This case traces the strategic decisions of Intel Corporation which defined its evolution from being a start-up developer of semiconductor memory chips in 1968 to being the industry leader of microprocessors in 1997 when it ranked amongst the top five American companies and had stock market valuation of USD 113 billion.
Intel in DRAM business:
The strategies employed by Intel for DRAM business focussed on: 1.Pushing the envelope of product design
2.Being first to market with newest devices
3.Premium pricing and skim marketing. No emphasis on mass production
Initially, Intel had a successful run in this business as they: 1.Had no immediate competition
2.The demand for memory chips was insatiated. All products had successful launch and carried premium pricing. 3.The time lag between product launch was spaced conveniently to allow for new product development.
However, the entry of Japanese companies posed a threat to the market share of Intel. 1.Product Life Cycle shortened as more companies had product launches which propelled product development at a higher frequency 2.Larger market share enjoyed by Japs translated into higher cumulative volumes, which gave them a manufacturing cost advantage. 3.Japs invested more on plant & equipment in comparison to Intel Corp. 4.Japs had technological advantage in photolithography
5.Japs were quicker to introduce new products of higher configuration
Intel and the Microprocessor and the Battle to Set a PC Standard:
In 1970, Intel got into the microprocessor business with Busicom, a Jap firm, as collaborators. During late 70s, Apple collaborated with Motorola for microprocessor purchases against Intel who had similar products to serve the growing PC market. IBM realized the potential of the PC market and decided to adopt open architecture to grow fast. Intel realized the advantage of partnering with IBM and initiated projects like “Crush” and “Checkmate” to counter Motorola to ensure microprocessor supremacy. With the success of securing IBM contract along with more wins, Intel was on set on track to ensure industry dominance.
Exit from DRAMs
Intel TMT had an emotional connect with the DRAMs business. Successful development of 1M DRAM was traded off for microprocessor development more on the behest of the middle line managers who developed the microprocessor technology over time with resources allocated for DRAM research. This was in line with Intel’s entrepreneurial culture which encouraged strategic planning through all functions. By 1986, Intel’s TMT officially approved middle managers’ pursuit to exit from the DRAM business and focus on the microprocessor.
Intel as a Microprocessor company
Intel began supplying microprocessor to IBM. To meet the demand, Intel licensed to as many as 12 other companies to produce 8086 chips, which left Intel with just 30% of the total revenues and profits for that product. Gradually, they reduced the number of licensee to only IBM. Thus they retained the “profits pool” within their value chain. Meanwhile, IBM, who was Intel’s star customer, decided to produce own proprietary components. This was an inflection point for Intel. It partnered with Compaq and Microsoft, to break the hegemony of IBM. Though Microsoft products did not harness the full efficiency of Intel’s 386 chips, the Intel-Compaq-Microsoft partnership complemented each other and transformed the computer industry in late 1980s. The computer industry transformed from a ‘vertical’ alignment, based on exclusive use of proprietary technologies, to a ‘horizontal’ alignment with open standards. A ‘vertical’ company had to produce computer hardware, platform and software on its own while ‘horizontal’ companies produced just one component which complemented products of other company.
Sustaining dominance in the Microprocessor Industry
As Intel established itself in the microprocessor industry, it spread...