Thesis on "Intel Corporation Has Progressed From Being Primarily"

Thesis 8 pages (2905 words) Sources: 4 Style: APA

[EXCERPT] . . . .

Intel Corporation has progressed from being primarily a memory electronics, integrated circuit and microprocessor manufacturer to being a leader in the area of electronics platform development. Founded in 1968 by Robert Noyce and Gordon Moore, the company initially produced memory circuits, and by 1971 launched their first microprocessor, the model 4004. Through the 1970s the company continued to expand its breadth of microprocessor support, offering the 8086 and 8088 processors, which IBM purchased and used in their first minicomputers and eventually the IBM PC. Throughout the 1990s Intel continued to expand and broaden the depth of their microprocessor support, creating the 80286, 80386, and 80486 processors, the Pentium, Pentium Pro and Celeron processor families for specific segments of the server, minicomputer, PC and laptop market. Intel also continued to expand it support for memory architectures, forming close alliances with Microsoft on the Windows series of operating systems. In addition, alliances with UNIX operating system vendors including IBM, Digital Equipment (DEC) and others including open source Linux continued to expand the market for their processors. In 1965 prior to starting the company, Gordon Moore, a founder of Intel also defined Moore's Law. The essence of the law states that the number of transistors on a chip would double every two years while at the same time the cost per component drops (Mollick, 2006). Gordon Moore, in defining Moore's Law, illustrated how economies of scale would impact electronics, microprocessor and system development for decades to come. Adherence to Moore's Law became a significant element of the company's overall culture and the migration to a more platform-based approach to strategic planning, product development, and marketing took significant effort on the part of the company's senior management to accomplish.

Clearly the most significant shift in the company's strategic orientation has been to shift from this components and microprocessor focus to a more platform-centric strategic vision of the future (BusinessWeek, 2006). Industry analysts consider the cancellation of the Pentium 4 development as an indication of when the shift from component manufacturing to platform solutions development shifted as a strategic priority of the company, signaling a more market-driven vs. technology-based development strategic planning process (Hayashi, 2008). As of 2009 the Intel mission statement is as follows:

Delight our customers, employees, and shareholders by relentlessly delivering the platform and technology advancements that become essential to the way we work and live. This mission statement reflects the company's move to a more market-driven platform approach to managing platforms for growth vs. being purely focused on technology. Intel's values include customer orientation, results orientation, risk taking, creating an great place to work, focus on exceptional product and process quality, and a commitment to exceptionally high levels of personal and professional discipline. Intel has listed these values on their website as of July, 2009 in addition to the following objectives: Extend our silicon technology and manufacturing leadership; Deliver unrivaled microprocessors and platforms; Grow profitability worldwide and Excel in customer orientation. Intel's shift in strategy can be attributed to the change in leadership from Andy Grove, CEO since 1979. The progression of leadership included Craig Barrett, who is credited with shifting the strategic vision of the company away from being microprocessor centric to being more focused on a platform-based strategy (Cusumano, Gawer, 2002). As CEO, Barrett is also credited with shifting the focus of the company towards emerging markets including streaming video over the Internet and digital media. His partnerships with Apple were the basis of Steve Jobs choosing to reintroduce Intel processors into the Apple product line (Edwards, 2007). In May, 2005, the current CEO, Paul Otellini was given the role and quickly defined a series of multi-platform initiatives aimed at giving the company greater strength in the multimedia and streaming video markets that Craig Barrett had brought the company into. Mr. Otellinis' vision is to expand on the work completed by Craig Barrett to this point and continue creating additional depth of product and solution sets within the digital content, digital data analysis, and digital entertainment ecosystems that promise the highest overall growth globally.

