Case Analysis
Intel Corporation: 1968-2008
Case 6

Name: Po-Hsun Lo
ID: 11018704
Date: 01/22/2012

Abstract Intel, the leading manufacturer of microprocessor since 1985, possessed 77.46% worldwide share of microprocessors for personal computers in 2007. Revenue of Intel kept increasing even during the recession of 2007, and Cost of goods sold reduced from 2005 to 2007. Such overwhelming performance pushed its major competitor, AMD that was expected to lose $1 billion on sales in 2007, to the edge. Although Intel had ruled the microprocessors for PCs, the growth of PCs market started showing slump, which meant exploring new market is getting importance to Intel.
Corporation Overview Founded by Robert Noyce and Gordon Moore in 1968, Intel started business by manufacturing dynamic random access memories (DRAMs) based on the technique from Fairchild. Besides the two founders, big part of early success of Intel was attributed by Andy Grove, one of researchers hired as Intel founded. Andy was charged as director of operations, so he had designed the first manufactory of Intel producing in competitive cost. His attributions and performance resulted in that he was named CEO in 1987 and positioned CEO until 1998. His management philosophy was detail oriented; everything must be constantly checked, especially about driving down cost and speeding up development processes. Therefore, Intel is always leading on product innovation in microprocessors industry. Intel strongly grew and flourished in early stage, when net profit increased from $20 million in 1974 to $200 million in 1984. However, behind the growth Intel also faced big one issue, DRAMs market. Although Intel had built its foundation by manufacturing DRAMs, its market share of DRAMs dropped for years. The main reason was the strong competitors emerged, Japanese. By efficient fabrication facilities, lower cost, and higher quality and yield, Japanese DRAMs manufacturers took market shares from Intel every year. One source even indicated that as DRAM plant in U.S. achieved highest yield of 50% Japanese manufacturers already got close to 80%. Based on this point, Intel had no way to compete with Japanese manufacturer in term of cost. Combined with the issues, such as DRAMs market slump and overcapacity, Intel reluctantly decided to exit DRAMs market, which it grown up with, in 1984. Concentrating in microprocessors industry, Intel booked $38.3 billion of revenues and $7 billion of net profit in the recession year, 2007. It regained the market shares of PCs to 77.46% from its major competitor, AMD, whose market share dropped from 22.26% to 23.06%. Moreover, for server market Intel had even more growth, from 75.60% market share to 84.73% in 2006. However, in 2008 the worldwide market for PCs was showing slowdown that forced Intel finding new potential market. As the result, Intel had aimed at the future of mobile Internet devices (MIDs).

SWOT Analysis Strength | Weakness | * Branding reputation * Market domination * Global presence * Strong R&D investing * Patents * Vertical market integration * Customer oriented platforms | * Highly committed to PCs market * Higher price on product * Not presence in MIDs market | Opportunity | Threat | * The growth of chips needed for MIDs * Graphics chip business | * Strong existed competitors in MIDs market * Antitrust lawsuit |

