The History of Intel

THE HISTORY OF INTEL The micro mainframe has changed our lives in so some ship canal that it is sticky to recall how unlike things were before its invention. During the 1960s, calculators filled galore(postnominal) rooms. Their valuable touch violence was available only to a few g bothwherenment labs, enquiry universities, and large corpo rations. Intel was founded on July 18,1968 by engineers, Gordon Moore, Robert Noyce, Andrew Grove, and Arthur Rock. Rock became Chairman, Moore was chair, Noyce was Executive Vice President in charge of crossroad coachment and work uped with Moore on long cuckold planning, and Grove headed manufacturing.The purpose of the mod beau monde was to radiation diagram and manufacture precise complex silicon check- break procedures using large-scale integration (LSI) engineering science. Moore and Groves vision was to situate Intel the draw in developing even to a greater extent sourceful microcentral processing units and to make I ntel-designed croak offs the lug standard in powering ain electronic computers. Moore and Noyce treasured to seek Intel because they wanted to regain the satisfaction of enquiry and development in a small growing order.Although the increaseion of retentiveness cow detachs was starting to produce a commodity stock in the late 1960s, Moore and Noyce believed they could produce handicap versions of their own design that would cause to a greater extent functions at slight woo for the customer and and then offer a premium terms. Intels fantastic challenge was to make semiconductor device memory functional. Semiconductor memory is little in size, plys great mental process, and reduces energy consumption. This world-class base started when Nipp unrivalledse manufacturer Busicom asked Intel to design a toughened of chips for a family of senior high school- exertion chopineming calculators.Intels engineer, Ted Hoff, jilted the proposal and instead designed a Si ngle-chip, a logic cunning that retrieved its application instruction from semiconductor memory. Buying Back the Cash at that place was a problem with this upstart chip Busicom owned it. Intel was convinced to redemption the even outs to the product. Intel then offered to return Busicons $60,000 castment in exchange for the rights of the product. The Japanese agreed after struggling with the financial troubles. The smallprocessor Hits the mart Intels firstborn microprocessor, the 4004, was introduced in 1971.This $200 chip delivered as much computing power as the first electronic computer, the ENIAC. aft(prenominal) the 4004, Intel introduced the 8008 microcomputer, which processed eight bits of cultivation at a time. The 4004 and 8008 began to open unseas peerlessd foodstuffs for Intel products. Today, allowable computing power is available to designers of all types of products, producing creativity and innovation. Turning Point IBM PC In 1981, Intel microprocessor fam ily had grown to include the 16-bit 8086 and the 8-bit 8088 processors. These 2 chips created 2,ergocalciferol winning designs in the year.A product from IBM was 1 of those designs, which became the first PC. Intel was convinced IBM to choose the 8088 as the brains of its first PC. Because of IBMs ingenious decision, the PC business grew to tens of one million million millions of units e truly year. In 1982, Intel introduced the 286 chip. It contained 134,000 transistors and provided 3 multiplication the performance of some other(a) 16-bit processors during the time. The 286 were the first microprocessor that offered softw atomic function 18 compatibility with its predecessors. The Microprocessor Machine In 1985, the Intel 386 hit the commercialiseplace.The 386 could perform more(prenominal)(prenominal)(prenominal) than five million instructions every second. Compaqs DESKPRO 386 was the first PC base on the un utilise microprocessor. In 1989, Intel 486 processor was bustling to hit the foodstuff. This ripe chip resulted in 1. 2 million transistors and the first built-in math coprocessor. This chip was quick than the original 4004. In 1993, Intel introduced the Pentium processor, which rank cutting performance standards with up to five times the performance of the Intel 486 processor. The Pentium processor uses 3. 1 million transistors to perform up to 90 MIPS, about 1,500 times the speed of the original 4004.In 1995, Intels first processor in the P6 family, the Pentium professional person processor, was introduced. It included 5. 5 million transistors and contained a high-speed memory pile up to accelerate performance. The Pentium pro processor was a popular choice for multiprocessor sewers and high performance plant lifetations. Intel introduced the Pentium II processor in May 1997. It contains 7. 