History of intel Essay Example

arose as Busicom retained ownership of this new chip. As a result, Intel was persuaded to reacquire the rights to the product.

Intel offered to return Busicon's $60,000 investment in exchange for the product rights. The Japanese agreed after facing financial difficulties. In 1971, Intel introduced the 4004, their first microprocessor. This $200 chip provided computing power equivalent to the ENIAC, the first electronic computer. Following the 4004, Intel released the 8008 microcomputer, capable of processing eight bits simultaneously.

The introduction of Intel's 4004 and 8008 processors marked the start of new market opportunities. Today, designers from diverse industries can benefit from cost-effective computing power, fostering creativity and innovation. In 1981, Intel extended its microprocessor family by introducing the 16-bit 8086 and the 8-bit 8088 processors. These two chips alone led to the development of 2,500 successful designs in just one year.

IBM's wise choice of the 8088 as the CPU for its initial PC led to rapid growth in the PC industry. This Intel-designed IBM product paved the way for annual production of millions of units. In 1982, Intel made further advancements with the release of the 286 chip, boasting an impressive 134,000 transistors and delivering three times better performance than other available 16-bit processors.

The 286 microprocessor was the first to offer software compatibility with previous versions. In 1985, Intel launched the 386 processor, which could execute over five million instructions per second. Compaq's DESKPRO 386 became the pioneer personal computer built on this latest microprocessor. In 1989, Intel revealed the 486 processor, featuring 1.2 million transistors and introducing the world's first integrated math coprocessor.

The Pentium processor, introduced by Intel in 1993, surpassed the original 4004 chip

in speed and set new performance standards. It had up to five times the performance of its predecessor, the Intel 486 processor, and featured 3.1 million transistors. The Pentium processor could achieve speeds of up to 90 MIPS, which was approximately 1,500 times faster than the original 4004 chip. In 1995, Intel unveiled the first processor of their P6 family: the Pentium Pro.

The Pentium Pro processor, featuring 5.5 million transistors and a high-speed memory cache, gained popularity among multiprocessor sewers and high-performance workstations. In May 1997, Intel launched the Pentium II processor with 7.5 million transistors, housed in a distinctive Single Edge Contact Cartridge for enhanced performance. Additionally, Intel supplied Pentium II processors for Mobil PC to deliver heightened levels of performance and computer capabilities. In April 1998, the Celeron processor was introduced by Intel.

This is the latest Intel processor, the Pentium II Xeon, designed for Basic PC users to meet their computing needs. It is the newest addition to Intel’s Pentium II brand and also Intel’s first microprocessor specifically designed for mid and higher server workstation platforms.

The main source of the company's prosperity in memory chips was derived from engaging in tasks related to creating and enhancing the most superior microprocessor worldwide. Memory chips constituted 70 percent of Intel's revenues and were its primary focus until the mid-1980s. However, during 1985 and 1986, Intel had to shut down eight memory chip plants due to their constant struggle against Japanese memory chip manufacturers without ever achieving victory.

Gordon Moore and Andrew Grove redirected Intel towards the advancement of microprocessor technology, developing a new vision and strategy. Their vision aimed to establish Intel-designed chips as the standard

in powering personal computers. Intel provides the computing industry with chips, boards, systems, and software, serving as essential components in creating advanced computing systems for PC users. Intel's mission is to become the leading supplier of building blocks to the global computing industry.

Intel has several goals in order to achieve their vision. These goals include advancements in PC and server management through new Intel hardware and software products, forming alliances with other industry leaders, implementing education and development programs, and participating in industry standards efforts. The main objective for Intel is to make the PC an essential and influential appliance that can compete with the TV, VCR, and telephone.

Andy Grove formulated a series of strategies to accomplish Intel's goals:

1.

Andy Grove's vision of transforming the PC into a future information appliance required more than just leading in microprocessor advancement. Intel aims to rapidly bring groundbreaking products to market, with the introduction of the high-end Pentium Pro processor in 1995.

