Research Brief

 

Compaq And Intel Mend Fences, Compaq Joins Intel Inside

Compaq Computer Corporation and Intel have established a ten year agreement that includes patent technology cross licensing and Compaq's inclusion in the 'Intel Inside' cooperative advertising program. Compaq dropped out of the Intel Inside marketing program over two years ago, preferring to promote the Compaq name rather than Intel's. Compaq will use the Intel Inside logo in its products, advertising and packaging. The agreement entitles Compaq to receive funding for advertising that features systems with the 'Intel Inside' logo. Compaq and Intel also agreed to a broad worldwide non-exclusive cross licensing agreement covering the development of PC technology. Under the terms of the agreement, technology developed by either company can be used by the other without the threat of litigation. In particular, this agreement will prevent Intel from being included in Compaq's suit with Packard Bell. Compaq is suing Packard Bell for alleged infringements of Compaq patents, as well as false advertising. Because Packard Bell uses Intel-made technology and components, Compaq would have to include Intel in its suit against Packard Bell. This new agreement allows Intel to withdraw from the case.

 

Analysis

Compaq felt that Intel's program would diminish the value of the Compaq name to consumers. Given the time frame and market forces, Compaq was correct in strategically promoting its own name rather than incorporating the Intel Inside logo. Compaq invested heavily in marketing programs that target the consumer for its Presario PCs. As consumers became more savvy about technology features, Compaq was able to leverage its PC designs into a successful marketing strategy.

Workgroup Strategic believes Compaq rejoined the 'Intel Inside' fold for two reasons. From a marketing view, we believe Compaq saw little value in ignoring Intel's marketing program. Compaq has been reevaluating and revamping its consumer channels programs and will be taking advantage of the Intel cooperative funds to drive lower price points for its consumer based Presarios. Workgroup Strategic believes that the second reason for Compaq's decision revolves around the need to restructure its pricing and cooperative programs for retailers. Because vendors that sell PCs through retail channels have such strong margin and pricing pressure, taking advantage of cooperative advertising programs such as Intel Inside can be directly channeled to demand advertising, promotions, and, to some extent, lower prices.

Compaq's cross licensing agreement with Intel is not only a defensive maneuver but one that looks to the future. It seems that Compaq is helping Intel stay out of its skunk fight with Packard Bell. Intel finds itself as the parent of quarreling siblings and now chooses to distance itself from the suit and allow Compaq and Packard Bell to sort out their differences.