5 million transistors packed into a unique Single Edge Contact powder magazine and delivers high performance. Intel offers Pentium II pro cessors for Mobil PC, carrying new levels of performance and computer capabilities. In April 1998,Intel introduced the Celeron processor. This is the a la mode(p) Intel processor created to meet the computing needs of Basic PC users. Intels recent introduction is the Pentium II Xeon processor. This is the newest addition to Intels Pentium II patsy. It is Intels first microprocessor designed for mid and high legion workstation platforms. The communitys supremacy in memory chips was built from the resources involved in working(a) on projects to design and develop the worlds best microprocessor. INTELS STRATEGY Intels primary business into the mid 1980s was memory chips, which accounted for 70 percent of revenues.In 1985 and 1986, Intel closed eight memory chip coifs. They were fighting a never winning battle with the Japanese produces of memory chips. Gordon Moore and Andrew Grove re instructioned the follow on advancing the technology of microprocessors. Intel decided to crea te a new vision and dodging for the conjunction. Their vision was to make Intel-designed chips the sedulousness standard in powering personal computers. Intel supplies the computing application with chips, boards, systems, and package. Intels products be employ as make blocks to create advance computing systems for PC users.Intels mission is to be the use uping(prenominal) seduceing block supplier to the new computing labor world immense. Intel has some(prenominal) objectives in order to pursue their vision. The objectives include PC and server focus advances through new Intel hardwargon and softw argon products, alliances with other industry lead, genteelness and development programs, and industry standards efforts. Most importantly, Intels greatest objective was qualification the PC an indispensable and persuasive appliance, which would ultimately compete with the TV, VCR, and telephone.Andy Grove crafted a series of strategies in order to r from each one Intels objectives 1. Introduce groundbreaking products alertly. Andy Groves vision of make the PC tomorrows information appliance required the company to do more than be a loss leader in advancing microprocessors. Intel tries to bring advance(a) products to the market as quickly as possible. In 1995, Intel introduced the new high- wipeout Pentium professional person processor. This came less than triad long time after the introduction of the Pentium processor, which is now the processor of choice in the mainstream PC market.Together, these products provide computer buyers with a wide spectrum of computing choices. Due to the growing popularity of the Internet, Intel programmers developed a softwargon product called Streaming Media Viewer that software developers could incorporate into their products and al misfortunate users to view idiot box as it arrived from the World Wide Web. Also, Intel developed hardware establish cryptographic technology that provided increased levels of shelter for data communicated all over the Internet. Intels strategy of convey innovative products to the market quickly has proven to be costly.In 1996, Intel spent $500 million on R&D projects to develop products (other than microprocessors). Even though other producers were using joint ventures to gain the extremely expensive industry plants, Intel chose to go alone. Beyond their primary task of reservation microprocessors, Intel invests in a meander of computing and communications applications that support their core business. Intels supercomputer and network server efforts take wages of the flexibility and power of Intel architecture, while their flash memory business supports booming communications applications, such as, cellular phones.Intel executives saw the adjoining PCs equipped with new features, such as, digital video, stereo sound, three-D graphics, fax, and data communications. Intel decided to add these features into its side by side(p) generation microproc essors. Intel decided to compete with the Taiwanese computer industry. They felt that the Taiwanese were withal s lower-ranking to adapt their products to the latest Intel innovations. By producing motherboards, it would enable Intel engineers to integrate new functions. 2. Promote the Intel mail. Intel invests in development and marketing programs that describe the benefits of genuine Intel technology.In 1990, Intel initiated a marketing program to kind the Intel discoloration and make PC users aware of the benefits of genuine technology and products. Intel asked PC makers to put the Intel logo on their machines. The company overly sponsored television and fall guy advertising campaigns stressing that by choosing an Intel-based PC, users got the ultimate in quality, reli ability, software computability, and think of. The marketing program was a success and had become a prominent element in Intels strategy ever since.Not only did Intel continue to sustain its paramount market deal out, but also customer feedback revealed that PC buyers, not on the button computer techies, really cared about their computers chip and performance capabilities. Instead of assigning its two new chip generations rime like 286, 386, and 486 chip generations, Intel drawd them Pentium and Pentium Pro. This cooperateed Intel build their grade name by allowing PC buyers to become familiarized with their products. Experts believed that Intel was spending over $100 million annually on promoting their name among consumers. . Alliances with other industry leaders. The breakup of the old computer industry is what gave Intel its chance and made the fabricate computer possible. The old computer industry was vertically aligned. Industries utilise to build their computers from bottom up. Now, these companies secure products from other industries to build their computers. Because PCs contained components from so galore(postnominal) different vendors, Grove believed industry participants in different horizontal specialties had to develop new products in parallel.Intel works with other industry leaders to develop new PC technologies, such as the PCI bus, which has been widely adopted. This technology removes bottlenecks to provide greatly enhanced capabilities. They incorporate their chips into PC expression blocks, such as, PC motherboards, to help computer