Intel Beyond 2003: Looking for Its Third Act

1. Intel Beyond 2003: Looking for Its Third Act
Case Study Analysis by :
Djadja Achmad Sardjana

2. Case Facts: Introduction
There had been a second act for Intel prominence under the
leadership of Robert Noyce, co-inventor of the integrated circuit,
and Gordon B. Moore, the “Moore’s Law”.
Andrew S. Grove, who succeeded Gordon Moore as CEO in
1987 Intel dominated the market segment for PC
microprocessors (90 %).
By 1998, however, sales of PCs and the microprocessors that
powered them began to slow:
In 2000 revenue grew by only 15 percent and dropped by 21
percent in 2001.
Intel’s operations, apart from its core PC microprocessor activities,
were losing money (Exhibit 1).

3. Case Facts: Introduction (Cont.)

4. Case Facts: Introduction (Cont.)
As of 1997, Craig Barrett, Intel’s COO at the time
concerned that growth depending entirely on
microprocessors for the PC market segment.
As Barrett succeeded Andy Grove as Intel’s CEO in
1998:
Began to search for growth in areas beyond its core PC
microprocessor market segment.
Redefining itself as an Internet building block company.
He also initiated executive development programs to augment
Intel’s leadership capability for new business development.

5. Case Facts: Introduction (Cont.)
By 2002 Intel’s corporate strategy had broadened to encompass
three strategic business areas:
Intel Architecture Group (JAG), which created building blocks for
desktop, mobile, and server businesses;
Intel Communications Group (ICG), which sold building blocks to the
telecommunications industry; and
Wireless Computing and Communications Group (WCCG), which
sold building blocks to the wireless communications industry.
Parallel to these business groups remained powerful functional
organizations: Intel Capital, Technology and Manufacturing Group
(TMG), Sales and Marketing Group (SMG), Finance, and Human
Resources, among others.

6. Case Facts: Introduction (Cont.)
By late 2002, the company had refocused, and was
directing toward its new concept of the convergence
of communications and computing at the chip level.
Intel’s new mission was now captured in six key
words:
Silicon Leadership;
Architectural Innovation;
and Worldwide Opportunity.
Intel also decided to maintain its traditionally high
levels of capital expenditure and R&D investments in
order to be in a strong strategic position when the
recession ended (Exhibit-2).

7. Case Facts: Introduction (Cont.)

8. Strategic Questions
Looking beyond 2002, Intel’s top management faced
some big strategic questions:
Would the envisaged convergence materialize and give Intel
the opportunity to extend the company’s position and
competencies into lucrative new markets?
How likely was it for Intel to get a return on the enormous
investments in manufacturing and technology it was malcing
in the face of major market uncertainties?
Was Intel’s executive leadership bench strong and deep
enough to address the various challenges associated with
the widened corporate strategic scope?
Was Intel’s organization optimally structured to implement the
new corporate strategy?
Would Intel find a successful third act?

9. Case Facts:
LET CHAOS REIGN, THEN REIN IN CHAOS
On Internet Euphoria
During 1998—2001 Intel invested heavily in industries
outside its traditional areas of expertise, decentralized
the company and restructured business groups three
times in three years.
In 2002, Intel dropped most of its Internet services
operations and dissolved IOS.
Barrett said, “I do regret our forays into services
businesses like streaming media and Intel Online.
These were our contributions to the dotcom euphoria”

10. Case Facts:
LET CHAOS REIGN, THEN REIN IN CHAOS
Importance of execution
Otellini (Intel COO) quote :
We are incredibly strong in computing. We will lever that strength
to become a first mover in communications. In five years, if
communications and computing are separate activities at Intel,
we’ve failed. Intel understands software tools and architectures
that can be reproduced by the hundreds of millions. We
understand:
Computer Architectures
Microprocessors
Core Logic
Memory
Communications architectures and silicon
All of these things are central in a range of devices from servers
to phones.

11. Case Facts:
LET CHAOS REIGN, THEN REIN IN CHAOS
Intel’s New Focus
By 2002, Intel had gained new focus as the company would be
supported by
R&D;
capital expenditure;
its branding program;
and increasingly, its venture capital investments through Intel Capital.
Barrett said Intel’s organizational structure was now straightforward:
“We have five business units. Three are microprocessor-oriented: these
are Mobile, Desktop, and Server-Enterprise. In addition Intel is
organized around handheld devices and network and communication
infrastructure” (Exhibit 4).
As Barrett, quotes:
“Our mission statement hasn’t changed, but the definition of ‘building
blocks’ of the Internet has become clearer.”

