Case Study:Intel Beyond 2003


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Intel Beyond 2003: Looking for Its Third Act

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Case Study:Intel Beyond 2003

  1. 1. Intel Beyond 2003: Looking for Its Third Act Case Study Analysis by : Djadja Achmad Sardjana
  2. 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. 3. Case Facts: Introduction (Cont.)
  4. 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. 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. 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. 7. Case Facts: Introduction (Cont.)
  8. 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. 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. 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. 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.”
  13. 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.
  15. 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.
  17. 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. 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. 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”