Brocade chair Dave House tells how he got IBM to sign up for the Intel Inside program and management lessons he adapted from Andy Grove

Tearing Up a $125M Check to Big Blue

Rick Merritt
7/8/2013 12:20 PM EDT

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House shows a plaque commemorating the Intel Inside program.

SARATOGA, Calif. – Dave House still recalls the day he wrote IBM executives a $125 million check then tore it up in front of their eyes. It was perhaps one of the boldest moves in his 13 years as a top executive at Intel, a company known for its boldness. In this second part of an interview at his home in the hills above Silicon Valley, House recounts his role in the “Intel Inside” campaign that put the x86 giant at odds with its OEM customers. Now the chairman of Brocade Communications, House also shares management lessons learned working under Intel’s Andy Grove. Dennis Carter developed the idea of branding Intel chips direct to consumers. House recalled the day Carter showed him an ad from Japan using an early version of the logo. “I said, ‘that’s Jap-lish,'” House said. “I pulled out stationary that said ‘Intel, the computer inside,’ I wrote ‘Intel Inside’ and put a circle around it and said that’s better,” he said.Then, Intel created a co-marketing campaign under which it would share the cost of advertising if OEMs used the new logo. As a sweetener, Intel initially changed its typical forecast of lowering CPU price per speed grade by 30 percent every year.

“We were in a particularly strong position regarding AMD, so I said, ‘let’s give them a forecast that shows 20 not 30 percent down, but offer a six percent rebate with the Intel Inside ad campaign,” House said.

The Taiwanese [ODMs] loved that they could put Intel Inside on their systems, but Compaq and IBM hatred it because it was taking away their brand.

I couldn’t get IBM or Compaq to sign up, but I could sign company checks, so I took a check of what they would have accrued [in the program] two weeks before the end of their quarter and I signed it right in front of them.

“I said this could be on your P&L or mine. They said they couldn’t do it — the IBM check was for like $125 million, and the margins on PCs by then were already razor thin,” he said, recalling how he then tore the check up in front of them. “About three weeks into the next quarter, they signed up,” he said.

Later, Intel was able to get industry publications to agree to a single rate card for Intel Inside ads, despite initial refusals from Ziff-Davis, one of the biggest publishers of the time, House said.

As the PC market and Intel’s share of it grew, regulators cranked up antitrust investigations. “I wasn’t there then, so I’m just an informed observer, but there were an awful lot of lobbying and PR battles,” he said.

“In any sales situation when there’s a shortage of product and a salesman has a quota, there’s a temptation for the salesman to say, ‘I’m having trouble getting allocation from the factory but if you work with me I can help,'” House said. “How you can control that, I don’t know.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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