Intel Pentium Chip Controversy

Cyrix , Intel , Rate of return

Case Analysis: The Intel Pentium Chip Controversy (A)

Immediate Issue: As Andrew Grove, during my meeting of December 17,1994 with my internal team, Should I approve replacing the defective Intel chips of all concerned users with no-question asked? Also, should we also pay for the labor and other incidental costs? How should we integrate our decision into our financial books?

Basic Issues:

• Negative Publicity: Since Oct 30th, we have encountered a self-propelled negative publicity campaign against Pentium brand and it doesn’t seem to fade away if we don’t do anything.

• Business Ethics: We knew this problem since October, but tried to hide it with the hope that it will fade away. We will be scrutinized from an ethical perspective.

• Cost of my decision: How much would it cost to replace the defective chips (fully or partially)? How much would it cost if I do nothing?

• Risks and Liabilities: Some of our chips are being used by large engineering firms, financial industry, research firms and educational institutes. Is there a chance that we may be sued for damage to our users? What if our chips are used in a space program?

• Role of the Internet: The pace at which it went from a simple technical report by Dr. Nicely to a full fledge all media campaign against Pentium within a short period of time emphasizes to me that I can’t underestimate the power of internet.

• Major players in the market: Nothing hurt us more than IBM announcement to drop Pentium. Who else in the market has the same power? How should we deal with such players

• Pentium brand: We have invested hugely on this brand. Is it an asset or liability for us?

• Corporate Image: Intel is the Mercedes Benz of the processor industry. This is one our most precious assets.

• Market and Shareholder’s reaction / Stock Price: How would market react to our decision? Market needs certainty and a response from us; otherwise it may continue to drop.

• Competition:...
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