raj, meenakshi-intel - strategic management

8/10/2019 Raj, Meenakshi-Intel - Strategic Management

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The rise, fall and rise of Intel Corporation

By

Raj Sodha-141,

Meenakshi Nilakantan-31,Ishaan Shah-151,

Punit Somaiya-153


2/21

The Intel Case: overview

Successful shift from memory to processors - 1974 to 1984(Burgelman, 1991; 1994)

Top-management continued to consider Intel a memory companyeven 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 designas basis for competitive advantage

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

Competences in circuit design (CD) and process technology design(TD) were transferable to microprocessors


3/21

Intels Strategy with DRAM

Innovative Design: Intel was the first to develop DRAM. Moors Law was the brainchild 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 processdevelopment or realizing efficiencies through manufacturing.


4/21

Downfall of Intel in DRAM

Japanese Entered the Market

Invested 40% revenue in manufacturing while U.S firminvested only 22%.

Integration with Related industries helped advance DRAMS

(eg Nikon) Sophisticated Demand: DRAMS were used across different

products

More competitive industry: with greater competitionJapanese 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 technologiesand ramping up production capacities, while Intel took

almost 2 year in developing and ramping up.


5/21

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 resistedputting new features to market.

Japanese also entered the EPROM market

What should have Intel done to avoid thisdownfall?

Learning's Protect technological innovations or avoid in commodity business.

Ramp up it production capacity immediately when required and responding to marketdevelopment and competitors to the earliest.

If indulging into commodity business then it should have huge production capacity to get thecost advantage , which was done by their Japanese counterparts.


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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 microprocessorsno transforming strategy was articulated.

Intel was well positioned with respect to process technology design capabilities to

successfully explore microprocessor market


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Intel Generating Value

Got IBM as ne of the biggest clients to accept its Micro processor indesktops.

Licenced 12 companies to make chips- got only 30% of revenue,later only licenced only four companies helping it to retain 75% ofmargins.

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.


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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


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Imitation

AMD and Cyriximitated 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


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Substitution

Alternative architecture,especially RISC

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


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.


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Saturation

Growth in PC taperedoff

Concentration on Mobile computing and Internet



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Buyer Power


Buyers wanted RICS

architecture

Recalling Pentium

ProcessorsReplaced all the microprocessors

Hedged against adoption of RISC by releasing i-860Intel inside campaign made industry more

dependent on CISC Architecture

Introduced Pentium (improved version of x86)

Building of Motherboard through forward

integration


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Supplier Power

Made Long term contacts

necessary for Custom

solutions

Intel never asked for custom solutions, ratherfocused on standard solutions.


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


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Complement Power

Microsoft bargaining

Power

CREATE market ecosystem by investing in

complementors

Partnerships with Apple (later in 2006), Linux-Red

hat



15/21

DRAM vs Microprocessors

Disadvantages with

DRAM

What Intel did right with

Microprocessors?

Easier to Imitate

Difficult to patent

There is no microcode that canbe protected

There was little opportunity

for a proprietary Standard

Intel Branded theMicroprocessor

Kept the No. of Competitors

down

Changed Industry structureand dynamics

Successful at counteracting

threats to sustainability


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INTELS RELATIONSHIPS

Different relationships and their impact on Intel


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Customer - Intel Inside

Intel dominant player with 90% MS in microprocessors Cooperative venture with OEMsReimbursement of certain ad

costs in return for using Intels logo

Seen as a threat by OEMs

Intel retaliatedExpanding PC user base

Vendors recommended Intel

Computer buyers60% (92) to 80%(93)

Cyrix and AMDs response to Intels branding strategies

IBM and Compaq resisted the campaign, but gave in later

CompaqCross-licensing agreement, purchased motherboards

IBMWorked on open standards


18/21

Systems Business

Computer components > Subsystems and complete systemproducts

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


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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

Bestin breed technology provided

Standardization adoptedTechnology transfer and ramping-upfacilities

Sole-sourcers were less responsive to technical support

Switched back to dual-sourcing


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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


21/21

Thank you. And the war continues!

raj, meenakshi-intel - strategic management

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