Intel Case Study

Avimanyu Master subtitle style Click to edit(Avi) Datta, Doctoral Candidate, College of Business, Washington State University

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Overview

The Intel Case: Fading Memories (Burgelman, 1991, 1994) & Capabilities Model (LCM) the Intel case and Conclusions

Leadership

Reconsidering Observations

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The Intel Case: observations

Successful shift from memory to processors - 1974 to 1984 (Burgelman, 1991; 1994) continued to consider Intel a memory company even though market share in memory (DRAM) was in steep decline 9/19/12

Top-management

Intel Memory Market Share and Sales

(Adapted from Burgelman, 1994; Grosvennor, 1993)
800 0.8 0.75 700 0.7 0.65 600 0.6 0.55 500 0.5 0.45

$ millions

400

0.4 0.35 0.3

Market Share

300

0.25 0.2

200

0.15 0.1

100

0.05 0

-0.05

Year

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Estimated memory Sales and Estimated Microprocessor Sales

(Adapted from Burgelman, 1994; Grosvennor, 1993)
12 10

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Brief Conclusion
Strategic

decision in 1984 to exit memory was sensemaking after-thefact internal selection environment, i.e., the production rulethat favored microprocessors, was more adaptively robust that top-down strategy
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Intels

Intel Corp
Three

Key Questions

What could explain Intels initial

Dominance of and subsequent decline in DRAM?

Why has Intel been more successful in

Microprocessors

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Intel Corp: Cost and price curves

What was Intels Strategy for DRAM?

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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 9/19/12

Why was Intel unsuccessful in the DRAM Market?

Japanese

Entered the Market

Access to Capital with lower interest rates.

Japanese investors had a more long term view than US investors.

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 9/19/12 need to be efficient, which increased their

Why was Intel unsuccessful in the DRAM Market?

Japanese

Strategy

Closer relationships with equipment

suppliers, enabling them to develop manufacturing machinery that produced higher results.
The strategy was build on building

capabilities and working to improve process development.

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Why was Intel unsuccessful in the DRAM Market?

Japanese

Institutional Factors

Japanese banking Systems provided lower

cost of capital by channeling funds through loans.

What is the implication of having lower

interest rates in silicon industry? And how it relates to pricing strategy?

Japanese Stock market revolved around

long-term investment horizons.

Continuous investment despite economic

downturns.

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Why was Intel unsuccessful in the DRAM Market?

Increased

complexity

Each subsequent generation was more

complex in terms of design and manufacturing.

Firms with better manufacturing process

had more competitive advantages.

US firms failed due to overreliance on

product strategy and lack of access to capital

Wrong

Strategy

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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

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What did Intel learn?

Be

careful with unidimensional (one product) strategy your technological innovations or avoid commodity business. When a novel technology becomes a commodity, the company(s) with higher manufacturing capability wins. advantage is temporary. Life span of strategies are getting shorter. 9/19/12

Protect

Competitive

Intel Corporation: Entry to 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 an example of sustained investment

Competences CD and TD were transferable to microprocessors

Avoiding timing delay associated with absorptive capacity build-up priming investment in exploration came through investment in DRAM

Internal selection environment favored microprocessors 9/19/12

Intel Corporation: Entry to Microprocessor

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.
9/19/12 Market for microprocessors developed

Creating and sustaining competitive advantage in microprocessors

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Creating and sustaining competitive advantage in microprocessors

Value

Creation

Fragmented Standards Perfect Storm: IBM was looking for a

microprocessor for its PC, which will become a de-facto standard. Intel won the contract.
Wintel become a standard industry

architecture.

HOW DO YOU MAKE MONEY FROM A

STANDARD? E.g., Mattress Sizes, nuts and 9/19/12 bolts etc.

Creating and sustaining competitive advantage in microprocessors

Proprietary

Standard

One can earn rents from a standard by

making it proprietary.
Enforcing Proprietary standard

Suing companies that attempt to copy its microcode no of licenses from 12 to 4 thereby increasing profits 30% to 75%. sufficient production capacity so that there is no need to license to other 9/19/12 manufacturer

Cutting

Building

Creating and sustaining competitive advantage in microprocessors

Sustaining

Competitive Advantage
Substitution Threat s

Threats to sustaining competitive

Imitation

advantage

Saturation

Buyer power

Supplier Power
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Complement ors Power

Creating and sustaining competitive advantage in microprocessors Imitation

THREATS AMD and Cyrix imitated Intels microproces sor With increase in market size, there was a shift

Intels Response 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

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Creating and sustaining competitive advantage in microprocessors Substitution

THREATS Alternative architecture, especially RISC Microsoft moved OS that were not tied to x86 Sun architecture Microsystems (eg NT) Motto The network is
Intels Response

Hedged against adoption of RISC by releasing i-860 Introduced Pentium (improved version of x86) Intel backed OS other than Windows like Linux

Partnered with OEMs to promote Processors 9/19/12 as PCs through as well

Creating and sustaining competitive advantage in microprocessors Saturation

THREATS Growth in PC tapered off

Intels Response Concentration on Mobile computing and Internet

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Creating and sustaining competitive advantage in microprocessors Buyer Power

THREATS
Intels Response

Buyers wanted RICS architecture

Recalling Pentium Processors

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

Replaced all the microprocessors

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Creating and sustaining competitive advantage in microprocessors Supplier Power

THREATS Made Long term contacts necessary for Custom Accused three solutions times by FTC
Intels Response

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

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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Creating and sustaining competitive advantage in microprocessors Complement Power

THREATS Microsoft bargaining Power
Intels Response

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

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DRAM vs Microprocessors
Disadvantages with DRAM Easier to Imitate Difficult to patent There is no microcode that can be protected There was little opportunity for a proprietary Standard What Intel did right with Microprocessors? Intel Branded the Microprocessor Kept the No. of Competitors down Changed Industry structure and dynamics Successful at counteracting threats to 9/19/12sustainability

Intel and Internet

Factors

led to Intels interest in Internet

Market Saturation: Growth in PCs matured Demand in networked Computing and

PDAs

Imitation: With imitation more players

enter the market and the product becomes a commodity leading to perfect competition and eroding margins.
Dominance: Intel wanted to to stay ahead

of competition so early entry to Internet, PDAs would flatten the curve when the 9/19/12

Questions? Comments?

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