Within a short span of time, the Pentium processor gained popularity among mainstream PC users. These products provide a wide range of computing options. Intel programmers responded to the growing fame of the Internet by creating Streaming Media Viewer, a software that developers could incorporate into their products for real-time video streaming from the World Wide Web. Additionally, Intel introduced hardware-based cryptographic technology to enhance security during data transmission over the Internet.

Intel has an expensive but efficient approach to introducing new products to the market. In 1996, they allocated $500 million towards research and development for non-microprocessor products. While some manufacturers collaborated with others to construct costly fabrication plants, Intel opted

for independent work. In addition to manufacturing microprocessors, Intel also ventures into computing and communications applications that enhance their primary business.

Intel's utilization of Intel architecture in their supercomputer and network server projects is enhanced by their flash memory business, which caters to the increasing demand for communication applications like cellular phones. In envisioning the future, Intel executives envisioned PCs equipped with cutting-edge features including digital video, stereo sound, 3-D graphics, fax, and data communications. Consequently, Intel made the strategic decision to incorporate these features into their upcoming microprocessors, aiming to compete with the Taiwanese computer industry.

The Taiwanese were criticized for being unsuitable in adjusting their products to the newest Intel advancements. Producing motherboards would allow Intel engineers to integrate new features and enhance the Intel brand. Intel also invests in education and marketing initiatives that highlight the advantages of genuine Intel technology.

In 1990, Intel launched a marketing campaign to promote the Intel brand and educate PC users about the advantages of genuine technology and products. Intel requested PC manufacturers to include the Intel logo on their machines. Additionally, the company sponsored television and print advertisements emphasizing that selecting an Intel-based PC offered superior quality, reliability, software compatibility, and value. This marketing program achieved success and has become a significant component of Intel's strategy ever since. Not only did Intel retain its dominant market share, but customer feedback also indicated that PC buyers, not just computer enthusiasts, were genuinely interested in their computer's chip and performance capabilities.

Instead of numbering its two new chip generations like the previous ones (286, 386, and 486), Intel decided to name them Pentium and Pentium Pro. This strategic move helped Intel

establish and strengthen its brand by enabling PC buyers to easily recognize and familiarize themselves with its products. It was estimated that Intel was investing over $100 million per year in consumer-focused marketing efforts. Intel also formed alliances with other prominent industry leaders. The disintegration of the old computer industry provided Intel with an opportunity and paved the way for mass production of computers. The old computer industry was vertically aligned.

In the past, industries used to construct their computers by starting from scratch. However, nowadays these companies buy products from other industries to assemble their computers. Due to the fact that PCs consist of components from various vendors, Grove believed that participants in different horizontal specialties within the industry needed to simultaneously create new products. Intel collaborates with other influential players in the industry to enhance PC technologies, like the widely adopted PCI "bus". This technology eliminates limitations and enhances capabilities significantly.

Intel integrates their chips into PC components like motherboards to speed up the release of computer products by manufacturers. They work closely with software developers to create advanced applications, such as PC video conferencing and animated 3D websites, that take advantage of Intel processors' capabilities. Additionally, Intel collaborates with the U.S. Department of Energy to build the world's fastest supercomputers. Each new generation of Intel microprocessors prompts operating system and software developers like Microsoft to prepare for marketing new software systems and products that fully utilize the speed provided by Intel's latest processors.

During the 1980s, Andy Grove and Bill Gates had meetings to discuss information exchange between their organizations. Intel's belief is that by enhancing computer performance, functionality, and user-friendliness, more PCs will be

sold, leading to increased demand for Intel processors. It is crucial to evaluate performance and adapt vision, long-term direction, objectives, strategy, or implementation in response to changing circumstances or new ideas and opportunities. In 1994, a math professor identified a flaw in how Intel's new Pentium chip handled division in certain situations. This flaw received media attention and caused negative publicity for Intel. However, Intel reassured consumers that the likelihood of encountering this issue was very low.

