The rise, fall and rise of Intel Corporation

By
Raj Sodha-141,
Meenakshi Nilakantan-31,
Ishaan Shah-151,
Punit Somaiya-153
The Intel Case: overview
Successful shift from memory to processors - 1974 to 1984
(Burgelman, 1991; 1994)

Top-management continued to consider Intel a memory company
even though market share in memory (DRAM) was in steep decline

Innovation enabled Intel to lead the market with new products
Manufacturing scale came to dominate process technology design
as basis for competitive advantage

Innovation culture empowered middle management to invest in
innovative products w/o explicit executive consent

Competences in circuit design (CD) and process technology design
(TD) were transferable to microprocessors
Intels Strategy with DRAM
Innovative Design: Intel was the first to develop DRAM. Moors Law was the brain
child of Gordon Moore who was the founder. The law was based on the demand
of memory . Intel also produced Worlds first 1Kb DRAM.

Price High in early life-cycle: make money and reinvest in subsequent generations.

Move Quickly to New generations: As competitors offered substitute products
and overall market price decreased, Intel moved to new generations.

Thus, Intel emphasis was on product design, not so much on process
development or realizing efficiencies through manufacturing .
Downfall of Intel in DRAM
Japanese Entered the Market
Invested 40% revenue in manufacturing while U.S firm
invested only 22%.
Integration with Related industries helped advance DRAMS
(eg Nikon)
Sophisticated Demand: DRAMS were used across different
products
More competitive industry: with greater competition
Japanese firms had greater need to be efficient, which
increased their access to get trained labor.
Strength in manufacturing: Yields were high as 80%, where
in US it was around 60%.
Firms were much faster in developing process technologies
and ramping up production capacities, while Intel took
almost 2 year in developing and ramping up.
Why was Intel unsuccessful in the DRAM
Market?
Wrong Strategy
Intel though that pushing product design through new features
Lack of process capabilities and efficient manufacturing capabilities resisted
putting new features to market.
Japanese also entered the EPROM market



What should have Intel done to avoid this
downfall?
Learning's
Protect technological innovations or avoid in commodity business.
Ramp up it production capacity immediately when required and responding to market
development and competitors to the earliest.
If indulging into commodity business then it should have huge production capacity to get the
cost advantage , which was done by their Japanese counterparts.



Intels Entry into Microprocessor
Market share in memory chips (DRAM) was in steep decline
Existing capabilities, Circuit Design (CD )& Technology Design (TD) did not match competitive dynamics. Exploration did not
focus on manufacturing scale (& large market)

Middle management empowered to invest in innovative products
Exploration led to microprocessors without a top-down initiative

Competences CD and TD were transferable to microprocessors

With the entry of the micro processor the market readily accepted which got good
fortunes for the company.
Intels successful transition had more to do with unique circumstances (luck) than
strategy (brains)
Loss of market share in memory (precipitating ultimate exit) predated successful
transition to microprocessors no transforming strategy was articulated.
Intel was well positioned with respect to process technology design capabilities to
successfully explore microprocessor market

Intel Generating Value
Got IBM as ne of the biggest clients to accept its Micro processor in
desktops.
Licenced 12 companies to make chips- got only 30% of revenue,
later only licenced only four companies helping it to retain 75% of
margins.
IBM decided to not use Intel microprocessor and develop its own,
which lead to a loss for Intel as it was its biggest client.
But Compaq till then a new company was ready to buy from Intel.
Microsoft dos 3.0 not supporting the 386 was also a hurdle.
Microsoft split with IBM and got Windows 3.0 to support the 386
chip by Intel. The trio of Intel, Compaq and Microsoft worked well.
Creating and sustaining competitive
advantage in microprocessors
Threats
Imitation Substitution
Saturation Buyer power
Supplier Power Complementors Power
Sustaining Competitive Advantage
Threats to sustaining competitive advantage




Creating and sustaining competitive
advantage in microprocessors
Imitation







AMD and Cyrix
imitated Intels
microprocessor
With increase in
market size, there
was a shift towards
to Cyrix and AMD
Intellectual property Protection
Intel Inside Campaign: Created Brand Awareness.
Program also included software vendors with the
line Runs even better on a Intel Microprocessor
Higher Capacity and Cheaper Microprocessor
THREATS
Intels Response
Creating and sustaining competitive
advantage in microprocessors
Substitution