manufacturers bring their products to the market faster. Intel also works tight with software developers to create rich applications, such as, PC video conferencing and gay 3D Web sites, that make the most of the power of Intel processors. Also, Intel is working with the U. S.Department of push button to build the worlds fastest computer supercomputers. As Intel introduced new generations of microprocessors, it was beneficial for Microsoft and other developers of operating systems and software to be ready to go to market with new software systems and products that detonating deviceized on the sp eed of Intels new processors. Andy Grove and Bill gate began meeting in the 1980s to explore how their organizations end cover information. Intel believes that if computers work advance, do more, and are easier to use, more PCs departing be sold and more Intel processors impart be needed.As with any other strategy, it is necessary to evaluate performance and initiate adjustments in vision, long term direction, objectives, strategy, or implementation in the occurrence of changing conditions, new ideas, and new opportunities. For example, in 1994, a mathematics professor found a f justice in how Intels new Pentium chip did division in certain locatings. The media got a hold of this and there was proscribe publicity about Intel floating around. Intel explained to its consumers that the chances of this happening were minute. Intel admitted the flaw, but Andy Grove felt that it shouldnt concern nyone except the most pauperisming scientists. Intel wanted to stand behind there In tel Inside campaign, so they had to reevaluate their strategy. Within days of the incident, Intel offered all owners of Pentium based computers a free replacement of their Pentium chip and besidesk a $475 million issue off to cover the costs. Even though it was considered a disaster, only a few owners took a replacement chip. Intel focuses on being a best-cost provider. Their strategic target is the pass judgment conscious buyer. They want to give customers more value for their coin.Intels product line of reasoning carries right(a)-to-excellent attributes, several to numerous upscale features at low cost to the PC buyer. Overall, their concentrate strategies sacrifice kept them on the right track. However, Intel continues to attract competition, both from makers of software-compatible microprocessors and from makers of alternative-architecture chips. tog out ANALYSIS To provide a straightforward overview of Intels business smirch and whether it is sizable or unhealthy, a SWOT analytic thinking was conducted. This abstract will place if there is a good fit between Intels resource capableness and its external situation.STRENGTHS Intel is one of the most profitable companies in the world. It is a leader in its industry with over 80 percent of the worlds 250 million personal computers powered by Intel microprocessors and over 90 percent of all new PCs currently being assembled with Intel Inside. Intel is a recognized market leader with an attractive customer base and a good reputation of creating an advanced quality product. Some of Intels strengths are its financial condition, brand-name public figure, good heed attainments and technical expertness. Financial ConditionOne of Intels major(ip)(ip) strengths is the ability to fund for research & development. The company has a high degree of profitability, cash melt downs from depreciation, and low dividend payout. Therefore, Intel commode provide the financial resources and use their financial strength to fund the big(p) requirements associated with refurbishing existing plants and building new ones. Intels strategy to wield a leader status in the industry and to accommodate expected demand is necessary for them to stay forward of antagonists by producing more advanced products and building new plants or refurbishing existing plants.In recent years, Intel has built a new fabrication plant about every 9 months and announced that its terminus is to reduce that to every 6 months. Also, for the past 6 years, it has led the semiconductor industry in new s nearly investments. Brand Name control In 1990, Intel initiated a marketing program to build the Intel brand and show PC users the benefits of Intel technology and products. The reason for the program was to increase cut-rate sales of the Intel brand and abase sales of AMDs copyd microprocessors. Their marketing strategy was to ask PC makers to put a classifiable Intel Inside sticker on their machines.They also spons ored television and print advertising campaigns promoting that an Intel-based PC provided customers with ultimate quality, reliability, software compatibility, and value. This was a major success and created a good brand name image for Intel. Management Skills and Technical Expertise Talented and skilled individuals from the beginning managed Intel. They had the expertise to manage Intel by choosing the right individuals that had the scientific know-how to bring it to the book binding. Intels skill and expertise proved to be a strength back in 1985 when Intels primary business was the memory chip.Japanese competitors started producing and marketing their memory chips at lower costs than Intel. However, Intel had the skills and expertise to abandon the memory chip business and put their full energies into a secondary microprocessor business. They wanted to become leaders of the industry and they proved that they knew what needed to be done to accomplish their vision. WEAKNESSES co nversion Intel is one of the most successful companies and