Intel's Competitive Strategy: Microprocessors, DRAM, and Market Dominance

Intel's Strategy for Gaining Competitive Advantage in Microprocessors

Intel initially fostered close ties with IBM, beginning with Project CRUSH in 1980. Project CRUSH was a sales effort intended to secure 2,000 design wins that year, and because of the IBM contract, Intel earned far more than its original goal. Moreover, the success of Intel's early-generation microprocessors helped propel IBM into fame and fortune. The success of IBM would, in turn, aid Intel in becoming the industry leader — even as their relationship with IBM diminished less than a decade later. The main strategy Intel used to gain a competitive advantage in microprocessors was developing a horizontal alignment approach to manufacturing.

Instead of diversifying product development, Intel chose to narrow its focus on one specific area that kept the company leagues ahead of its competitors, especially its American ones. A horizontal alignment strategy also meant that open architecture became the hallmark of the PC revolution. When major players like Compaq and Microsoft joined forces with Intel, the horizontal alignment strategy and open architecture model of PC manufacturing caught on and drove Intel's overall success.

In 1983, Intel launched Project CHECKMATE, which coincided with the development of the next-generation 80286 microprocessor. However, it was not until Intel developed the 80386 that the company's manufacturing and marketing strategies truly blossomed. Following the successive successes of its increasingly sophisticated microprocessors, Intel licensed IBM to manufacture the 80386. By allowing IBM to manufacture its own 386 microprocessors, Intel became the "sole source" of the microprocessor for all other PC manufacturers, supplying the needs of the entire industry. Intel strengthened its manufacturing processes and helped create the economies of scale that would initiate the PC revolution.

How Intel Sustained Its Competitive Advantage

Interestingly, IBM became complicit in Intel's tremendous market-share advantage over any other microprocessor manufacturer. After purchasing the exclusive rights to manufacture 80386 microprocessors from Intel, IBM opted out of the competitive retail market for 386-loaded computers. Funneling funds instead into research and development of the next generation of microprocessors would severely backfire for IBM, especially as companies like Compaq were lurking around the corner. Intel used IBM's refusal to purchase the next generation of microprocessors as a boon rather than a crisis.

Compaq came to Intel's rescue almost immediately, purchasing 386 processors for use in a fledgling consumer machine. The venture was risky but paid off brilliantly, and Intel was poised to launch the next-generation 80486 microprocessor well before IBM could come to the table. Meanwhile, Microsoft began developing operating systems compatible with successive generations of microprocessor technology.

Conclusion

Intel chose to succeed in microprocessors instead of DRAM — a decision that would impact the company for years and propel it toward market dominance. The decision to halt further development of a 1-megabit DRAM chip was a risky one. That chip was four times faster than any DRAM then on the market. Walking away from what might have led to a considerable gain over Japanese DRAM manufacturers may have seemed foolish in 1984, but it proved to be one of the keys to Intel's success with microprocessors. By 1985, Intel had taken stock and recognized that manufacturing DRAM was already a losing proposition: it consumed one-third of Intel's research and development expenditures while yielding only five percent of revenues. Intel did not succeed in DRAMs early on largely because of Japanese footholds in process technology — and that, ultimately, proved to be a blessing in disguise for the microprocessor manufacturer.