Alternative architecture,
especially RISC

Hedged against adoption of RISC by releasing i-860
Introduced Pentium (improved version of x86)

THREATS
Intels Response
Microsoft moved OS that
were not tied to x86
architecture (eg NT)
Intel backed OS other than Windows like Linux
Sun Microsystems Motto
The network is the
Computer


Partnered with OEMs to promote Processors as well
as PCs through Intel Inside Campaign.
Hedged by getting into servers with 32-bit Xeon
Processor in 1998.


Creating and sustaining competitive
advantage in microprocessors
Saturation






Growth in PC tapered
off
Concentration on Mobile computing and Internet
THREATS
Intels Response
Creating and sustaining competitive
advantage in microprocessors
Buyer Power







THREATS
Intels Response
Buyers wanted RICS
architecture
Recalling Pentium
Processors


Replaced all the microprocessors



Hedged against adoption of RISC by releasing i-860
Intel inside campaign made industry more
dependent on CISC Architecture
Introduced Pentium (improved version of x86)
Building of Motherboard through forward
integration

Creating and sustaining competitive
advantage in microprocessors
Supplier Power







Made Long term contacts
necessary for Custom
solutions

Intel never asked for custom solutions, rather
focused on standard solutions.

THREATS
Intels Response
Accused three times by
FTC
Cases were dropped by virtue of Intels goodwill in
replacing chips
Intel showed that suppliers appropriate value from
Intel as well
Creating and sustaining competitive
advantage in microprocessors
Complement Power







Microsoft bargaining
Power

CREATE market ecosystem by investing in
complementors
Partnerships with Apple (later in 2006), Linux-Red
hat

THREATS
Intels Response
DRAM vs Microprocessors
Disadvantages with
DRAM
What Intel did right with
Microprocessors?
Easier to Imitate
Difficult to patent
There is no microcode that can
be protected
There was little opportunity
for a proprietary Standard
Intel Branded the
Microprocessor
Kept the No. of Competitors
down
Changed Industry structure
and dynamics
Successful at counteracting
threats to sustainability
INTELS RELATIONSHIPS
Different relationships and their impact on Intel
Customer - Intel Inside
Intel dominant player with 90% MS in microprocessors
Cooperative venture with OEMs Reimbursement of certain ad
costs in return for using Intels logo
Seen as a threat by OEMs
Intel retaliated Expanding PC user base
Vendors recommended Intel
Computer buyers 60% (92) to 80%(93)
Cyrix and AMDs response to Intels branding strategies
IBM and Compaq resisted the campaign, but gave in later
Compaq Cross-licensing agreement, purchased motherboards
IBM Worked on open standards


Systems Business
Computer components > Subsystems and complete system
products
Systems Group for simulating and testing Intel-based products
Products included supercomputers and printed circuit boards
In 1990, the products accounted for 25%-30% of total revenues
In 1994:
Around 50000 PCS supplied to Reuters News Agency
Finished PCs supplied to Carrefour
Selling price was less than 25% of competitors price
Business focused on end-user experience

Product introductions
Supply issues:
1. Premium pricing to limit demand, generate profits early on
(Price was decreased later on as volumes and competition rose)
2. Allocate supplies among OEMs
Looked at past purchasing behaviour to determine demand


Supplier Relationships
Sole-sourcing of critical pieces of equipment from vendor
Best in breed technology provided
Standardization adopted Technology transfer and ramping-up
facilities
Sole-sourcers were less responsive to technical support
Switched back to dual-sourcing

Influence of WWW (Internet)
Gross margin was 60% in 1997
Each version lead to better computing power
Internet lead to a trend of higher-performing PCs
Shift from accessing & sharing own data to accessing world data
Sun developed Java for new applications
Intel saw the emergence of technology as a complement
10X change in Intels business expected
Intels advantage - Faster at getting to different places & people
Power, vigour, competence of suppliers, complementors, existing
and potential customers
Possibility of doing business in a different way




Thank you. And the war continues!