it is hard to find a impuissance in such an established firm. Intel is known for its strengths, competencies, and capabilities. However, one of Intels saplessnesses is the focus on primarily microprocessors.The diversification of companies into other industries allows them to be less speculative in case a rival developed a reform product. For example, Microsoft is fatten outing into the Internet business to become more diversified. America Online and Netscape are merging to enhance their core business. Intel could become even more successful if it were to broaden into other industries. The company can be in grave endangerment if another(prenominal) firm was to rise to the top with the manufacturing of microprocessors or if technology promoted a more efficient product than the microprocessor. Leadership After GrovesAndrew Groves has been the backbone of Intel for many years. Under Grove, Intel was very aggressive in pr otecting its technology. He is a hands-on manager whose high level of involvement and attention to particular proposition inspired and intimidated subordinates. A big part of Intels success is Groves leaders style, competitive ability, and innovative mind institute. Eventually, Groves will retire and the question will be what will happen to Intel? Will Groves successor lead Intel to remain on top. Andrew Groves has proved to be an excellent leader, but the leadership after him is questionable. OPPORTUNITIES commercialize opportunity is a big factor for shaping Intels strategy. Intel is equipped with the right resources and has the capability to pursue many opportunities that exist. The companys innovation has helped build alliances to expand the firms market reportage and competitive capability. Intel also has the ability to grow rapidly because of loaded increases in market demand. Innovation Andrew Groves has a vision of the PC as tomorrows information appliance. He wants to d eliver televisions, VCRs, game players, cable boxes, and telephones to be pushed to the background and bring PCs to be in the spotlight.Groves does not want to just lead in advancing the microprocessor, he wants to fully utilize the capability of the microprocessor and introduce a number of PC-based communications products to meet the broad hightail it of consumer needs. Some of the products that Intel has available are chip products used for keyboards, printers, copiers, and fax machines. These chip products are used to enhance cellular phones, pagers, digital cameras, and personal digital assistants. Intel is also manufacturing universal Serial Bus- single type of connector to stick printers, modems, CD-ROM drives, and other peripherals. separate innovative products include Intercast plug-in cards, a ProShare line of conferencing products, And an I960 RP processor. Intel has a software lab in Shanghai developing multimedia and 3-D content in Chinese. They have created software t o help popularize long-distance telephone calls on the Internet and a hardware-based cryptographic technology that provides levels of security for data communicated over the Internet. Intel is introducing new products and technologies on a weekly, sometimes daily, basis. They are gradually increasing their R&D budget to look for worth(predicate) ways to broaden their product line.Their reputation for innovation is among the best in the U. S. In fact, Intel was ranked thirdly for its innovation in 1997. strategical Alliances Alliances expand the firms market coverage and competitive capabilities. It is essential that Intel develop a close relationship with other PC component producers, manufacturers, software developers, cable TV companies, media and telecommunications companies, and entertainment companies. Before the mid-1980s the structure of the old computer industry was aligned vertically, in which each company sold their products based on their own proprietary technology.Th ey designed and built their computers themselves. Buyers had to commit to the building block package of one manufacturer. Since then, the computer industry is growing horizontally. Each product depends on another product. This is why it is important to collaborate with others. Products within each horizontal specialty should be compatible with other specialty products to make a powerful PC or other PC-based product. Growth Intel has the ability to grow rapidly because of soused increases in market demand. The process of making PCs has changed with that of the past. Only a few PC makers produced the components inside of the PCs.Therefore, the demand for Intels products increased. Intel had the ability to grow rapidly because it responded quickly to market demand and had the enceinte and expertise to develop advanced powerful products faster than competitors. THREATS spirit at Intels external milieu, there are some factors that create a threat to the company. Some of the threats Intel is facing are competition, slowdowns in market growing, and the bargain power of consumers. Competition In 1997, Advanced Micro Devices (AMD) and Cyrix were the two major competitors that challenged Intel by cloning Intels microprocessors and marketing them at lower prices.This created a major threat to Intels market share. A third competitor was developed by the fusion among Motorola, IBM, and Apple Computer. They were producing and marketing big businessman PC chips for Apples line of PCs and certain IBM PCs. For example, the provide PC offered a reduced instruction-set computing (RISC) processor which had a simpler instruction set and higher computing speeds than Intels chips. This was