Case Study: Intel Corporation 1968-2003

Department of Business Administration College of Management HARVARD BUSINESS SCHOOL │ 9-703-427 │ REV: NOVEMBER 22, 2005 Case Study 1 Intel Corporation: 1968-2003 How did Intel transform from the CPU supplier to the main supplier of the building blocks for the Internet economy? Presented by Group 5 Chiang, Yi Lin, Jie-Heng Wu, Hsuan-Yi Course Lecturer: Prof. Chung-Jen Chen12 October 2011 Fall 2011 MBA Management of Technology 1

Department of Business Administration College of Management Outline 0 About Intel Corporation 1 Initial dominance and decline in DRAMs 2 Success in microprocessors 3 Becoming the builder of the Internet 4 Conclusions 5 Q&A12 October 2011 Fall 2011 MBA Management of Technology 2

Department of Business Administration College of Management 0 About Intel Corporation Spring 1968 Robert Noyce and Gordon Moore left Fairchild Semiconductor to start Intel with the venture capitalist Arthur Rock. Later Andy Grove joined with a group of team from Fairchild. Robert Noyce Gordon Moore Arthur Rock Andy Grove 1927-1990 1929- 1926- 1936- 1970s 1980s Late-1990s DRAM Microprocessor Internet12 October 2011 Fall 2011 MBA Management of Technology 3

Department of Business Administration College of Management Intel in DRAM Market12 October 2011 Fall 2011 MBA Management of Technology 4

Department of Business Administration College of Management 林玠恒 D00741002 1 Initial dominance and decline in DRAMs 1970 Intel produced the world’s first 1-kilobit DRAM, 1103 (Goldilocks strategy).Intel firstintroduced 1KDRAM (Lead)TI and Mostekhad better designand low cost. Huge Lost in -72% -99% -87.5%Intel lost a fullgeneration to Net Income (1981) (1985) (1986)Japanese (16Kvs. 64K)Intel faced strong Employee -16% -15%price competition laid off (1985) (1986)from JapaneseIntel introduced1-megabit DRAMbut has lost themarket Source: Intel Case Exhibit 4 Volume Trends in DRAMs 1985 Intel exited DRAM market. 12 October 2011 Fall 2011 MBA Management of Technology 5

Department of Business Administration College of Management 林玠恒 D00741002 As first mover, why failed in the end? 1. From radical innovation to incremental innovation… 2. Appropriability and Complementary…Models of Innovation Who profits from innovations? Henderson and Clark (1990) Teece (1986) 12 October 2011 Fall 2011 MBA Management of Technology 6

Department of Business Administration College of Management 林玠恒 D00741002 1 Initial dominance and decline in DRAMs How would you explain Intel’s initial dominance and subsequent decline in DRAMs?Key factors to  The industry was driven by necessity to cross-licensechip price: among established players. Through the Credibility of• Shape of learning curve Noyce, Intel became part of that sharing network.• Capacity  Overestimated the entry barrier of DRAM market. expansion  Reacted too late for Moore’s Law in DRAM technology (the costs of computing fall in half every 18 months).  Lost the advantage of dominant design due to its less complementary assets  Gave up the business too late. “We understood that to gain a 10% market share in DRAMs we would have to make a $600 million investment in a new fab. We were doomed to fail because there was industry overcapacity.” --- Grove 12 October 2011 Fall 2011 MBA Management of Technology 7

Department of Business Administration College of Management “DRAM gave us fame, but EPROM gave us riches.” “We had microprocessors.” ---Andy Grove12 October 2011 Fall 2011 MBA Management of Technology 8

Department of Business Administration College of Management Intel in Microprocessors12 October 2011 Fall 2011 MBA Management of Technology 9

Department of Business Administration College of Management 江懿 B97203032 2 Success in microprocessors 1971: Intel 4004 1972: Intel 8008 1974: Intel 808 1978: Intel 8086 y 8088 1980 “Project Crush” + Design wins (Intel + IBM) - IBM open standard - Success in format war - Being a free rider by design wins 1983 License control - Restrict licenses to four company - More design wins and more revenue - Set up the industry standard Platform building: x86 1982: Intel 80286 1985: Intel 80386 1989: Intel 80486 Second-source strategy Sole-source strategy: becoming proprietary12 October 2011 Fall 2011 MBA Management of Technology 10

Department of Business Administration College of Management 江懿 B97203032 2 Success in microprocessors Intel vs. AMD “AMD’s products were big, ugly, and late.” (mid-1980) “By the Pentium generation, AMD couldn’t get any trade secrets and couldn’t copy our microcode, so our products developed quite differently.” (1995) Tom Dunlap, senior vice president and general 1993: Intel Pentium 1995: Intel Pentium Pro 1997: Intel Pentium II 1999: Intel Pentium III counsel 1991: AMD AMx86 1996: AMD K5 1996: AMD K6 y AMD K6-2 1999: AMD Athlon K7 (Classic y Thunderbird)12 October 2011 Fall 2011 MBA Management of Technology 11