Intel acknowledged the flaw and downplayed its significance, stating that it should only concern the most demanding scientists. However, Intel had to reevaluate their strategy to maintain their "Intel Inside" campaign. In a quick response, they offered a free replacement of the Pentium chip to all owners of Pentium-based computers, resulting in an expense of $475 million. Although considered a disaster, only a few owners chose to replace their chips. Intel's main focus is on being a best-cost provider for value-conscious buyers.

Intel's goal is to improve customer satisfaction by offering products that provide better value for their money. They have been successful in achieving this through a range of reasonably priced products with top-notch features, which has contributed to their ongoing prosperity. However, Intel faces strong competition from manufacturers producing compatible microprocessors and chips with different architectures. To assess Intel's business position and determine its overall health, a SWOT analysis was conducted to evaluate how well the company's resources align with its external environment.

Intel dominates the market with over 80 percent of global personal computers powered by Intel microprocessors. Additionally, "Intel Inside" is found in more than 90 percent of newly assembled PCs. The company's strong financial status and

reputation for excellent products have established it as a leader in the industry, earning customer trust and loyalty. Intel excels due to its strong brand image, effective management abilities, and technical expertise.

Intel's strong financial position is evident through its significant profitability, cash flows from depreciation, and moderate dividend payout. This allows Intel to fund research and development effectively. Consequently, the company has the necessary resources to both renovate existing plants and establish new ones. This strategy plays a crucial role in maintaining Intel's industry leadership and meeting projected demand. By continuously improving their manufacturing facilities and producing more advanced products, Intel aims to stay ahead of competitors. In fact, Intel has been constructing new fabrication plants approximately every 9 months but plans to accelerate this process to every 6 months.

For the past 6 years, Intel has been the leading investor in the semiconductor industry. In 1990, they launched a marketing campaign to promote their brand and showcase the advantages of their technology and products to PC users. The objective was to boost Intel's sales while reducing AMD's imitation microprocessor sales. As part of their plan, Intel requested PC manufacturers to affix an exclusive "Intel Inside" sticker on their machines.

They sponsored advertising campaigns on television and in print, promoting the idea that an Intel-based PC offered customers the best quality, reliability, software compatibility, and value. This campaign was highly successful and helped establish a positive brand reputation for Intel.

Management Skills and Technical Expertise

Intel was initially managed by talented and skilled individuals who understood how to lead the company to success. They were able to select individuals with the necessary technological

knowledge to propel Intel forward. This expertise proved especially valuable in 1985, when Intel's main focus was on memory chips.

Japanese competitors entered the market and began selling memory chips at lower prices compared to Intel. Nevertheless, Intel possessed the necessary capabilities and knowledge to exit the memory chip sector and redirect their focus towards a secondary microprocessor business. Their goal was to become industry leaders, and they effectively demonstrated their understanding of the actions required to achieve this vision. Intel stands as one of the most prosperous companies, making it challenging to identify any shortcomings within this well-established firm.

Intel is renowned for its strengths, competencies, and capabilities, but it also possesses a weakness centered around its primary focus on microprocessors. The expansion of companies into different sectors minimizes risks in case a competitor introduces a superior product. An instance of such diversification is Microsoft's foray into the Internet industry to enhance their versatility. Similarly, America Online and Netscape are merging to strengthen their core business. Intel has the potential to achieve greater success by delving into other industries.

The company may be at risk if a competitor emerges as the leading manufacturer of microprocessors or if technological advancements promote a more efficient product than the microprocessor. Andrew Groves has been a crucial figure at Intel for a considerable period. Throughout his tenure, Intel displayed a proactive approach in safeguarding its technology. Groves is a hands-on manager who instills both inspiration and intimidation in his subordinates through his deep involvement and meticulous attention to detail. Groves' leadership style, competitive prowess, and innovative mindset have played a significant role in Intel's success.