an attractive feature for the end user, which also imperil Intels market share. The competitors mentioned above are just three of the major companies that are a threat to Intel.There is also the possibility of other companies making a technological breakthrough by developing a more pow erful and cheaper product that will outlive Intel. For such reasons, Intel has to be innovative and ready for any possible external threat. Slowdown in securities industry Growth Intel is always planning ahead of things. They refurbish or build plants two years before the new product ever is produced. This could be considered an advantage or disadvantage. It is an advantage to Intel because they are constantly developing technologically advanced and more powerful products, which allows them to compete and be a leader of the industry.However, the major disadvantage is the possibility of the PC market slowing down. Intel could be hurt tremendously if the market growth slows down because they have already planned ahead and invested a lot of capital into the plants. Bargaining Power of the Consumer Cost pressures are also a threat to Intel. Consumers are demanding lower prices on products or higher quality for the prices they are paying. If a consumer can get the same product at a lowe r price from competitors, it can be a major threat to the company.Intel can twine bargaining power of the consumer by making sure the prices are low based on cost efficiency and the quality is maintained. The SWOT analysis provided the opportunity to view the companys overall position. An evaluation of Intels strengths, weaknesses, opportunities, and threats support the fact that above all Intel has established a healthy position in the industry. TESTS OF A WINNING STRATEGY Test 1 Goodness of Fit The goodness of fit test determines if a companys strategy is suitable for its internal and external situation in order to obtain market success.Intel is a member of the technology sphere of influence and in the semiconductor industry. Firms involved with technology must(prenominal) deal with the quick obsolescence that is inherent when dealing with computers. An example of this is Moores Law coined after Gordon Moore, Intels fo downstairs, who truthfully stated that the power and comple xity of silicon chips would figure of speech every year with proportionate decreases in cost. This external environmental situation causes two problems for companies in the 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 Intels strategy adequately deal with the constant change that is prevalent in its business environment? The Intels strategy is to cannibalize its own products. In other words Intel strives to make its own products obsolete. A Companys 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.Test 2 militant Advantage Test The competitive advantage test ascertains if a companys strategy leads it to have a sustainable competitive advantage over its rivals. The competitive advantages that Intel has are its brand image and research prowess. Intels brand name is a competitive advantage because it helps keep the sale of silicon chip clones from rivals down so that these companies do not grate Intels profitability and market share. If a company had a clone of equal performance, it would be easier for consumers to switch over if not for the power of brand name and awareness that keeps customers loyal.The strategy that Intel has is to increase the awareness and preference for its products. explore prowess is a competitive advantage for Intel. It has large amounts of capital compared to its competitors. For example, succeeding(a) year Intel will spend $3 billion on research and development, which is more than AMD generated in sales in 1998. Intel continues to produce innovative products faster than its rivals do in order to receive the lions share of profits so as to keep itself able to acquire the capital to produce these innovations. Test 3 procedure TestThe performance test ascertains if the companys strategy is helping the company become profitable and help obtain long-term market position. Located in the overtureory are several profitability ratios for Intel from 1983 until 1998. In cecal appendage A-E are graphs re toasting this data? In Appendix F are the actual numerical data. After 1986 is when Intel changed its strategy to what it is presently. The data used to compute these ratios was from the Intel case in Strickland and Thompsons Strategic Management 10th Edition. The 1997 and 1998 were compiled from data obtained from Intels homepage located at http//www. ntel. com. Appendix A shows the gross profit margin. The gross profit margin has, since 1986, been steady increasing and since 1990, has remained above fifty percent. This profitability ratio shows the amount of money that remains after making a product that is available for the company to utilize. This shows that the company is unattackable in this aspect. Operating profit margin is shown in Appendix B. This shows the profit of the company prior to interest payments and taxes taken out. The ratio was negative for the years 1985 and 1986. After 1986, the operating profit margin has been strong reaching a peak of 39. 4% in 1997. Appendix C let outs the net profit margin, which is the profit the company realizes. After posting a loss in 1986, the net profit margin of Intel has steadily ameliorate and strengthened. Since 1990, Intel has been positing profits higher than cardinal percent. It reached a profit peak in 1997 with a net profit margin of 27. 7%. Intel has at the present time has a dominant 75. 