Competitive Rivalry
The entire industry is characterized by its very high level of competitive rivalry, between not only global competitors who compete on semiconductors and microprocessors, but also on entire board-level products including motherboards and networking equipment circuitry. This translates into a heavy emphasis on time-to-market and the ability to create product designs that can quickly be turned into new products and product line extensions over time.
Company Analysis
In analyzing the company's inherent strengths, weaknesses, opportunities and threats, a SWOT analysis framework has been defined. Beginning with the company's strengths, Intel has exceptional market position and branding awareness in the microprocessor market. It has strengthened this position with its innovative use of cooperative advertising programs for PC manufacturers standardizing on their processors, and for channel resellers reselling their products. This is the Intel Inside program and is considered the best run cooperative advertising framework in the high tech industry. Second, Intel is exceptionally strong in the area of strategic collaboration (Gelinas, 2009) and has successfully partnered with a diverse set of solution and technology providers, from General Electric to Hewlett-Packard and many other companies as well. As the company relies in a steady stream of innovation, the core strength of Research & Development (R&D) is exemplified in the company's many advances in microprocessor, networking integration and multimedia new products development. All of these strengths together have given Intel the ability to scale into a strategy that concentrates on multimedia, networking and core processing.
For all of the company's strengths, they also have significant weaknesses as well. First, the level of customer concentration in terms of computer server, PC, laptop and mobile processor is highly skewed to the higher end brands and lacks any competitive breadth. This customer concentration is also exemplified in how dependent Intel is primarily on American-based technology companies and the need they have to break into cellular and mobile-based markets for processors more aggressively. A second weakness is the cultural belief that technology can in the end still create markets. This mindset is seen in a few of the products, systems and microprocessors the company has created that have not attained market success.
Intel however has been managed exceptionally well from a financial standpoint and has exceptional opportunities as a result. First, there are the opportunities to grow through acquisition in key new market areas including visualization, server virtualization and the development of low-end processors for mobile phones. Second, the NetBook market, albeit a highly competitive one, is a very significant opportunity for Intel as well, and one they have been able to capitalize on with their low-cost, low power consumption microprocessor designs. The company's ability to move quickly into high performance wireless networking products, from the chipset on a motherboard all the way to completing an entire system is full of potential revenue and profits for the company. The WiMax market is exceptional in its growth potential for Intel (Edwards, 2005).
The threats that Intel is facing are both more economically driven and also more regulatory in scope. First, the global economic recession is creating a reduction in demand from the company's core PC manufacturing base of customers. The NetBook orders however have helped the company to continually grow despite the slow-down. The economic recession however is slowing down purchases of large-scale systems in enterprises, and this is the most significant threat long-term from a revenue standpoint to Intel. The additional threats of regulatory commissions throughout the European Union (EU) that are forcing the company to spend more both in legal fees and also in additional product costs are significant. The net effect of the EU is driving up the cost to produce their products over time. The last major significant threat is the continued threat of severe price cutting and intense competition as a result. This can already bee seen in the many smaller competitors on mobile devices as well.
Financial Analysis
In terms its financial performance, Intel lags industry averages across the ratios of Gross Margin (%), Current Ratio, Total Debt to Equity and Inventory Turnover. See Table 1, Financial Analysis of Intel and Three Competitors in the Appendix for a thorough analysis. First, on Gross margin (%) Intel delivered in 2009 to date a performance of 55.46% against an industry average of 56.82%. Qualcomm, their most entrenched competitor in the cellular market, generated 69.36% and all other competitors in the comparison fell below the industry average. On the Current Ratio, Intel was again below industry average with 2.54-year-to-date in 2009, with an industry average of 3.82. Qualcomm and Broadcom, two competitors in the broader mobile marketplace had higher Current Ratios. On Inventory Turns, Intel is significantly below industry average of 14.41, at 10.6 for the current year. Broadcom is at 15.5 and Qualcomm at 22.57, which illustrates how much more aggressively these cellular phone providers are being in the management of their supply chains. In terms of Total Debt to Equity, according to Bloomberg's analysis Intel is at the industry average for this measure of financial performance at .05% relative to its competitors who are significantly higher levels of debt exposure.
Recommendations
The second immediate recommendation is to define a competitive analysis of what Intel can do from an inventory management and supply chain standpoint to increase inventory turns within the quarter.
The short-term recommendation within the year is to concentrate on design-in wins at the major cellular phone and WiMax providers to ensure their gross margins can increase. This is critical for the company to continue growing profitably, and apparently Broadcom and Qualcomm both are gaining margin growth as a result of beating Intel in this area.