Department of Business Administration College of Management 江懿 B97203032 2 Success in microprocessors 1990 Success marketing: the “Red X” campaign specifically against AMD, and the “Intel inside” end-user branding and advertising program to OEMs. Dennis Carter, head of corporate marketing 1994 Pentium bug: good response to product flaw and effective end user promotion 1990-1995 Architectural competition: RISC vs. CISC (Intel)12 October 2011 Fall 2011 MBA Management of Technology 12

Department of Business Administration College of Management 江懿 B97203032 2 Success in microprocessors Why has Intel been more successful in microprocessors? Strong Exhibit 6 Comparative Intellectual Property Considerations Proprietary DRAMs Microprocessors EPROMs Patent Protection Law V V Trade Secrets V V V Copyrights V Trademarks V Chip Protection Act V Successful Invention of the Emergence of Intel’s architecture Discontinuity from microprocessor as the dominant design for PCs RISC technology Protecting Strategies Afuah (2003) Team Up Block Intel sole-source Team UpSource: lecture slide Intel+IBM Design Wins Run Fight against AMD Intel+HP Block Wintel PC + Intel inside 12 October 2011 Fall 2011 MBA Management of Technology 13

Department of Business Administration College of Management Intel in Internet Market12 October 2011 Fall 2011 MBA Management of Technology 14

Department of Business Administration College of Management The PC was at the center of computing during the 1990s, but if you look at the next decade, it is the Internet. The PC is still very important in the Internet era, but there are lots of other things that are important as well. People are going to access the Net off their cell phones, and more cell phones are sold today than PCs. Networking is becoming more important, whether it’s in the home, small business, or enterprise. If you want to be involved in this new era, you have to look for the new growth opportunities. That’s what we are trying to do. ---Craig Barrett (1999)12 October 2011 Fall 2011 MBA Management of Technology 15

Department of Business Administration College of Management 吳宣儀 D00741004 3 Becoming the builder of the Internet Evaluate Intel’s shift in strategy under CEO Craig Barrett. 1998 Craig Barrett was named CEO in March, succeeding Grove. • PhD in material science; Former Professor at Stanford University. • Joined Intel in 1974; COO in 1993; President in 1997; CEO in 1998 Aggressive Strategy Moves ▪ To enter new business: spent roughly $12 billion on acquisitions and internal ventures in new markets such as networks, wireless, communications, and online servicesCraig Barrett from 1998 to 2000. 1927-1990 ▪ To shift to the new position: changed the corporate mission statement to “being the preeminent building-block supplier to the worldwide Internet economy” in 1999. 2001 Huge lost in 2001 Lost in -13% -65% ? Net Income (1998) (2001) (2002)12 October 2011 Fall 2011 MBA Management of Technology 16

Department of Business Administration College of Management 吳宣儀 D00741004 3 Becoming the builder of the Internet Why? 新官上任三把火 Intel invested a large amount in such a short time, but not matured enough for the new competition and new business. However, it could have been worse if Intel did do so. 1. There was a recession and decreasing on world PC microprocessor revenue (Exhibit 8). 2. The competition in new business was even stronger than its core business (see Exhibit 10b). 3. Internally, Intel had a series of implementation errors (p.15). 2001-2002 Intel shut down businesses ranging from Web hosting, network switching, and network appliances to Intel consumer products. Barrett introduced a back-to-basics program to achieve operational excellence.12 October 2011 Fall 2011 MBA Management of Technology 17

Department of Business Administration College of Management 吳宣儀 D00741004 3 Becoming the builder of the Internet Do you think that Intel should maintain these strategy moves in 2003? Yes, because the strategic position was right to the future market and demand. The lost was temporary due to ill-management and unfocused diversification strategy.32-bit Celeron (1999) Microprocessor Value-based lower prices for higher volumes Mainstream High performance 32-bit Celeron 32-bit Pentium 32-bit Xeon 64-bit Itanium32-bit Pentium (1997) (1999) (1997) (1998) (2001) Low- and mid-range Low-end consumer PC Mass PC corporate server and Corporate server workstation 32-bit Xeon (1998) Client part Network connectivity Server/data farm Convergence of computing and communications is the major 64-bit Itanium (2001) growth driver of the Internet, and we are in both.” – Craig Barrett 2002 Intel successfully pulled a generation ahead of AMD. Intel had roughly 89% market segment share in mobile CPUs. 12 October 2011 Fall 2011 MBA Management of Technology 18

Department of Business Administration College of Management 吳宣儀 D00741004 5 ConclusionsTechnology Strategies Maidique and Patch (1978) DRAMs Microprocessors Internet First-to-Market or Protecting PC and Intel Lead Intel Lead Leader Strategy server platforms Second-to-Market Establishing new or Fast Follower standards in Strategy Beat by Japanese Block network and communications (WiFi) Late-to-Market or No complimentary Cost Minimization Run and block ? assets Strategy Market Intel got the lead for Segmentation or Lost the market segmentation ? Specialist Strategy (brand value)12 October 2011 Fall 2011 MBA Management of Technology 19

Department of Business Administration College of Management Q&A12 October 2011 Fall 2011 MBA Management of Technology 20

Case Study: Intel Corporation 1968-2003

by Jen Wu on Oct 12, 2011

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Case Study: Intel Corporation 1968-2003 — Presentation Transcript