Group 7 Section B Intel Corporation
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Transcript of Group 7 Section B Intel Corporation
Intel Corporation: 1968- 2003 Operation Strategy
PGP 16 – Term V
Group 7(B): Hemant Raj Singh Ravi Kant Verma
Arkaprabha Debanath Panii Ngaonii Illaria Luzzi
Anirban Bhar
11/24/2013 1 IIMK Term V Operation Strategy
Company background
Started in 1968 as a manufacture of memory chips 1970 produced 1103, world first 1Kb DRAM EPROM Flash memory
By late 90s enter Internet business 2002, Semiconductor Industry was mired in recession “Innovation was the key to escaping a recession”- invested more in R&D Pouring billions into networking and communications silicon
Memory
Internet
Switched to Microprocessors in the 80s 4004 microprocessor 8086 and 8088 microprocessors: breakthrough
Microprocessors
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Key issues
Would this moves restore Intel’s historical performance?
Would Intel be able to once again shape industry structure to become
the leading building block suppliers in these new areas?
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Memory Manufacturing
Replace magnetic core memory DRAM was cost affective Increased performance Smaller First mover advantage Standard, interchangeable chips Cross-licensing among established players forced competitors to compete on price/performance
Manufacturing process was complex Fixed cost were high in setting up the plant Pricing depends on: Shape of learning curve & how quickly competitors expanded capacity
DRAM Success factors
But
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Memory Manufacturing
Hitachi &Mitsubishi Very large companies compared to Intel Aided by abundant and cheap capital market available Bank loans American semiconductor companies relied on their own funding Significant cost advantage because of advanced manufacturing process Cost and yield, Japanese were much ahead Supplier relationship, work closely
Reduced market share to 1% Japanese captured most of the memory market share Industry overcapacity 1 Mb DRAM good product but too late to make an impact Intel much behind time….
Competitors
Exit of DRAMs
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Memory Manufacturing
“DRAMS gave us fame, but EPROMs gave us rich”
Easily programmable and erasable
Kept the price high Methodical and quit approach Kept below competitors’ radar
EPROM
• Japanese started producing
•Price slash Down by 90%
EPROM
•Quick to react
• Introduce Flash Memory
Flash Memory
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As a Microprocessor Company
4004 microprocessor used in Japanese calculator 8086 & 8088 microprocessors goes into IBM’s first machine
Computer industries was vertical, shifted to horizontal around 80s The presence of IBM was crucial Market less fragmented Second source manufacturing, a necessary evil Intellectual property well ahead of its competitions
Products
Reason for growth
Secondary source, Intellectual property
Becoming proprietary
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Challenges in Microprocessor
RISC vs CISC
• Reduced Instruction Set Computing vs Complex Instruction Set Computing
• RISC simpler architecture
• Better performance
• displace the traditional CISC architecture
• Price/performance a real threat
• Not an operational problem, Media hype
Customers
• Complex relationship with OEMs
• Reimburse half of advertising cost
• “Intel inside” sticker compulsory
• Good start :300 OEMs
• Spent $500 million
• Forward integration, development of computer based instruments
• “bug in the Pentium”: replacement policy, cost Intel $475 million
Complementors
• Software lack behind hardware design
• Intel 32 bit microprocessors waited 10yrs for Microsoft to produce 32 bit OS
• Courted independent software vendors
• Intel capital to systematize outsource technology
• Exceedingly careful in Antitrust
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Why should Intel go for new Market ?
Reduction in Average silicon content $ value CAGR of -11 % High time to pursue to build new business “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” …….. Craig Barrett, CEO
Client platforms Server platforms
Cellular and wireless Communication and networking
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What went wrong in 2001 ?
Craig Barrett , new CEO 1998 Spent roughly $12 billion on acquisitions and new venture Even corporate mission was changed From “being the preeminent supplier to the new computing industry worldwide” To “being the preeminent building-block supplier to the worldwide Internet economy” In spite of all this effort there was a deep in 2001 net revenue What went wrong ?? Intel or market
Exhibit 1: Intel’s Financial results
Year Net Revenue in $ millions
1998 26,273
1999 29,389
2000 33,726
2001 26,539
Market is responsible and not Intel Recession + global microprocessor revenue reduction + internal implementation errors
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Can Intel continue with expansion strategy ?
After the copyright stint , Intel is way ahead...... In the mobile PC domain, Intel’s microprocessors had significant advantages over AMD’s
AMD Vs Intel
Change in environment is greater than in Intel In 2002, Intel had roughly 89% market segment share in mobile CPUs Wireless data and communications semiconductor Intel holding 8% of the market Have to win the architectural battle
Winning Strategy
Commitment to communications
Technical expertise
Deep pockets
Manufacturing expertise
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Description Mechanism
DRAMs Intel were market leader of DRAMs, but Japanese got hold of market share due to advance manufacturing process and good capital financing
Manufacturing process and financing
1 Mb DRAMs were a breakthrough, but the relevance was not felt by the time it was launched
Goal timing
EPROM lasted and dominated because product was distinct and relevant
Product relevance
EPROM under low radar of competitors Avoiding Product duplication
Quick change to flash memory as soon as EPROM were absorb by Japanese
Quick adaptation
Intellectual property and patent are very important Ambiguity and uncertainty reduction
Need complementors and create an ecosystem like in microprocessors manufacturing
Flexible way of structuring through dependence
Past Lessons
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How to overcome implementing errors ?
Internal implementation errors can be handled very well by shutting down unproductive business to achieve operational excellence back to basic strategy
Foundation should be built on marketing the product as it is OEMs based, good Customer relations is required
Active promotions and advertisement to involve end-customer
Outsource small bit of algorithms and programming to third party if necessary and create an ecosystem
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Attempts to time the completion of new capacity investment to exploits the opportunities associated with market upturns Invest during the economic downturn when competitors are cutting cost Build a gap in performance with advanced technology, but main challenge is to keep ready to be the technical supplier of the Internet
Capacity expansion strategy
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