Intel Corporation Has Progressed From

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 result of these costly constraints it is rare to find a new entrant into the market. Typically ne entrants are formed from mergers and acquisitions of existing competitors and their continued attempts to dominate the higher-volume, lower price segments of the market. 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.