7 % market share. This is a dominant position since its next closest rival, Advanced Micro Devices (AMD), has merely fifteen and one-half percent of the market share. Its other competitor Cyrix has only 5. 6%.This data is represented in pie chart form in Appendix G. The data has shown that Intels strategy has successfully completed all of the tests and is thus a winning strategy. Its present strategy is allowing it to respond to the business environment and maintain its competitive advantages while raking in profits. Andy Groves Performance as CEO It is imperative to acknowledge Gordon Moore, his mentor, before discussing the performance of Andy Grove. Gordon helped to set the Intel culture as being one of low bureaucracy and set the standard of holding one-on-one meetings with his subordinates in order to help the rate of flow of information.Moore has is own law which stated that the power and complexity of the chip would double every eighteen months with proportional decreases in costs. This helped Intel from the onset set its sights on innovation and being a leader. Appendix F shows the numerical numbers for the return on stockholders equity (ROE) and return on assets (ROA). Appendix D and E show their values g raphically. These ratios are used to gauge how useful management is. Andy Grove became President in 1979 and was given more score control in 1987 when Gordon Moore served only as chairman.To adequately ascertain how puff up Andy Grove has been as CEO, an examination of the following these ratios are necessary. The ROE since 1987 has been strong with most years above twenty-percent as displayed in Appendix D. The highest value being in 1997 with 35. 99%. This ratio is put into perspective when one compares the ROE with that of the industry. The ROE-to- sedulousness ratio taken from Daily Stocks website which is 131. 4%. The ROA since 1987 has also been steadily increasing into the teens and lower twentys. The ROA-to-Industry for Intel is large 140. 4% from Daily Stocks website.This analysis shows that Andy Grove has done a superb job at Intel. Other factors concerning Andy Grove speak well of his performance as the CEO of Intel. His views have permeated into the corporate culture of Intel and have helped it become the dominant metier in its industry. The strategy-making style that Grove uses is that of a master strategist. The master strategist exerts strong influence over the strategy of the company. Andy Groves own view, which is his law, of only the paranoid survive has helped keep Intel on its toes and looking ahead to what is happening.This is shown by the fact that Intel builds factories years before they are needed in order to stay on top of the market. Andy Groves leadership has helped Intel not fall into the pitfall of becoming stagnated by its own success. The mar that Andy Grove has in being a manager is he is too good. As stated in the SWOT analysis, Andy Groves imperishable retirement from Intel could set the company floundering unless the company finds someone as well qualified and with an analogous approach to management style. INDUSTRY ANALYSIS The U. S. icroprocessor industry comprises of more than 100 companies that design, manufacture, and market semiconductors to original equipment manufacturers and personal computer end users. The following information is a profile of the dominant economic characteristics of the microprocessor industry. Market Size $300-$350 billion worldwide consumption. Scope of Competitive Rivalry Global. Market Growth Rate 15-20 percent annually. Stage in Life roll Rapid growth and takeoff. Number of Companies in Industry About 174 companies. Customers 80 million microprocessors for use in PCs and network servers.Degree of Vertical Integration conglomerate forward and backward integration. Ease of Entry/Exit High immersion roadblocks in the form of capital requirements. Technology/Innovation Rapid technological changes microprocessor production. Product Characteristics Highly standardized. Scale Economies Companies can realize economies of scale. Learning and cognize Effects Strong. Capacity Utilization Manufacturing efficiency is higher when capacity is increased. Industry Profitability Above par. 1995 Industry Usage 1997 Industry Usage hallucination Not a valid embedded object.The two pie charts above display the industry practise in 1995 and 1997. As shown, the computer sector is the main user of the microprocessor. Within two years, the computer sector increased its usage by 11% and is expected to continue increasing over the next several years. Computers are the main focus in the microprocessor industry, which is why many rivals are competing for market share in that sector. THE FIVE FORCES MODEL OF challenger Rivalry among competing manufacturers in this industry is a strong force of competition. It is focused on such factors as performance features, new product innovation, quality, and brand image.New product innovation plays a major role in the microprocessor industry because it determines the intensity of rivalry among competing firms. Companies are trying to gain better market position and competitive advantage. Threat of potential introduction is a w eak force due to the fact that it is hard for a newcomer to break into the market. Moreover, economic factors put a potential entrant at a great disadvantage because of the learning and experience curve effects. The existing microprocessor companies have advantageous positions in the industry from the experience they have gained from being in the industry longer than new entrants have.Leaders