of Intel's Emerging Market Platform Group, which makes chips for portable computer devices used by customers such as students and hospitals, is in Shanghai.

The company's China team also played an important role in Intel's launch of Atom, the company's new microprocessors used in netbooks and other portable devices, Liang said.

Yang said Intel is now entering a new phase. The company earlier this year increased its registered capital in Intel China Ltd, the company's investment holding company in Shanghai, by $110 million.

Intel also reorganized its China operations by moving its assembly and testing operations from Shanghai to Chengdu.

"Growing with China's PC industry has proved to be a successful strategy for Intel," Yang said.

(China Daily 08/24/2009 page3)