For the long-term, Intel needs to go after a more effective approach to managing their supply chain and coordination with suppliers in new and emerging markets. These longer-term implications of a revamped supply chain will make it possible for the company to adopt Radio Frequency identification (RFID) tags for example to have more efficient warehouses. All of these investments over the long-term will hopefully lead to greater levels of inventory turns in the future.
Appendix
Table 1: Financial Analysis of Intel and Three Competitors
Gross Margin % - latest
Gross Margin % - 2008
Gross Margin % - 2007
Peer Avg: 56.82
Peer Avg: 56.82
Peer Avg: 56.55
Broadcom Corp.
52.49
52.49
51.48
Intel Corp
55.46
55.46
51.92
Qualcomm, Inc.
69.36
69.36
69.78
Texas Instruments Inc.
49.96
49.96
53
Current Ratio - latest
Current Ratio - 2008
Current Ratio - 2007
Peer Avg: 3.82
Peer Avg: 3.82
Peer Avg: 3.54
Broadcom Corp.
3.84
3.84
4.03
Intel Corp
2.54
2.54
2.79
Qualcomm, Inc.
5.12
5.12
3.91
Texas Instruments Inc.
3.78
3.78
3.42
Total Debt to Equity - latest
Total Debt to Equity - 2008
Total Debt to Equity - 2007
Peer Avg: 0.05
Peer Avg: 0.05
Peer Avg: 0.05
Broadcom Corp.
0.10
0.12
0.13
Intel Corp
0.05
0.05
0.05
Qualcomm, Inc.
0.13
0.15
0.11
Texas Instruments Inc.
0.09
0.07
0.10
Inventory Turnover - latest
Inventory Turnover - 2008
Inventory Turnover - 2007
Peer Avg: 14.41
Peer Avg: 14.41
Peer Avg: 15.34
Broadcom Corp.
15.55
15.55
17.4
Intel Corp
10.6
10.6
10.01
Qualcomm, Inc.
22.57
22.57
24.28
Texas Instruments Inc.
8.93
8.93
9.69
Source: OSU Access to Bloomberg financial analysis of Intel
Bibliography
Business Week (2006) - Inside Intel Cliff Edwards, Business Week, New York January 9, 2006, Issue 3966,-page 46. Accessed from the Internet on July 20, 2009 from location:
http://www.businessweek.com/magazine/content/06_02/b3966001.htm
Don Clark. (2008, June 2). Chip Makers Put Rush on Mobile Gadgets; Pocket-Size Devices Being Pushed by Intel Spark Product Scramble. Wall Street Journal (Eastern Edition), p. B.6.
Michael A Cusumano, & Annabelle Gawer. (2002). The elements of platform leadership. MIT Sloan Management Review, 43(3), 51-58.
Cliff Edwards. (2007, January). Apple's iFuture Depends on Partners. Business Week (Online),1
Cliff Edwards in San Mateo, Calif.. (2005, April). INTEL'S WIMAX: LIKE WI-FI ON STEROIDS. Business Week,(3930), 42.
Cliff Edwards, & Peter Burrows. (2009, April). INTEL TRIES TO INVEST ITS WAY OUT OF A RUT. Business Week,(4128), 44.
Gelinas, D.. (2009, June). GE jumps back into PERS. Security Systems News, 12(6), 25-26.
Hayashi, A.. (2008). How to Replicate Success. MIT Sloan Management Review, 49(3), 6-7.
Intel (2007) - Intel Corporation: ADDING MULTIMEDIA Intel Technology Allows Nurses to Spend More Time with Patients Physician Business Week: Atlanta: March 6, 2007,-page 110. Accessed from the Internet on July 21, 2009 from location:
http://www.intel.com/pressroom/archive/releases/20070220comp.htm
Ethan Mollick. (2006). Establishing Moore's Law. IEEE Annals of the History of Computing, 28(3), 62.
Chris Nuttall. (2009, July 15). Intel signals revival in chip demand. Financial Times,22.
Michael E. Porter. (2008, January). THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY. Harvard Business Review: Special HBS Centennial Issue, 86(1), 78-93. .
Shamin Shirodkar, & Karl Kempf. (2006). Supply Chain Collaboration Through Shared Capacity Models. Interfaces, 36(5), 420-432,480-481.
Figure 1:
Porters' Five Forces Model (Porter, 2008)
