August 22, 2000 11:35 AM PDT

Intel CEO says Sun model doomed

SAN JOSE, Calif.--The Berlin Wall came down long ago, but the specter of communism still looms as long as Sun Microsystems is around, Intel CEO Craig Barrett joked during an interview at Intel?s Developer Forum.

Sun, which designs the hardware, software and processors that go into its servers, represents an increasingly outmoded way of doing business because it locks corporate customers into products or services from a single seller, Barrett said.

By contrast, the "horizontal" PC market, where different companies sell interchangeable products based on common standards, lets customers shop around and will emerge victorious.

"The horizontal makes much more progress than the vertical market. You just have to look at Sun," Barrett said with a laugh. "If (Sun CEO) Scott McNealy's model worked, communism would still be prevalent and challenging capitalism."

Hyperbole aside, Sun represents the future challenge for Intel. Although Intel?s largest direct competitor remains Advanced Micro Devices, Sun will likely emerge as a prominent, visible antagonist in coming years.

Sun leads the market for expensive, highly profitable servers for running e-commerce sites and business-to-business transaction services. That's a market that Intel wants to enter with its Itanium processor. Compaq Computer, IBM and Hewlett-Packard, among others, also want to put a dent in the 40 percent-plus growth Sun has seen in recent quarters.

Sun?s McNealy and many of the PC companies have traded verbal barbs for years. Sun and Intel, however, had a nasty split six months ago over a now-defunct plan to bring Sun?s Solaris operating system to Intel?s Itanium chip. Intel claimed Sun was not dedicating the necessary resources to the project, while Sun said Intel overreacted.

"Sun is going to get a lot of competition in their area of strength, which is the back office," Barrett said. "It wasn't the horizontal marketplace that brought eBay to its knees. The horizontal marketplace can provide just as good reliability as Sun."

One of the advantages of the horizontal market is that, combined, a horizontal industry spends more research dollars than a single company. Historically, consumers also have gravitated away from vertical markets.

"If the vertical market was successful, Apple would have 95 percent of the market rather than 4 percent," Barrett quipped.

Barrett, who had just returned from fighting fires at his ranch in Montana, also said Intel has worked to shore up some loose ends at the company.

On the acquisition side, Intel has begun to take a less heavy-handed approach toward changing cultures and processes at these companies. Rather than indoctrinate these new acquisitions right away, Intel has allowed the integration process to become more open-ended.

"We've gotten quite better at it. We no longer smother our acquisitions," Barrett said. "You acquire people for the technology they have, the knowledge they have, and (you) keep all of it...If an acquired company has a different sales model or a different HR structure, there is not reason to slap them around...We are much more adaptable."

As part of the integration process, the company appoints a proxy general manager from inside of Intel to teach new acquisitions the formal and informal rules of life at the company.

Intel has also moved to correct manufacturing and planning problems, which helped cause a processor shortage that has lingered for nearly 10 months. The company simply didn?t anticipate demand correctly last year, Barrett said. Some products also had to be delayed because of defects.

"I don't believe (Intel had) bad luck in that stuff...We kind of dropped the ball," he said. "We have been embarrassed by the slips and are dedicated not to have a continuing episode of these slips."

 

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