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Group No. 2
Kulvinder Pathania (27)
Shubhangi Chouhan (61)
Prateek Chhabra (16)
Amit Rai (10)
Ashish Sonawane (29)
Gaurav Chouhan (57)
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
INTEL IN DRAM BUSINESS
1971- introduced 1103 DRAM (1- Kilobit) Initial Strategy- Push the product design & be
first to market with newest devices After 1979 loss in market shares of DRAM
due to Japanese competitors Introduced new products more rapidly Invested heavily in manufacturing (40% of sales
revenue) Technological advantage (photolithography) More production capacity & improved yields
(70%)
4
INTEL DRAM STRATEGY
Strategy: Push product design, be first to marketDesign & process technology leader Investment in plant & equipmentCosts drop over production volume (scale) growthPrices drop with competitive capacityDRAM generally not protectable with patents Japanese started introducing products more rapidly
Invested more heavily in production (44% vs. 22%)1986 Intel decided to exit DRAM business
1/3 of R&D, but only 5% of Revs, was small player in market Japanese beat Intel on process technology (of commodity)
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
WHY HAS INTEL NOT BEEN ABLE TO SUSTAIN ITS COMPETITIVE ADVANTAGE IN IN DRAMS?
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
INTEL IN MICROPROCESSOR
9
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
10
INTEL AND MICROPROCESSOR
1970 CPU chipset order for Busicom calculatorTechnology 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
11
INTEL MICROPROCESSOR PROGRESSION
Chip(bits)
Transistors
Year Introduced
Initial Price
Licensees Intel-Chip Profit Share
8086(8-bit)
29,000
1978 $360 12 30%
80286(16-bit)
134,000
1982 $360 4 75%
80386(32-bit)
275,000
1985 $299 1 (IBM) 100%-IBM
80486(64-bit)
1,200,000
1989 $950 ? ?
THE BATTLE TO SET STANDARD
Intel & Motorola competing for desktop computer market
Apple computer choose Motorola & IBM choose Intel
Aggressive marketing • 1980- Intel launched “Project CRUSH” • 1983- Intel launched “Project CHECKMATE”
13
APPLE/MOTOROLA VS. IBM/INTEL
First to Market Closed architecture Sole-provider
Exclusivity Proprietary
Big, famous name Standardized, open
architecture Components Software Scale economies
Intel gets benefit of IBM marketing and strategy (derived demand)
14
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
THE RISC THREAT
Regarded as having speed & cost advantage over CISC
Used UNIX operating system
Improved price/performance ratio
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
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
INTEL & CUSTOMERS
Intel followed 3 decisions & practices
Aggressive marketing – “Intel Inside”
Involvement in subsystem & full system design
Supplier relationship
19
“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
ANALYSIS
WHAT ARE SOURCES OF COMPETITIVE ADVANTAGE IN MICROPROCESSOR INDUSTRY?
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.
WHAT STRATEGY DID INTEL USE TO GAIN AND SUSTAIN MARKET LEADERSHIP IN MICROPROCESSORS FOR OVER TWO DECADES?
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.
WHAT EFFECT HAS THE GROWTH OF THE INTERNET HAD ON INTEL?
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.
DRAM VS MICROPROCESSORS
Disadvantages with DRAM
What Intel did right with
Microprocessors?
Easier to Imitate
Difficult to patent
There is no microcode that can be protected
There was little opportunity for a
proprietary Standard
Intel Branded the Microprocessor
Kept the No. of Competitors down
Changed Industry structure and dynamics
Successful at counteracting threats to
sustainability
CREATING AND SUSTAINING COMPETITIVE ADVANTAGE IN MICROPROCESSORS
Sustaining Competitive Advantage Threats to sustaining competitive advantage
Threats
Imitation Substitution
Saturation Buyer power
Supplier PowerComplementors
Power
Imitation
AMD and Cyrix imitated Intel’s microprocessor
With increase in market size, there was a shift towards to Cyrix and AMD
•Intellectual property Protection•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
THREATS Intel’s Response
Substitution
Alternative architecture, especially RISC
•Hedged against adoption of RISC by releasing i-860•Introduced Pentium (improved version of x86)
THREATS Intel’s Response
Microsoft moved OS that were not tied to x86 architecture (eg NT)
•Intel backed OS other than Windows like Linux
Sun Microsystems Motto “ The network is the Computer”
•Partnered with OEMs to promote Processors as well as PCs through “Intel Inside” Campaign
Buyer Power
THREATS Intel’s Response
Buyers wanted RICS architecture
Recalling Pentium Processors
•Replaced all the microprocessors
•Hedged against adoption of RISC by releasing i-860•Intel inside campaign made industry more dependent on CISC Architecture•Introduced Pentium (improved version of x86)• Building of Motherboard through forward integration
Supplier Power
Made Long term contacts necessary for Custom solutions
•Intel never asked for custom solutions, rather focused on standard solutions.
THREATS Intel’s Response
Complement Power
Microsoft ‘ bargaining Power
• CREATE market ecosystem by investing in complementors
THREATS Intel’s Response
Thank YouNo Questions