Intel Sees Lifeline in Indonesia

Jakarta — Desktop and laptop sales to millions of first-time computer buyers in Indonesia are going to bolster revenues at Intel Corp. (INTC +0.83%) and offset some of the ground lost in more mature markets where consumers are turning to tablets.

The sales of desktops and laptops that use Intel’s chips are expected to surge in Southeast Asia’s largest economy as rising incomes enable more people to buy computers. Intel has been struggling in more developed markets, where the most demand growth is coming from sales of smart phones and tablet computers which don’t use Intel’s processors. The chip giant’s global sales have been so bad recently that Intel had to cut back on production this quarter.

While Intel’s global sales slipped last quarter, Indonesian sales may be up more than 20% this year, said Uday Marty, Intel’s Singapore-based managing director of Southeast Asia. And with fewer than one in ten Indonesians owning computers there is a lot of room to continue growing at that rate, he told The Wall Street Journal.

“It’s 240 million people and more than 50% are less than 30 years old,” which means they are more likely to buy computers once they can afford it, he said. “In a gloomy economic environment world-wide Indonesia is growing in the double digits.”

Indonesian sales could provide a crucial cushion for Intel’s earnings as it strives to revive its revenues.

In its biggest markets in the West Intel has been losing customers since Apple Inc. (AAPL +3.06%) launched its iPhone in 2007. Personal computers have been superseded by mobile phones and tablets as the focus of sales growth as well as most innovations in hardware and software.

While Intel sells more than 80% of the chips that serve as calculating engines in PCs, it has seen demand slide for those products and has had limited success placing its technologies in mobile phones and tablets. In those devices, most companies are using chips that used technology licensed from U.K.-based ARM Holdings PLC. (ARM.LN +1.76%)

The semiconductor company said it is scaling back production in the fourth quarter in response to weak demand. It said the move will cause it to take $500 million in charges for excess production capacity.

One way Intel is trying to fight back in developed economies has been to promote what it calls Ultrabooks, which are lighter, thinner laptops. Demand, however, has been slow, in part because of price tags that are often more than $1,000.

Indonesian computer sales have been hurt this year by delays in government spending, analysts said, but the country is close to take off in terms of its demand for computers. While the technology data company IDC projects flat growth in computer shipments in Indonesia this year, sales could soar as the country’s consumers discover their need for computers, said Sudev Bangah, country manager of Indonesia for IDC.

“The economy in Indonesia is still so traditional,” so a lot of businesses still don’t use computers, he said. “It will be reaching a key inflection point in the next year or so.”

The penetration rate for computers in Indonesia is still less than 7%, he said, compared to 41% in Malaysia 41%, 13% in the Philippines, 22% in Thailand and 15% in Vietnam.

In Indonesia, Intel’s chips are likely to be embedded in ultra-cheap laptops or desktops. First-time buyers here prefer a computer that costs between $200 and $300.

To promote sales across the archipelago, Intel sponsors computer fairs in far-flung regions. It sets up tents and sometimes uses vans to teach Indonesians how they can use computers to improve their businesses and their lives.

“There is a large portion of first-time buyers as the penetration rate is less than 10%,” on average in Indonesia and much lower in the smaller cities, said Santhosh Viswanathan, chief representative Intel Indonesia Corp. “In second and third tier cities they are much more value driven.”

Intel’s fairs attempt to show the benefits of doing business with a computer. For example they explain how rattan furniture makers how to set up their own web sites and textile companies how computers can be used to design the complicated patterns for traditional batik clothing.

To make buying a computer easier, Intel has encouraged a local motorcycle financing company to offer small computer loans to its borrowers. It has also persuaded some laptop makers to design laptops with smaller screens because they are cheaper and easier to carry.

To help new computer owners get access to useful applications, Intel has worked with local telecommunications company to include applications as part of their wireless modems. The applications are pre-installed on the air cards for novice users who may not be familiar with how to download applications from the web.

Indonesia needs more than inexpensive and easy to use computers to see its computer consumption jump, analysts said. One problem is the archipelago still has some of the slowest and most expensive broad band rates in the region. Intel is trying to address this problem by working with computer manufacturers to bundle inexpensive broadband with new computer purchases.

Meanwhile, higher sales in low-end computers doesn’t do much to bolster Intel’s bottom line, analysts say, because they use the semiconductor company’s less expensive, less profitable chips.

Still, Indonesians have shown they want to be doing more and more online. They are already among the world’s most active users of Facebook (FB +7.49%) and Twitter, mostly through low-end smartphones. As their incomes rise, so will demand for more powerful computers and the connectivity they provide.

“Smartphones have given everyone a taste of what technology is capable of and they are going to want more,” said Intel’s Mr. Marty. “Indonesia is our crown jewel.”

The Wall Street Journal

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