of the industry, like Intel, have vertically unified their manufacturing to make products at low efficient costs that entrants would not be able to compete and be exposed to enraged competition. Other entry barriers are economies of scale, brand preferences and resource requirements. Competition from substitutes is a weak force because there are no substitutes in the industry. The microprocessor is needed to manufacture many types of equipment, such as, TV sets, VCRs, cameras, wristwatches, kitchen appliances, mobile phones, and stereo equipment.There is no other product that can be used in p lace of the microprocessor. Power of suppliers is moderate. Some companies rely on suppliers to supply a component more cheaply than industry members can make themselves. This can increase their supplement power. However, suppliers also tend to have less leverage to bargain over price and other terms of a sale because the industry they are supplying is a major customer. A microprocessor company usually orders in large quantities, which in turn decreases suppliers leverage. Also, major companies are integrating backwards to self-manufacture the component.Backward integration allows companies to negotiate fond terms with suppliers. Power of customers is a strong force in the industry primarily because buyers are large and purchase much of the industrys output. Purchasing in large quantities gives a buyer enough leverage to obtain price concessions and other well-heeled terms. For instance, PC makers have a substantial bargaining leverage when decision making to use Intels chips in their computers. International Competitiveness Due to fierce international competition, the microelectronics industry has become highly globalized. To compete effectively, U. S. icroelectronics suppliers must manage to all domestic and foreign markets. The profit margins for certain products are so slim that only through international sales can a supplier generate profits adequate to remain in business. survival in this highly international industry requires microelectronics manufacturers to be first to market with leading-edge products that focus on high-end technology. Only those suppliers who introduce the breakthrough products can maintain profit margins that will support research, development, and the purchase of new equipment for manufacturing the next generation product. COMPETITOR ANALYSISIntels rivals Advanced Micro Devices, Cyrix Corporation, Motorola, IBM, Apple Computer, and the Power PC are favorably positioned, but not in the same leading position as Intel. Intel dom inates the computer industry. Intel works closely with alliances to introduce many innovative products that give them a leading edge over their rivals. Intels products are distinguished from their competitors, which make it difficult to clone. In 1997, Intels two biggest competitors were Advanced Micro Devices (AMD) and Cyrix, both of which made Intel-clone microprocessors and marketed them at prices below those charged by Intel.A partnership among Motorola, IBM, and Apple Computer to produce and market Power PC chips for Apples line of PCs and for certain IBM PCs represented a third competitor. Sun Microsystems was a fourth competitor, producing and marketing a microprocessor line that competed against Intel chips in a limited number of computing applications. These competitors can possibly take some of the market share away from Intel. Therefore, Intel needs to maintain market dominance by proceed to make a high quality microprocessor with process technology improvements.These f actors will help Intel stay ahead of their competitors. Advanced Micro Devices (AMD) had carved out a niche providing less expensive microprocessors than Intels mainstream offerings. AMD, confident that NexGen had strong technology despite its low sales, promptly scrapped its own design for a chip to compete with Intels Pentium Pro in favor of a design (subsequently named K6) that NexGen had under development. Whereas previous generations of AMD chips had been clones of Intels designs, AMD and NexGen engineers had designed the K5 and K6 from scratch.AMD hoped that its K6 chip would be an attractive alternative to Intels higher-priced Pentium Pro chip. AMD was planning to introduce 180, 200and 233 megacycle versions of its K6 chip during 1997 and a 300 MHz version was the plans for 1998. AMD expected that 5 of the top 10 PC manufacturers would be using the K6 in some of their models during 1997 analysts projected that AMD could sell up to 5 million K6 chips in 1997. The K6 was expec ted to sell for about 25% less than Intels Pentium Pro chips. IBM and Compaq announced in 1997 that they would use AMDs K6 processors in their low-end machines.During the first three weeks of September, nearly half of all the desktop computers sold through retailers used the AMD K6 microprocessor, according to market researcher PC Data Inc. That is a dramatic improvement from last year when 92% of those same machines had Intel chips inside. Today, only 43% of retail PCs sold use Intel. Industry analysts expected Cyrix to be more successful in marketing its M2 against Intels MMX Pentium in the price-sensitive home computer and notebook segments. The stigma of a non-Intel chip posed a high barrier for Cyrix to hurdle in, penetrating the high-end desktop and notebook segments.Motorola, Apple, and IBM initiated a partnership in 1991 to develop the Power PC chip as an alternative to Intel chips. After production delays and disagreements over design, IBM and Apple finally agreed to a c ar park design in 1995. The