case study: intel corporation 1968-2003

Department of Business Administration College of Management

Intel Corporation: 1968-2003 How did Intel transform from the CPU supplier to the main

supplier of the building blocks for the Internet economy?

Presented by Group 5

HARVARD BUSINESS SCHOOL │ 9-703-427 │ REV: NOVEMBER 22, 2005

12 October 2011 1 Fall 2011 MBA Management of Technology

Case Study 1

Chiang, Yi

Lin, Jie-Heng

Wu, Hsuan-Yi

Course Lecturer: Prof. Chung-Jen Chen


12 October 2011 Fall 2011 MBA Management of Technology 2

Outline

About Intel Corporation

Initial dominance and decline in DRAMs

Success in microprocessors

Becoming the builder of the Internet

Q & A

0

1

2

3

5

Conclusions 4



Spring 1968 Robert Noyce and Gordon Moore left Fairchild Semiconductor to start

Intel with the venture capitalist Arthur Rock. Later Andy Grove joined

with a group of team from Fairchild.

Robert Noyce

1927-1990

Gordon Moore

1929-

Arthur Rock

1926-

Andy Grove

1936-

About Intel Corporation 0

DRAM Microprocessor Internet

1970s 1980s Late-1990s



Intel in

DRAM Market



Source: Intel Case Exhibit 4 Volume Trends in DRAMs

Intel first introduced 1K DRAM (Lead)

TI and Mostek had better design and low cost.

Intel lost a full generation to Japanese (16K vs. 64K)

Intel faced strong price competition from Japanese

Intel introduced 1-megabit DRAM but has lost the market

Intel exited DRAM market. 1985

Intel produced the world’s first 1-kilobit DRAM, 1103 (Goldilocks strategy). 1970

-87.5% (1986)

Huge Lost in Net Income

Initial dominance and decline in DRAMs 1

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-72% (1981)

-99% (1985)

Employee laid off

-16% (1985)

-15% (1986)



As first mover, why failed in the end? 1. From radical innovation to incremental innovation…

Henderson and Clark (1990)

Models of Innovation

Teece (1986)

Who profits from innovations?

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2. Appropriability and Complementary…



How would you explain Intel’s initial dominance and

subsequent decline in DRAMs?

The industry was driven by necessity to cross-license

among established players. Through the Credibility of

Noyce, Intel became part of that sharing network.

Overestimated the entry barrier of DRAM market.

Reacted too late for Moore’s Law in DRAM technology

(the costs of computing fall in half every 18 months).

Lost the advantage of dominant design due to its less

complementary assets

Gave up the business too late. “We understood that to gain a 10% market share in DRAMs we would have to make a $600 million investment in a new fab. We were doomed to fail because there was industry overcapacity.” --- Grove

Initial dominance and decline in DRAMs 1

Key factors to

chip price:

• Shape of

learning curve

• Capacity

expansion

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“DRAM gave us fame,

but EPROM gave us riches.”

“We had microprocessors.”

---Andy Grove



Intel in

Microprocessors



1980 “Project Crush” + Design wins (Intel + IBM)

- IBM open standard

- Success in format war

- Being a free rider by design wins

License control

- Restrict licenses to four company

- More design wins and more revenue

- Set up the industry standard

1983

Success in microprocessors 2

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1971: Intel 4004 1972: Intel 8008 1974: Intel 808 1978: Intel 8086 y 8088

1982: Intel 80286 1985: Intel 80386 1989: Intel 80486

Platform building: x86

Second-source strategy Sole-source strategy: becoming proprietary




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Intel vs. AMD

Tom Dunlap, senior vice president and general counsel

“AMD’s products were big, ugly, and late.” (mid-1980)

“By the Pentium generation, AMD couldn’t get any trade secrets and couldn’t

copy our microcode, so our products developed quite differently.” (1995)

1993: Intel Pentium 1995: Intel Pentium Pro 1997: Intel Pentium II

1991: AMD AMx86 1996: AMD K5 1996: AMD K6 y AMD K6-2 1999: AMD Athlon K7

(Classic y Thunderbird)

1999: Intel Pentium III



1990 Success marketing: the “Red X” campaign specifically against AMD, and the

“Intel inside” end-user branding and advertising program to OEMs.