Eventually, the retirement of Groves will pose

the question of Intel's future. Will the successor be able to maintain Intel's leading position? Groves' leadership has been impressive, but doubts arise concerning the leadership that will follow. Intel's strategy heavily relies on market opportunities. Fortunately, Intel possesses the necessary resources and ability to pursue numerous potential opportunities. The company's innovative approach has played a role in forming partnerships that expand market reach and enhance competitive strength.

Intel's potential for rapid growth stems from a significant rise in market demand. Andrew Groves envisions the PC as the information appliance of the future, with the aim of relegating televisions, VCRs, game players, cable boxes, and telephones to a secondary role while putting PCs at the forefront. Groves' goal is not only to lead in advancing the microprocessor, but also to fully capitalize on its capabilities by introducing a variety of PC-based communication products that cater to diverse consumer requirements.

Intel offers a variety of chip products for keyboards, printers, copiers, and fax machines. These chips are also used in cellular phones, pagers, digital cameras, and personal digital assistants. Additionally, Intel manufactures a universal Serial Bus (USB) that can connect printers, modems, CD-ROM drives, and other peripherals. They also have innovative products like Intercast plug-in cards and the ProShare line of conferencing products.

Intel has a software lab located in Shanghai that focuses on developing multimedia and 3-D content in Chinese. Their software solutions aim to promote long-distance telephone calls on the Internet. Moreover, they have developed a hardware-based cryptographic technology to ensure secure data communication over the Internet.

Intel is constantly introducing new products and technologies, often on a weekly or even daily basis, as they steadily increase their

investment in research and development to expand their product range. Their reputation for innovation is highly regarded in the United States, earning them the third spot for innovation in 1997. To expand their market coverage and competitive abilities, Intel forms alliances with other PC component producers, manufacturers, software developers, cable TV companies, media and telecommunications companies, and entertainment companies. It is crucial for Intel to cultivate strong relationships with these various industry entities.

Prior to the mid-1980s, the computer industry operated under a vertical structure, with companies selling their products built on their own unique technology. These companies independently designed and manufactured their own computers, requiring buyers to commit to a single manufacturer's entire package. However, the industry has since transitioned to a horizontal model, where each product's success is contingent on the success of other products. This shift has fostered a need for collaboration among industry players.

Products within each specialty must be compatible with other specialty products to create a powerful PC or any other PC-based product. Intel's rapid growth is attributed to the significant rise in market demand. The manufacturing process for PCs has evolved from the past, where only a handful of PC makers were responsible for producing the internal components. As a result, there was an increased demand for Intel's products. Intel's ability to respond promptly to market demand, along with its capital and expertise in developing advanced and powerful products faster than competitors, has enabled its rapid growth.

When considering Intel's external environment, several factors pose a threat to the company. These threats include competition, market growth slowdowns, and consumer bargaining power. Back in 1997, Intel faced significant competition from Advanced Micro

Devices (AMD) and Cyrix. These competitors challenged Intel by replicating their microprocessors and selling them at lower prices, which greatly endangered Intel's market share.

Motorola, IBM, and Apple Computer collaborated to create a third competitor. They manufactured and promoted Power PC chips for Apple's PCs and select IBM PCs. The Power PC boasted a reduced instruction-set computing (RISC) processor, which had a more straightforward instruction set and faster computing speeds compared to Intel's chips. This appealing feature posed a threat to Intel's market share. These aforementioned competitors are only a few of the prominent companies that pose a risk to Intel.

Intel must remain innovative and prepared for potential external threats, as other companies may develop more powerful and affordable products that could surpass Intel in the market. As a result, Intel always plans ahead by refurbishing or constructing plants two years prior to the production of new products.

This could be seen as both an advantage and a disadvantage for Intel. On the positive side, Intel is continuously innovating and creating more advanced and stronger products, positioning them as a frontrunner in the industry. However, there is a major drawback in that the PC market may experience a slowdown. If this happens, it could have a severe impact on Intel as they have already made significant investments in their plants and operations. Additionally, Intel faces potential challenges from cost pressures.

