Case study 11: Intel Corporation 1968 - 2013 Read the case study below and answe
ID: 342820 • Letter: C
Question
Case study 11: Intel Corporation 1968 - 2013 Read the case study below and answer the questions1) How would you describe the business level strategy of Intel with regard to the microprocessor market? 2) What are the source of Intel’s long term competitive advantage in the microprocessor business? 3) Given Intel’s historically strong competitive advantage, why is the company now facing significant challenges? Case 11 Intel Corporation: 1968-2013 Charles W.L. Hill schol f Business, University of Washinglon Seotle, WA 981095, June 2013 ness, University of Washington INTRODUCTION operating system that ran on ARM chips, rather than Intel chips, creating a potential threat to Intel's core PC business. In 2012 Intel was the leading manufacturer of micropro- cessors for personal computers in the world, a position that it had held onto for more than two decades. Over 80% of all personal computers sold in 2012 used Intel microprocessors. The company reported revenues of $53 billion and net profits of $11 billion. Meanwhile, Intel's only viable competitor, AMD, which in the early 2000s had been gaining share from Intel, Jost $1.2 billion on sales of $5.4 billion. OF INTEL Two executives from Fairchild Semiconductor, Robert Noyce and Gordon Moore, founded Intel in 1968. Despite its historic dominance, the future looked Fairchild Semiconductor was one of the leading semi- uncertain for Intel. The rise of mobile devices had led conductor companies in the world and a key enterprise to a strong substitution effect, with sales of PCs fall in an area south of San Francisco that would come to ing as consumers switched to smart phones and tablets be known as Silicon Valley. Noyce and Moore were no for many of their computing needs. In the first quarter ordinary executives. They had been among the eight of 2013, global PC sales fell 14% on a year over year founders of Fairchild Semiconductor, Noyce was gen- basis according to the research firm IDC. This was the eral manager at the company, while Moore was head worst yearly decline since IDC started tracking PC sales of R&D;·Three years previously, Moore had articu- PC sales had lated what came to be known as Moore's Law. He had in 1994, and the fifth quarter in a row that fallen. At the same time, sales of smart phones and tab- lets were booming. ID would grow almost 60% in 2013, a ments would exceed those of portable PCs observed that since 1958, due to process improvements the industry had doubled the number of transistors that could be put on a chip every year (in 1975 he altered this C predicted that sales of tablets nd that tablet ship- to doubling every two years) The crux of the problem for Intel is that most tablets used microprocessors that are based on Fairchild Semiconductor had been established in 1957 with funding from Sherman Fairchild, who had nd smart phones technology licensed from ARM Holdings PLC, a British backed the founders on the understand Semiconduc Camera and Instrument Corporation on New tor would be a subsidiary of his Fairchild York. By and Moore were chaffing at the bit under mpany whose chip designs are valued for their low power consumption, which extends battery life. While Intel has a line of chips aimed at mobile devices- the 1968 Noyce ps-microprocessors incorporat ogy were found on 95% of smart phon ting ARM's management practices imposed from New York, and es in 2012 both decided it was time to strike out on their own. Such devices, a cate were the reputations of Noyce and Moore that they were able to raise $2.3 million to fund the new venture "in Windows 8 an afternoon on the basis of a couple of sheets of paper chi and gory that includes tablets and PC notebooks Moreover, 12 Microsoft issued a version of its C-173
Explanation / Answer
Intel business level strategy regarding microprocessor market was simple, produce low cost chip with high volume. Initially Intel would price microprocessor at premium and then when manufacturing yield increases cost of microprocessor would drop by 30 to 40%. Intel would continuously increase the performance of its chip, this enabled intel to vanquish several potential competitors. Intel also used low cost high volume strategy to wipe out competitors. This was the source of intel long term competitive advantage. Intel concentrated only on Personal computers, this lead to the development of only pc microprocessors but know due to rise of mobile phones PC are finding strong substitution effect. This as lead to decrease in sales of PC. Since intel is not so strong in manufacturing of microprocessors of mobile it is facing significant challenge. Intel should quickly adopt new realities. Intel should start working on new microprocessors which can be used in mobile phones. Intel is not new to the industry of microprocessor. It has all required ingredient for manufacturing microprocessors for mobile phone. Intel should have strategic partnership with any of the top mobile phone vendors to manufacture microprocessors.