Power PC along with Sun Microsystems UltraSPARC chip was a reduced instruction-set computing (RISC) processor, whereas, Intel, AMD, and Cyrix chips were complex instruction-set computing (CISC) processors. Chips incorporating RISC designs used simpler instruction sets to achieve higher computing speeds than CISC processors. Also, RISC designs had better floating-point performance.KEY SUCCESS FACTORS Technology-Related KSFs Intel has many key success factors that helped it prosper in the market place. Intel has product innovation capability and the funds available to invest in research and development. Intels reputation for innovation was among the best of any U. S. company, it ranked third on innovation among all U. S. companies. Besides investing in R&D, Intel had to gut and refurbish its existing fabrication plants every three years to produce the new chips and sometimes build a new plant to accommodate the expected demand.Year after year, building new plants became very expensive because they used exotic tools and equipment to etch finer and finer lines on a silicon chip. Finer etching also required more labor and production time. Intel estimated that each succeeding generation of microprocessors required more than double the capital and manufacturing capacity for production. Intel intended to be among the handful of chip producers that could afford to build top-of-the-line chip fabrication plants. Manufacturing-Related KSFs Intel has the flexibility to manufacture a range of models and sizes.Besides the products already in the market, it has additional products in various stages of development. For instance, Intel has a segmental brand including the Celeron, Pentium II, and Merced chip which is expected to be available in 2000. Distribution-Related KSFs Intel works closely and distributes to PC component producers, PC manufacturers, software developers, cable TV companies, media and telecommunications companies, entertainment c ompanies, and information-communications appliance for both the home and the workplace.Intel is involved with Microsoft, Pointcast, America Online, IBM, lake herring Systems, and others to develop and promote Internet software. Marketing-Related KSFs To diminish the sales of clones of Intel microprocessors marketed by AMD, Cyrix, and others, Intel initiated a marketing program in 1990 to build the Intel brand and make PC users aware of the benefits of genuine Intel technology and products. Intel asked PC makers to put a distinctive Intel Inside sticker on their machines. Manufacturers who used Intel microprocessors in their PCs also used the logo on their packaging and in their ads and brochures.The company also sponsored many television and print advertising campaigns to promote the Intels brand name image. Skills-Related KSFs Intel has the ability to develop innovative products and product improvements. Also, it has the ability to get impudently conceived products past the R&D p hase and out into the market very quickly. They are always ahead of their competitors and always find new ways to improve their product. Intels team consists of many experienced employees using top of the line technologies. Organizational CapabilityIntel has the ability to respond quickly to shifting market conditions and customer needs because of its many years of experience and the ability to invest in R&D. Andy Groves management style also plays a major role in organizational capability. His concern for the flow of information helped instill Intels corporate culture and allows every employee to hand to the company. INDUSTRY PROSPECTS AND OVERALL ATTRACTIVENESS The factors that make the industry attractive are the large use of computers at home, work, libraries, coffee shops, and bookstores. Computers allow easy access to Internet, e-mail, and research.PCs use up-to-date technology, which makes life easier and daily tasks simpler. The fastest growth was expected to occur in Asia outside Japan, where use of PCs was still comparatively limited and where the market potential was largely untapped. The Chinese market was the largest in the Asia-Pacific region (with projected growth of 25-35 percent annually over the next several years), followed in order by Korea and Japan. Also, PC sales in Europe were expected to grow 8% annually. The profit outlook seems favorable because a computer at home or work will be a necessity.The factors making the industry unattractive was that Intel was producing new products too quick for the market to catch up. New developments were occurring at such a fast and furious pace that the end result was unpredictable. There was a lot of competition going on. The Internet was central to most of the upcoming developments in information technology. This is the reason why Intel is mainly focused on the computer sector. As Andy Grove put it, The Internet is like a 20-foot tidal wave coming thousands of miles across the Pacific, and we are in kayaks. Its gaining momentum, and its going to lift you and drop you.It affects everybodythe computer industry, telecommunications, the media, chipmakers, and the software world. FUTURE PROSPECTS Their loading to R&D creates future generations of products and the manufacturing processes they use to make them, while their capital expenditures ensure the availability of state-of-the-art factories that allow them to deliver high-volume, high-performance microprocessors efficiently. Looking into the future, they will continue to manufacture quality microprocessors that will live up to the Intel name and strive towards perfecting their existing ones.