Intel Pentium Case Study

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Memorandum
To: Andrew Grove, President & CEO, Intel Inc.
From: FT56212/0
Subject: The Intel Pentium Chip Controversy

Intel, the most popular micro-processing chip manufacturer in the early nineties had introduced the Pentium processor to improve speed of computer operations. The Pentium was the result of constant innovation and expensive research and development and yet was accused as being defective in solving particular mathematical calculations.
The primary question facing Intel was whether or not to recall the defective Pentium chip processors. I would recommend that Intel recall the chips from customers, both from an ethical and a strategic perspective (XYZ Goup Work, 2012).

Issues
Ethics: Intel’s engineers were aware that there was a defect in the product in the 2nd quarter of 1993, before the product was launched. The company brushed it off as insignificant, and claimed this would only affect users involved in continuous mathematical computations, and not the average user of the PC. (Narayanan, 2002)
Strategy & Marketing: Intel failed to address the situation as soon as reports about the defective started to become public, gradually leading to clients like IBM & Sequent stopping their shipping of Pentium installed PC’s. (Narayanan, 2002)
The company only offered to replace chips for those customers who were deemed to be directly affected by the defect as decided by Intel Engineers, despite getting calls from thousands of Pentium PC users. (Narayanan, 2002)
Stock value: Intel’s stock fluctuated significantly after the news of the defective chip became public and its market capital dropped by $1.34 billion [(http://finance.yahoo.com) (Exhibit A)]
Operations: Production of defective chips would have to continue for another quarter in some of Intel’s factories, despite public knowledge of defectiveness. (Narayanan, 2002)
Finance & Accounting: The Company would have to decide whether to recognize or defer recognition revenue

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