12. Case Facts:
LET CHAOS REIGN, THEN REIN IN CHAOS

13. BEYOND 2002: INTEL’S FUNCTIONAL
ORGANIZATIONS
Technology and Manufacturing Group (TMG)
Intel relied on its manufacturing arm, the Technology and
Manufacturing Group (TMG) Intel’s Chairman Andy Grove,
“Capacity is strategy.”
As capitalization increase on 300mm manufacturing, according
to Gelsinger, three sustainable business models were emerging
in semiconductors:
Leaders: e.g., Intel, AMD, IBM, Texas Instruments (TI), and
Motorola. Companies that can afford to maintain leadership in logic
and the integration of process and logic products.
Foundries: e.g.. TSMC and UMC. Companies that amortize
investment over many products for different companies.
Low Cost Suppliers: e.g., Samsung. Micron, Inflneon. Companies
that become high volume suppliers of slightly differentiated chips for
specific markets, such as mobile.

14. BEYOND 2002: INTEL’S FUNCTIONAL
ORGANIZATIONS (Cont.)

15. BEYOND 2002: INTEL’S FUNCTIONAL
ORGANIZATIONS
Intel Sales and Marketing Group (SMG)
Despite the success of its global brand, the company had to work to
establish its credentials in new marketplaces (Exhibit 11).
Splinter pointed out that Intel’s thrust into the telecommunications
industry required a different kind of “sell” than in the computer industry as
:
The network design win is more complicated and takes longer to achieve
revenue than the computer design win.
We sell to TEMs (Telecommunications Equipment Manufacturers), which in
turn must sell to the telco providers.
Some products never get into production or at least not high volume
production in the current environment.
Because of the competitive nature of the telecommunications industry, the
telecom part of the [Intel’s] sales force works under very strict cost tareets.
Splinter also observed that the microprocessor development cycle was
quite long (up to four years) which makes it difficult to incorporate short-
term marketing input.

16. BEYOND 2002: INTEL’S FUNCTIONAL
ORGANIZATIONS (Cont.)

17. BEYOND 2002: INTEL’S FUNCTIONAL
ORGANIZATIONS
Intel Capital Group
The investment arm of the company “make and manage financially
attractive investments in support of Intel’s strategic objectives.”
Intel Capital made different types of investments:
Building ecosystems:
A number of Intel Capital investments were made in technologies and
supported the final products in which Intel’s products were used.
Developing international business:
Intel Capital invested in companies that helped accelerate the adoption of
technology in emerging markets.
Working with the supply chain:
Investments were made in companies that sold products and technologies
Intel needed to help market or produce its products.
Foster new silicon technologies:
Access to new companies and technologies provided a competitive advantage
to Intel’s Technology and Manufacturing Group.
Scouring new technologies, being the “eyes and ears” for the Corporation:
Intel Capital made small investments in emerging technologies that might
prove useful in the future, but were not necessarily related to a current Intel
business.

18. CONCLUSION
As the success of the company’s “second act,” :
Dominating the market segment for microprocessors.
Owned a cash-generating machine a large bank account and a
valuable global brand
the company would need these assets as it faced the
simultaneous challenges of competitive pressure in its core and
new market segments;
A prolonged global technology recession, and the risk that its huge
investments in manufacturing would, not pay off as handsomely or
strategically as it hoped.
By late 2002 Intel had moved from letting chaos reign for a few
years hi order to explore new growth opportunities, to reining in
chaos to focus on exploiting the opportunities it had found in the
convergence of communications and computing at the building
block level.

19. CONCLUSION (Cont.)
Yet, it was not proven that this convergence would be a
profitable to Intel as the company hoped.
Top management needed to address several key
strategic questions:
Is Communication worth winning?
What forms of communications?
Does Intel have a clear strategic vision?
How aggressively should the company pursue these market
segments?
Many interested outsiders as well as insiders were trying to
determine what would have to happen for the company to
replicate its past success and whether Intel would be able to
find a comparable “third act”