Pentium bug: good response to product flaw and effective end user promotion 1994


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Dennis Carter, head of corporate marketing

Architectural competition: RISC vs. CISC (Intel) 1990-1995




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Why has Intel been more successful in microprocessors?

DRAMs Microprocessors EPROMs

Patent Protection Law V V

Trade Secrets V V V

Copyrights V

Trademarks V

Chip Protection Act V

Exhibit 6 Comparative Intellectual Property Considerations

Team Up Block

Run

Block

Team Up

Successful

Protecting

Strategies

Afuah (2003)

Intel+IBM

Design Wins

Intel sole-source

Wintel PC + Intel inside

Fight against AMD Intel+HP

Strong

Proprietary

Invention of the microprocessor

Emergence of Intel’s architecture as the dominant design for PCs

Discontinuity from RISC technology

Source: lecture slide



Intel in

Internet Market



The PC was at the center of computing during

the 1990s, but if you look at the next decade, it is

the Internet. The PC is still very important in the

Internet era, but there are lots of other things that

are important as well. People are going to access

the Net off their cell phones, and more cell

phones are sold today than PCs. Networking is

becoming more important, whether it’s in the

home, small business, or enterprise. If you want

to be involved in this new era, you have to look

for the new growth opportunities. That’s what we

are trying to do.

---Craig Barrett (1999)



1998 Craig Barrett was named CEO in March, succeeding Grove.

Becoming the builder of the Internet 3

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Craig Barrett

1927-1990

• PhD in material science; Former Professor at Stanford University.

• Joined Intel in 1974; COO in 1993; President in 1997; CEO in 1998

Aggressive Strategy Moves

▪ To enter new business: spent roughly $12 billion on

acquisitions and internal ventures in new markets such as

networks, wireless, communications, and online services

from 1998 to 2000.

▪ To shift to the new position: changed the corporate

mission statement to “being the preeminent building-block

supplier to the worldwide Internet economy” in 1999.

2001 Huge lost in 2001

Lost in Net Income

-13% (1998)

-65% (2001)

? (2002)

Evaluate Intel’s shift in strategy under CEO Craig Barrett.



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Why?


Intel invested a large amount in such a short time, but not

matured enough for the new competition and new business.

However, it could have been worse if Intel did do so.

1. There was a recession and decreasing on world PC

microprocessor revenue (Exhibit 8).

2. The competition in new business was even stronger than

its core business (see Exhibit 10b).

3. Internally, Intel had a series of implementation errors

(p.15).

2001-2002 Intel shut down businesses ranging from Web hosting, network switching,

and network appliances to Intel consumer products. Barrett introduced a

back-to-basics program to achieve operational excellence.

新官上任三把火



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Microprocessor

Value-based lower prices

for higher volumes Mainstream High performance

32-bit Celeron

(1999)

32-bit Pentium

(1997)

32-bit Xeon

(1998)

64-bit Itanium

(2001)

Low-end consumer PC Mass PC

Low- and mid-range

corporate server and

workstation

Corporate server

32-bit Celeron (1999)

32-bit Pentium (1997)

32-bit Xeon (1998)

64-bit Itanium (2001)

2002 Intel successfully pulled a generation ahead of AMD.

Intel had roughly 89% market segment share in mobile CPUs.

Do you think that Intel should maintain these strategy moves

in 2003? Yes, because the strategic position was right to the

future market and demand. The lost was temporary due to ill-management and unfocused diversification strategy.

Client part Server/data farm Network connectivity

Convergence of computing and communications is the major

growth driver of the Internet, and we are in both.” – Craig Barrett



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Conclusions 5

Maidique and Patch (1978) Technology Strategies

DRAMs Microprocessors Internet

First-to-Market or

Leader Strategy Intel Lead Intel Lead

Protecting PC and

server platforms

Second-to-Market

or Fast Follower

Strategy Beat by Japanese Block

Establishing new

standards in

network and

communications

(WiFi)

Late-to-Market or

Cost Minimization

Strategy

No complimentary

assets Run and block ?

Market

Segmentation or

Specialist Strategy

Lost the market

Intel got the lead for

segmentation

(brand value)

?



Q & A