Consumers are seeking lower prices or better quality for the prices they pay. If customers can find the same product at a lower price elsewhere, it can pose a significant threat to the company. Intel can impact consumer bargaining power by ensuring competitive prices based on cost efficiency

and maintaining high quality. The SWOT analysis offers insight into the company's overall position. Evaluating Intel's strengths, weaknesses, opportunities, and threats confirms that the company has established a strong position in the industry.

The goodness of fit test evaluates whether a company's strategy aligns with its internal and external circumstances, with the goal of achieving market success. Intel, a participant in the semiconductor industry within the technology sector, faces the challenge of rapid obsolescence inherent to computer-related products. A prime illustration of this phenomenon is Moore's Law, named after Intel's founder Gordon Moore, who accurately predicted that the power and complexity of silicon chips would double each year while costs decreased accordingly. This external environmental factor poses two difficulties for companies in this industry.

One problem is that a company must constantly innovate to stay on top and secondly, the company will need capital in order to create new technology. Does Intel’s strategy adequately deal with the constant change that is prevalent in its business environment? The Intel’s strategy is to cannibalize its own products. In other words Intel strives to make its own products obsolete. A Company’s profits and market position can be severely undermined if another company offers a faster chip with more capabilities. Intel is able to do this because of its internal situation. Intel has vast amounts of capital, “…a ‘war chest’ of about $10 billion”.

This is useful when the average plant costs will be about $2.5 billion dollars around the year 2000. The competitive advantage test determines if a company's strategy results in a sustainable competitive advantage over its competitors. Intel's competitive advantages include its brand image and research expertise. The brand

name of Intel serves as a competitive advantage by preventing rival companies from selling cloned silicon chips, thus protecting Intel's profitability and market share. The power of the brand name and customer loyalty prevents consumers from easily switching to a competitor's clone with equal performance.

Intel's strategy focuses on increasing awareness and preference for its products. Its competitive advantage lies in its research prowess, which is supported by its significant capital resources. For instance, Intel plans to dedicate $3 billion to research and development next year, surpassing AMD's sales in 1998. By consistently delivering innovative products at a faster pace than its competitors, Intel aims to secure the majority of profits and ensure the necessary funding for future innovations. The performance test evaluates the effectiveness of this strategy in driving profitability and achieving a strong market position in the long term.

The profitability ratios for Intel from 1983 till 1998 can be found in the Appendix. Graphs representing this data are labeled as Appendix A-E, while the actual numerical data can be found in Appendix F. It was after 1986 that Intel changed its strategy to what it currently is. The data used to calculate these ratios was sourced from the Intel case in Strickland and Thompson's Strategic Management 10th Edition.

The 1997 and 1998 reports were compiled using data from Intel's homepage at http://www.intel.com. Appendix A displays the gross profit margin, which has consistently risen since 1986 and has remained above fifty percent since 1990. This profitability ratio indicates the remaining funds available to the company after production. It demonstrates the company's strength in this area.

Appendix B displays the operating profit margin which indicates the

company's profit before subtracting interest payments and taxes. From 1985 to 1986, the ratio was negative. However, since then, the operating profit margin has consistently been strong and reached its highest point in 1997 at 39.44%.

Appendix C presents the net profit margin of Intel, showing the profit achieved by the company. After experiencing a loss in 1986, Intel's net profit margin has consistently improved and strengthened. Since 1990, Intel has been consistently earning profits above fifteen percent. The company reached its highest level of profit in 1997, with a net profit margin of 27.7%. Currently, Intel holds a significant market share of 75.7%, indicating its dominant position. In comparison, its closest competitor, Advanced Micro Devices (AMD), only has a market share of fifteen and a half percent.