Industry Analysis

Intel is one of four dominant competitors in the global semiconductor and electronic component manufacturing industry, with 5.7% market share globally and the most dominant share of design-in PC use at 82% as of July, 2009 (Edwards, Burrows, 2009). The NAICS code for this industry is 33441 and it is expected to generate global revenue of $610.4B, down 8.2% from 2008. Slowing global demand for PCs and the need to transition into media-based platforms are still acting as growth catalysts in this industry however. The global market shares for this industry for 2008 are shown in Figure 1: Market Share by Major Competitor in the global semiconductor and electronic component manufacturing industry. This is an industry in a mature phase of its product lifecycle and is also marked by extreme price competition and the need for continually launching new products with the latest technologies to stay competitive over time. The highly fragmented nature of this industry is based on the highly diverse base of customer needs and design requirements that systems, PC and specialty electronics products producers.

Figure 1:

Global Semiconductor and Electronic Component Manufacturing Market Share

Company

Market Share

Intel Corporation

5.7%

Samsung Electronics Co Ltd.

5.4%

Tyco Electronics Ltd.

2.2%

Texas Instruments Inc.

1.9%

Other

84.8%

Totals: 100.0%

Sources: (Edwards, Burrows, 2009), (Nuttall, 2009)

Using the Porter Five Forces Model (Porter, 2008), Intel's position relative to the five forces are analyzed here. Each aspect of the five forces model is analyzed according to its specific impact on the Intel product strategy and long-term viability.

Threat of Substitute Products or Services

Intel is one of the leading producers of semiconductor components and systems including microprocessors globally. The threat of substitute products from Samsung in the memory components subsegments of their business is significant, as are the competitors in the mobile and cell phone devices platforms as well, a segment Intel has been winning design-ins at the top OEM suppliers for the last few years (Clark, 2008). The threat of substitution varies by product category and by class of processor, with the greater levels of competition in the lower-end cellular and low-power consumption processors including the Celeron class. Threat of substitution purely in the product area is significant, yet when OEM accounts meet and see the depth of expertise that Intel has in key markets and with core technologies, the company typically wins the majority of design competitors.

Bargaining Power of Buyers

As there is significant competition emerging in each segment of their core business, Intel is facing significant pressure from buyers, or customers of their systems. The additional effect of operating system enhancements and growth over time at Apple, which has competing platforms and microprocessor architectures on specific models of their systems, is becoming problematic for Intel as well. Despite the design-in partnership the company has with Intel on specific models, the competitive dynamics of an operating system designed to align with the specific registers of a custom-built microprocessor are difficult to overcome. The partnership with Microsoft accomplished this for Intel on their Pentium, Pentium Pro and multi-core models, yet Apple has taken this a step further with graphics intelligence and predictive pathing for graphics manipulation. In addition, there are very low-end competitors who are producing Netbooks, using AMD processors at a fraction of the cost of those from Intel, thereby gaining significant competitive advantage. The bargaining power of buyers then is very significant in this industry today.

Bargaining Power of Suppliers

As the industry is highly fragmented in terms of how its integrated circuit and microprocessor designs are purpose-built for specific tasks, the supply chains of these companies have a correspondingly high level of complexity to them as well. This translates into the need for Intel to selectively manage partnerships and create shared risk and collaboration models throughout their supply chain (Shirodkar, Kempf, 2006). Techniques include using Vendor Managed Inventory (VMI), Collaborative Planning, Forecasting & Replenishment (CPFR), Demand Management and Inventory Optimization (Shirodkar, Kempf, 2006). All of these strategies are used for alleviating risk throughout the supply chain as a result of misinterpreting demand signals or not completely communicating the specifics of a given product requirements forecast. This tight integration of Intel with its suppliers however does create greater dependencies on each other. As a result, the bargaining power of suppliers on new product generation is significantly higher than at the mid-point or end of a product lifecycle. With each new product generation suppliers regain a significant level of control over their relationships with Intel until commoditization of their shared developments become prevalent. This all translates into suppliers have significant power that is predicated on the decisions of Intel to continually compete on product generation-based competitive positioning.

Threat of New Entrants

There is a low threat of new entrants into the semiconductor and microprocessor markets as it on average costs nearly $3B to create a fabrication facility and can take years to perfect in function as well (Clark, 2008). As a… READ MORE

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