Strength 1. Branding reputation
Intel has started its “Intel Inside”, a branding campaign since 1991. The campaign allied with more than thousand computer companies to tell consumer that the performance of a computer with Intel microprocessor is guaranteed. Contributed by the campaign, the percentage of consumers who preferred a computer with Intel microprocessor increased from 60% to 80% in 1993. The successful branding campaign greatly enhanced Intel’s customer loyalty and firmly built Intel’s imagine as the promise of advanced technology. 2. Market domination
Intel has always positioned the largest shares of microprocessor market since the introduction of i386 in 1985. Because his position is so strong, even though it got some troubles, it could still lead the microprocessor industry. For example, Intel had offended its relationship with Compaq in mid-1990s and gotten troubles on production in early 2000s, but although Intel lost some market shares in the two periods, it still possessed more than 50% market shares. 3. Strong R&D investing
The technology of microprocessor in Intel is always leading the industry. Since microprocessor has been invented until 2006, Intel totally creates 11 generations of microprocessor, and as every generation was commercialized the new chip always had highest performing in market. The accomplishment must be credited to Intel’s high R&D investing. By mid-2000s, Intel was invested more than $5.5 billion a year on R&D that accounted about 15% of sales. Investing in R&D also improves the yield and makes learn curve steeper that dramatically reduces the cost of manufacturing by as much as 25% - 30% per year. 4. Patents
Besides leading on chip design, Intel is also leading in manufacturing processes. Also contributed by heavy investing R&D, Intel holds hundreds patents relating semiconductors manufacturing process, so it can always produces microprocessor in better and cheap way to its competitors. 5. Vertical market integration
Intel’s vertical market integration can be traced back from mid-1980s when Intel sold mainframes to computer companies. Although the strategy had been terminated, Intel still continues producing motherboards because it helps the diffusion of new microprocessor. Moreover, the revenue from sales of motherboards is also considerable, accounted 24% of Intel’s total sales in 2007. 6. Customer oriented strategy
Besides strong R&D, Intel also has highly customer-oriented strategy, Celeron and Centrino. In order to meet the demand of low-cost PCs, Intel had created a new brand “Celeron” aiming at low price market in late 1990s. In addition, Intel also created Centrino, which include several chipset platforms supporting different needs from different computers, such as corporate computers, home computers, and health care computer.
Weakness
1. Highly committed to PCs market
Although Intel leads microprocessor industry for years, however most of its sales are generated from PCs. It causes Intel becomes more vulnerable as PCs market slumped. Therefore, finding new market is getting important since PCs showing a global slowdown in late 2008. 2. High price on product
Pride in product quality, Intel adopts premium price strategy and offers discount after manufacturing process improved. Although it started offering Celeron for low price market, that is still hard to compete with the pricing strategy of AMD.
Opportunity
1. The growth of chips needed for MIDs
Mobile communication technology has rocketed since 2000s, and that causes the life-cycle of mobile Internet devices, including smartphone and notebook etc, is shortened. The sales forecast of MIDs was suggested $3.5 billion in 2008 and increase to $25 billion by 2013. That is a huge opportunity to Intel to outreach new market and to reduce its weakness. 2. Graphics chip business
The demand of graphics chips is mainly driven by computer games, so indirectly participating entertainment industry via bundling microprocessors and graphics chip together also offers a big potential to Intel. Especially, AMD had acquired ATI, one of two leading graphics chips companies, in 2006. Thus, if Intel didn’t catch up the improvement of AMD, Intel’s chips would lose advantage in attracting computer gamers.
Threat
1. Strong existed competitors in MIDs market
Intel lagged entering MIDs market, so there many strong competitors already existed in the market, such as Qualcomm and Apple. Compared to competing in PCs market, Intel no longer has advantages on market dominance, patents, and reputation. 2. Antitrust lawsuit
Because of the dominance on PCs market, Intel is accused antitrust by AMD in 2000s. AMD claimed that Intel used its monopoly power to engage in predatory pricing in Japan in order to ensure AMD having more than 30% market shares that might break its monopoly power. It will cost Intel a big spending even though it wins in the end.
Decision of exiting DRAMs market In early 1980s, all of American DRAMs manufacturers, including Intel, underestimated their competitor, Japan. Japanese DRAMs manufacturers caught the opportunity that computer company required second source, and defeated American manufacturers by more efficient production. Due to the lagged development cycle, the cost of new fabrication facility, and oversupplied DRAMs market, Intel exited the market. Was the decision correct? If Intel reminded in the market, it might ramp up its competitors one or two years later. However, because the market was surged, Intel probably would struggle in pricing war, and its profit would be squeezed. On the other hand, in the early 1980s when was the beginning stage of microprocessor, Intel received two benefits from exiting DRAMs market. First, it avoided the loss of funds and time spending for DRAMs, and second it had more resource to concentrate on being the leader in microprocessor industry. During the period, investing in DRAMs a new fabrication facility was big money to Intel, so staying the market probably would delayed the development of microprocessor and gave others producer opportunity to beat Intel. Therefore, exiting the DRAMs market was a correct decision.
Recommendation
There are two opportunities showing to Intel, MIDs market and graphics chip business. Definitely both of the opportunities are worth to engage in. For the MIDs market, although there are already strong competitor, Intel can use vertical alliance strategy to increase market shares and build business partnership. Just like what Intel did with Microsoft in later 1990s, Intel can ally with mobile device producer and software provider, such as Apple and Microsoft. For the graphics chip business, the best way is to acquire the other major graphics chip company, Nvidia. Because it is too late to catch up AMD acquired with ATI by building a new own segment, acquiring Nvidia can prevent losing market shares from graphics-oriented consumers.