Case study: Intel Read the case study and answer the below question. 1) How woul
ID: 346995 • Letter: C
Question
Case study: Intel Read the case study and answer the below question.1) How would you describe th business level strategy (Cost Leadership, Differentiation, Focused low cost, Focused Differentiation) of Intel with regard to the microprocessor market? Case 11 Intel Corporation: 1968-2013 Charles W.L. ill School of Business, University of Seotle, WA 981095, June 2013 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 S53 billion and net profits of $11 bilion. Meanwhile, OF INTEL Intel's only viable competitor, AMD, which in the early 2000s had been gaining share from Intel, lost $1.2 billion Two executives from Fairchild Semiconductor, Robert on sales of $5.4 billion. 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 Fairchild Semiconductor had been established irn that are based on 1957 with funding from Sherman Fairchild, who had nd smart phones echnology 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 Moore were chaffing at the bit under mpany whose chip designs are valued for their low Intel has a line of chips aimed at mobile devices-the 1968 Noyce and Atom c consumption, which extends battery life. While in 2012 both decided it was time to strike out on their own. Such reputations of Noyce and Moore that they were ver, able to raise $2.3 million to fund the new venture "in an afternoon on the basis of a couple of sheets of paper C-173 om chips-microprocessors incnt practices imposed from New ogy were found on 95% of smart phones over 30% of all mobile computing devices, a cate were the and gory that includes tablets and PC notebooks: Moreov of its Windows 8 2012 Microsoft issued a version
Explanation / Answer
Intel Corporation is perhaps one of the finest examples which describe the limitation of Porter's Generic Strategy assumptions. According to Porter, a firm should pursue either differentiation or cost leadership but not both at the same time. He coined out the term "stuck in the middle" and argued that firms pursuing both at the same time will eventually lose market share or relevance.
As we consider the microprocessor business of Intel, the company is employing huge cash for the R&D (19% of sales in 2012) to come out with value-based offerings which otherwise is not available for the competition. The evidence is its ability to develop microprocessors with 22 nm transistors while most of the competitors are offering transistor size in the range of 45 to 32 nm. This is a differentiation strategy. Similarly, when it focuses on the development of Intel brand for end-users of PC market, it is also relying on the value (e.g. quality, reliability, speed, and so on) it offers. However, at the same time, there is a focus on reducing the manufacturing cost by improving manufacturing yield and cost control through statistical process control. The internal "copy exactly" is also another name of "standardization" which helps realize low cost from the very beginning of a product line manufacturing. According to the case facts, the company first keeps the price of new products at premium level due to its uniqueness and then reduces it when the yield improves giving benefit to the end user of its cost reduction process.
So, in summary, Intel is having glimpses of both cost leadership and differentiation in its business strategy. But if still, we want to choose among them, we will say it is differentiation because even when the company is reducing cost internally, it is providing the benefit to the customers in terms of price which, in itself, is a 'value' to the customer which the majority of the competitors were unable to deliver.