In early 1991 AMD announced that it would introduce a 386 generation microprocessor to compete with Intel’s own 386 microprocessor. How should Intel respond to AMD’s entry ?
The situation at purpose takes place in 1991. By this time, Intel is the leader in manufacturing microprocessors, but had been required by IBM in the early 1980s to second source its chips and share the technology to a second firm: AMD. This « IBM organized » competition in the microprocessors’ market, with the leader Intel and the follower AMD that manufactured and marketed Intel’s products between 1982 and 1991, changed when Intel decided in 1985 not to share with AMD the 80386 microprocessor’s design. It took AMD several years until 1991 to announce that it would become a direct and independent competitor, producing its own 386 chips, while Intel had already launched the 486 design since 1989. With respect to the patents required to manufacture x86-design microprocessors, the microprocessors’ market was – and still is for more recent designs – a market with high barriers to entry. Founded in 1968, Intel invented the first microprocessor in 1971. Until 1985, when it decided to stop producing DRAMs (Dynamic Random Access Memories), Intel was a « memory company ». In the memory market, where barriers to entry are lower than those for microprocessors with regard to semiconductors manufacturers, Intel faced a hard competition that progressively eroded its market share near to zero in 1984. Intel’s invention of the microprocessor reasonably triggered, or at least boosted, the expansion of the personal computers’ market from 1981 and after. In 1982, microprocessors are the primary source of revenues for Intel that would invest more and more in that market to become a «chip company» and the uncontested leader since then. For Gordon Moore or Andrew Grove, co-founders of Intel, innovation had always been considered as the spearhead of the company. The former used to compare Intel’s strategy to a skittles’ game, targeting and conquering one market segment to further move and conquer neighboring ones, while the latter used to aspire a factor 10 of progress for every new innovation... It is then probably not surprising that Intel had always been driven through a strategy based on horizontal growth, relying on its core business through innovation, and globalization. With its entry in the market in 1991, no doubt that AMD was a serious threat to Intel’s domination, especially due to the technology agreements that had been signed with Intel during the earlier decade. But was AMD in the position to surpass Intel? Had ever Intel been in the position to prevent AMD from entering the market? Or at least, to prevent a technology and/or price war with AMD? What should Intel do and why to remain the uncontested leader we know today?
In our discussion, we aim to find out what options could have been taken by Intel to respond to AMD’s announcement, as much as to explain why such options could have made sense and reasonably been undertaken by Intel to secure and maximize its future profits. We will first try to depict the situation, analyze the market environment and characteristics, particularly its main stakeholders and their roles or influences, then understand the supply and demand equilibrium that would result of Intel’s pricing strategy against AMD, as well as assess the tradeoffs at stake for society, as a result of the competitors’ choices.
Stakeholders in consideration
The attractiveness of the chip market since the 80’s is clear and very high according to Porter’s 5 Competitive Forces matrix: only a few stakeholders seem to have an effective direct role on the industry competitors. Let’s try to understand who the main direct but also non-direct stakeholders are.
Chips manufacturers are very limited in the 1990’s. AMD is considered as a partner rather than a competitor thanks to its technology sharing agreement. Other actors like NEC...
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