Case Study on Intel Corporation, using Porter's Framework
The Intel Corporation case study depicts the inception of one of the semiconductor giants, Intel, that revolutionized computing in the late 20th century, and the strategies they developed and articulated to stay relevant and maintain industry leadership position from one generation to the next. This analysis will contemplate how Intel evolved its strategies during the internet revolution, and at the end will analyze Intel's failure and success by adopting Porter's framework.
Intel started its journey as a memory chip company, specializing in manufacturing dynamic random-access memory (DRAM). Factors such as high cost of production, complex manufacturing processes, entry of Japanese manufacturers in the market, failing to compete in the price war, and falling behind generations, forced Intel to discontinue their legacy DRAM business and redirect their resources to producing andselling EPROMS (later manufacturing flash memory devices) and microprocessors. During the 1980s, the rise in demand for PCs created a huge demand in the market for microprocessors. This time – to make sure they don’t fall behind their competitors – Intel carried out intense marketing and sale campaigns one after another which enabled them to make their product industry standard and eventually became the leader in the semiconductor industry.
The Dot-Com Era
The rising demand for potential substitutes for PC such as wireless and handheld devices, and the emergence of the internet economy in the late 1990s made the Intel management take an aggressive stance. In response to deal with a possible paradigm shift and to increase the company’s profitability in the long run, Intel’s former CEO, Craig Barrett, invested heavily in acquisitions and ventures to push Intel into new markets such as networks, wireless, communications, and online services. The company was then restructured into four product/service categories to reflect its new mission statement, which is to “being the preeminent building-block supplier to the worldwide Internet economy.”
Desktop and Mobile Microprocessors
Microprocessors were contributing to three-quarters of Intel’s revenue. The biggest differentiator of Intel’s microprocessor was its superior performance and lower cost of production (Moore’s Law) than its competitors. However, the difference started to fade as AMD was giving tough competition, and in fact, supersede them in terms of performance for a short period. This created pressure on Intel to decrease its product’s time-to-market for retaining its leadership position. They also adopted a product proliferation strategy to prevent AMD from entering any unexplored product segment. To beat AMD in terms of performance, Intel rushed their products for marketing ahead of time. This resulted in many cases of bugs and defects found in the processors/systems, which drove some customers to AMD, various product recalls, product delays, and cancellation of announced products.
Intel also invested in the mobile CPU market, attaining 89% of the market share. They wanted to redefine mobile processing by changing the whole existing architecture, which was a bet that did not turn out to be in favor. Although the new system turned out to provide longer battery life and better wireless communications, it was slow and laggy.
Server Platforms
Intel penetrated the server platform market with an entry-level 32-bit Xeon processor in 1998. Although the server platforms contributed a small fraction of Intel’s revenue, Intel spent around half of its R&D funds on it. The management believed that this segment of their product lineup has a high potential for growth and investing in them is the right approach for ensuring future profitability. To compete with industry players, Intel managed to introduce and market high-performance servers with its 64-bit Itanium processor. Unfortunately, though the servers were superior in specs, they failed to meet product-market fit and ran existing software slower. For the servers to work optimally, the software had to be rewritten. On the other hand, AMD was providing a server solution with a less powerful processor but was able to run existing software more efficiently along with a few functions of the 64-bit CPU.
Communications and Networking
Intel was dealing with a highly fragmented Communications and Networking industry where they wanted to be a dominant player by providing standard building blocks (chips) for network processors and other devices. Although there were many competitors, varying in different sizes, Intel wanted to leverage their strength in silicon microprocessors to become a force in communications, along with their access to rich human and financial resources.
Porter's Five Forces Model
Porter's Five Forces model is a useful tool for analyzing the competitive structure of an industry and understanding how companies can create and sustain competitive advantages. The model examines five forces that influence the industry's profitability: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or services, and the intensity of competitive rivalry.
In the 1980s, Intel was successful in the microprocessor industry due to several factors, including:
1. The threat of new entrants was low: Intel had established itself as a dominant player in the microprocessor industry, with a strong brand reputation, economies of scale, and significant R&D capabilities. This made it difficult for new entrants to compete.
2. Supplier bargaining power was low: Intel's relationships with its suppliers were strong, and it had developed close partnerships with key suppliers to ensure a consistent supply of high-quality raw materials.
3. Buyer bargaining power was low: The microprocessor market was dominated by a few large players, such as IBM, which had limited bargaining power over Intel.
4. The threat of substitute products was low: At the time, there were few viable alternatives to Intel's microprocessors, and the company's technological leadership helped to maintain its market position.
5. Competitive rivalry was low: Intel's main competitor, AMD, was not yet a significant threat and the industry was still in its early stages.
However, in the 2000s, Intel faced new challenges that affected its competitive position. These challenges included:
1. The threat of new entrants was higher: As the market for personal computers grew, new players entered the industry, including Asian competitors such as Samsung and TSMC. This increased the competition and put pressure on Intel's market share.
2. Supplier bargaining power was higher: As the industry evolved, new materials and components became critical to the production of microprocessors, and suppliers gained more bargaining power. Intel had to develop new strategies to maintain its relationships with suppliers and ensure a stable supply of raw materials.
3. Buyer bargaining power was higher: As the PC industry matured, buyers gained more bargaining power, demanding lower prices and higher quality. This put pressure on Intel to reduce costs and improve its products.
4. The threat of substitute products was higher: As the industry evolved, new technologies emerged that could replace traditional microprocessors. Intel had to adapt to these changes by investing in new technologies and expanding into new markets.
5. Competitive rivalry was higher: Intel faced growing competition from AMD, which had become a significant player in the microprocessor industry. In addition, new players, such as ARM, entered the market with new technologies and business models, challenging Intel's market position.
In conclusion, Porter's Five Forces model can help us understand Intel's success and failures in the microprocessor industry. In the 1980s, Intel was successful due to its strong brand reputation, economies of scale, and significant R&D capabilities. However, in the 2000s, Intel faced new challenges, including increased competition, changes in supplier and buyer bargaining power, and the emergence of new technologies and players. To maintain its competitive position, Intel had to adapt to these changes by investing in new technologies, expanding into new markets, and developing new strategies to maintain its relationships with suppliers and customers.