2. INTRODUCTION Founded in 1968 Key persons- Robert Noyee, Gordon Moore & Andy Grove 1969- Introduced 3101(64 bit bipolar SRAM) 1973- Introduced 8080 (8 bit)microprocessor
7. Exit from DRAMS Reduced market shares (1974-82.9% to 1980-5.8%) 1/3 of Intel R&D generated only 5% of total revenue Shift of middle level management towards microprocessor 1986 –Exit from DRAM business
8. Why has Intel not been able to sustain its competitive advantage in in DRAMs?
9. Intel started well in DRAMs business but couldn’t sustain its competitive advantage. Intel’s strategy of ‘Leadership at Product development’ was severely tested by the shrinkage in product life cycle of DRAMs. Japanese firms viz. Fujitsu and Hitachi were quick to launch higher memory capacity DRAMs and they beat Intel on several occasions. Intel also struggled with the development and ramp up of its production facilities in mid 1980s. Japanese were pursuing the strategy of investing heavily in manufacturing in addition to working closely with the production equipment manufacturers. All these factors combined made Intel lose its competitive edge over Japanese rivals
11. The big idea Technology Innovation Big idea, new technology/business area: (semiconductors, IC chips) Marketing Innovation Intel Inside Company is more than its products “Platform” Strategic Choices Sustainable Competitive Advantage 9
12. Intel and Microprocessor 1970 CPU chipset order for Busicomcalculator Technology development “paid by customer” Bought rights for “non-calculator” use Hard to see future even for Gordon Moore Exit: By 1984 mid-level managers shifting technology Hard to leave business that began company Especially for long time senior managers Mid-level managers closer to daily business realities 10
16. 386 Changes Everything (1985) Intel 386 Investments $200 million for design $800 million for production facilities Decides not to license, except IBM IBM choice allows Compaq entry and Win IBM delays selling, to create more closed architecture Compaq enters Desktop market with Intel 386 14
17. The RISC Threat Regarded as having speed & cost advantage over CISC Used UNIX operating system Improved price/performance ratio
18. The Dilemma… CISC X86 line Compatible with all the PC’s software Intel Policy to develop products compatible only with X86 line Encouraged by Compaq RISC i860 line Very fast but compatible with nothing Intel engineers & technical mangers favored RISC Encouraged by Microsoft & IBM
19. Cont.. Grove refocused efforts on 486 & its successors Intel minimized the difference between there & best RISC architecture RISC non compatibility with other software's Customer will not switch until there is 2X difference in performance
20. Intel & Customers Intel followed 3 decisions & practices Aggressive marketing – “Intel Inside” Involvement in subsystem & full system design Supplier relationship
21. “INTEL INSIDE”– Marketing Innovation Intel is “superior to other chips” Market maturity, education higher (2nd, 3rd PC) Buyer Intel preference moved from 60% to 80% AMD: “it shouldn’t matter which chip” but it DOES IBM, Compaq resisted, but then gave in Couldn’t fight Intel Better to have branded “Intel Inside” “premium” chip 6% rebate for use in partner marketing Fight competitors with technology, marketing, lawyers and money power (all pointed to same goal) 1997 spent $750 million More valuable than patent 19
23. What are Sources of competitive advantage in Microprocessor industry?
24. New product innovation Ability to ramp up process and production facilities Marketing Microprocessor industry is a highly technical field with new chips commanding higher demand and premium. Utilizing economies of scale to gain cost advantage. Ability to introduce new chips mean an increase in the profit margins. The other face involves aggressive marketing. As Intel showed with project ‘CRUSH’ and project ‘CHECKMATE’ and later with the “Intel Inside” campaign, aggressive marketing and building brand recognition played a major role in gaining competitive edge.
25. What strategy did Intel use to gain and sustain market leadership in microprocessors for over two decades?
26. Intel pursued the strategy of “Leadership at Product Development coupled with Aggressive Marketing”. Intel’s microprocessor business faced the dual threats of Clones and RISC architecture. Intel countered these threats by always being on forefront of the product innovation. Intel kept on improving its products very fast and launched new better products quickly which helped it commanded premium on its latest offerings. Intel also launched massive campaigns like project CHECKMATE and “Intel Inside” campaign which proved to be a critical factor in their success.
28. The immediate impact of growth in internet was the enhanced utility of personal computer as a tool in many areas. This in turn led to an increased demand for microprocessors which benefited Intel’s growth. Along with sharing information internet had other usage like entertainment and information sharing which added anew segment of home users to the PC customers list which further catapulted the demand for microprocessors. The threat however comes from the usage of internet wherein the data and applications are stored in a remote location. Computation requirements can also be met from remote servers. Thus the processing needs of a user are thus reduced drastically and instead data communication takes precedence. The mushrooming of these classes of applications if continued would thus reduce the need of higher end processors for the PC owners, which has the potential of altering Intel’s growth trajectory as it derives its margins from launch of newer faster processors. Intel is hedging this risk by investing over half a billion in various small companies and start-ups which are involved in internet technologies. Intel’s strategy is to simultaneously develop high end expensive chips and low cost chips to cater to two different segments of customers i.e. Internet application providers and PC users.
29. DRAM vs Microprocessors Disadvantages with DRAM What Intel did right with Microprocessors? Easier to Imitate Intel Branded the Microprocessor Difficult to patent Kept the No. of Competitors down There is no microcode that can be protected Changed Industry structure and dynamics There was little opportunity for a proprietary Standard Successful at counteracting threats to sustainability
30. Creating and sustaining competitive advantage in microprocessors Sustaining Competitive Advantage Threats to sustaining competitive advantage Imitation Substitution Threats Saturation Buyer power Supplier Power Complementors Power
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32. Intel Inside Campaign: Created Brand Awareness. Program also included software vendors with the line “ Runs even better on a Intel Microprocessor”Higher Capacity and Cheaper Microprocessor With increase in market size, there was a shift towards to Cyrix and AMD