The pie chart in Appendix G displays the data revealing that Intel's competitor, Cyrix, has a mere 5.6% market share. This data confirms the success of Intel's strategy, which has passed all tests, making it a winning strategy. Intel's current approach enables it to adapt to the business environment, maintain its competitive advantages, and generate substantial profits.

Performance of Andy Grove as CEO

The performance of Andy Grove as CEO can be better understood by acknowledging the influence of his mentor, Gordon Moore. Moore played a crucial role in shaping the culture at Intel, emphasizing low bureaucracy and promoting effective communication through one-on-one meetings with subordinates. Additionally, Moore's 'law' stated that chip power and complexity would double every eighteen months, resulting in cost reductions. This philosophy allowed Intel to prioritize innovation and establish itself as a leader. For specific numerical data on the company's performance, please

refer to Appendix F which presents the return on stockholders' equity (ROE) and return on assets (ROA).

Appendix D and E visually represent the values of these ratios, which are utilized to evaluate the effectiveness of management. Andy Grove assumed the position of President in 1979, and in 1987, he obtained increased control when Gordon Moore transitioned to solely serving as chairman. To accurately evaluate Andy Grove's performance as CEO, it is necessary to analyze the following ratios. Appendix D demonstrates that the ROE has remained robust since 1987, with the majority of years surpassing twenty percent.

The highest value was in 1997 with a ratio of 35.99%. This ratio can be compared to the industry's ROE. According to Daily Stocks website, the ROE-to-Industry ratio is 131.4%. Since 1987, the ROA has also been consistently increasing and is now in the teens and lower twenties. The ROA-to-Industry ratio for Intel is an impressive 140.4% according to Daily Stocks website. This analysis indicates that Andy Grove has done an excellent job at Intel.

Andy Grove's performance as the CEO of Intel is highly regarded due to several factors. Firstly, his views have deeply influenced the corporate culture of Intel, contributing to its rise as a dominant force in the industry. Secondly, Grove's strategy-making style epitomizes that of a master strategist, exerting significant influence over the company's strategic decisions. Lastly, Grove's personal viewpoint, often referred to as his 'law,' emphasizes the importance of being paranoid to survive in the industry. This mindset has compelled Intel to constantly anticipate future developments and remain ahead of the competition, demonstrated by their proactive approach of constructing factories well in advance of actual demand.

Andy

Grove's strong leadership has prevented Intel from becoming stagnant due to its own success. However, the downside is that Andy Grove's exceptional managerial skills may be a disadvantage. According to the SWOT analysis, if Andy Grove permanently retires from Intel, the company could struggle unless it finds a highly qualified individual with a similar management style. The U.S.

The microprocessor industry consists of over 100 companies that design, manufacture, and sell semiconductors to original equipment manufacturers and PC end users. The industry can be characterized as follows:

- Market Size: Worldwide consumption is estimated to be between $300-$350 billion.
- Scope of Competitive Rivalry: The competition in the industry is global.
- Market Growth Rate: The industry experiences an annual growth rate of 15-20%.
- Stage in Life Cycle: It is currently in the rapid growth and takeoff stage.
- Number of Companies in Industry: There are approximately 174 companies operating in this industry.
- Customers: The industry serves 80 million microprocessors for use in PCs and network servers.
- Degree of Vertical Integration: The vertical integration levels vary, with both forward and backward integration seen.
- Ease of Entry/Exit: High entry barriers exist due to capital requirements.
- Technology/Innovation: There are rapid technological changes in microprocessor production.
- Product Characteristics: Microprocessors are highly standardized.
- Scale Economies: Companies can achieve economies of scale due to the nature of their operations.
- Learning and Experience Effects: Strong effects from learning and experience are observed.
- Capacity Utilization: Manufacturing efficiency improves with increased capacity.

Two pie charts illustrate the industry's usage in 1995 and 1997, showing that the computer sector is the primary consumer of microprocessors. In just two years, the computer sector increased its usage by 11%, and this

trend is expected to continue in the coming years.

Computers are the main focus in the microprocessor industry, which is why many rivals are