1. Department of Business Administration
College of Management
HARVARD BUSINESS SCHOOL │ 9-703-427 │ REV: NOVEMBER 22, 2005
Case Study 1
Intel Corporation: 1968-2003
How did Intel transform from the CPU supplier to the main
supplier of the building blocks for the Internet economy?
Presented by Group 5
Chiang, Yi
Lin, Jie-Heng
Wu, Hsuan-Yi
Course Lecturer: Prof. Chung-Jen Chen
12 October 2011 Fall 2011 MBA Management of Technology 1

2. Department of Business Administration
College of Management
Outline
0 About Intel Corporation
1 Initial dominance and decline in DRAMs
2 Success in microprocessors
3 Becoming the builder of the Internet
4 Conclusions
5 Q&A
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3. Department of Business Administration
College of Management
0 About Intel Corporation
Spring 1968 Robert Noyce and Gordon Moore left Fairchild Semiconductor to start
Intel with the venture capitalist Arthur Rock. Later Andy Grove joined
with a group of team from Fairchild.
Robert Noyce Gordon Moore Arthur Rock Andy Grove
1927-1990 1929- 1926- 1936-
1970s 1980s Late-1990s
DRAM Microprocessor Internet
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4. Department of Business Administration
College of Management
Intel in
DRAM Market
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5. Department of Business Administration
College of Management 林玠恒 D00741002
1 Initial dominance and decline in DRAMs
1970 Intel produced the world’s first 1-kilobit DRAM, 1103 (Goldilocks strategy).
Intel first
introduced 1K
DRAM (Lead)
TI and Mostek
had better design
and low cost.
Huge Lost in -72% -99% -87.5%
Intel lost a full
generation to Net Income (1981) (1985) (1986)
Japanese (16K
vs. 64K)
Intel faced strong
Employee -16% -15%
price competition laid off (1985) (1986)
from Japanese
Intel introduced
1-megabit DRAM
but has lost the
market Source: Intel Case Exhibit 4 Volume Trends in DRAMs
1985 Intel exited DRAM market.
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6. Department of Business Administration
College of Management 林玠恒 D00741002
As first mover, why failed in the end?
1. From radical innovation to incremental innovation…
2. Appropriability and Complementary…
Models of Innovation Who profits from innovations?
Henderson and Clark (1990) Teece (1986)
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7. Department of Business Administration
College of Management 林玠恒 D00741002
1 Initial dominance and decline in DRAMs
How would you explain Intel’s initial dominance and
subsequent decline in DRAMs?
Key factors to  The industry was driven by necessity to cross-license
chip price:
among established players. Through the Credibility of
• Shape of
learning curve Noyce, Intel became part of that sharing network.
• Capacity  Overestimated the entry barrier of DRAM market.
expansion
 Reacted too late for Moore’s Law in DRAM technology
(the costs of computing fall in half every 18 months).
 Lost the advantage of dominant design due to its less
complementary assets
 Gave up the business too late.
“We understood that to gain a 10% market share in DRAMs we would have to
make a $600 million investment in a new fab. We were doomed to fail because
there was industry overcapacity.” --- Grove
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8. Department of Business Administration
College of Management
“DRAM gave us fame,
but EPROM gave us riches.”
“We had microprocessors.”
---Andy Grove
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9. Department of Business Administration
College of Management
Intel in
Microprocessors
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10. Department of Business Administration
College of Management 江 懿 B97203032
2 Success in microprocessors
1971: Intel 4004 1972: Intel 8008 1974: Intel 808 1978: Intel 8086 y 8088
1980 “Project Crush” + Design wins (Intel + IBM)
- IBM open standard
- Success in format war
- Being a free rider by design wins
1983 License control
- Restrict licenses to four company
- More design wins and more revenue
- Set up the industry standard
Platform building: x86
1982: Intel 80286 1985: Intel 80386 1989: Intel 80486
Second-source strategy Sole-source strategy: becoming proprietary
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11. Department of Business Administration
College of Management 江 懿 B97203032
2 Success in microprocessors
Intel vs. AMD
“AMD’s products were big, ugly, and late.” (mid-1980)
“By the Pentium generation, AMD couldn’t get any trade secrets and couldn’t
copy our microcode, so our products developed quite differently.” (1995)
Tom Dunlap,
senior vice
president
and general 1993: Intel Pentium 1995: Intel Pentium Pro 1997: Intel Pentium II 1999: Intel Pentium III
counsel
1991: AMD AMx86 1996: AMD K5 1996: AMD K6 y AMD K6-2 1999: AMD Athlon K7
(Classic y Thunderbird)
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12. Department of Business Administration
College of Management 江 懿 B97203032
2 Success in microprocessors
1990 Success marketing: the “Red X” campaign specifically against AMD, and the
“Intel inside” end-user branding and advertising program to OEMs.
Dennis Carter,
head of
corporate
marketing
1994 Pentium bug: good response to product flaw and effective end user promotion
1990-1995 Architectural competition: RISC vs. CISC (Intel)
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13. Department of Business Administration
College of Management 江 懿 B97203032
2 Success in microprocessors
Why has Intel been more successful in microprocessors?
Strong Exhibit 6 Comparative Intellectual Property Considerations
Proprietary DRAMs Microprocessors EPROMs
Patent Protection Law V V
Trade Secrets V V V
Copyrights V
Trademarks V
Chip Protection Act V
Successful Invention of the Emergence of Intel’s architecture Discontinuity from
microprocessor as the dominant design for PCs RISC technology
Protecting
Strategies
Afuah (2003) Team Up Block Intel sole-source
Team Up
Source: lecture slide Intel+IBM
Design Wins Run Fight against AMD Intel+HP
Block
Wintel PC + Intel inside
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14. Department of Business Administration
College of Management
Intel in
Internet Market
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15. Department of Business Administration
College of Management
The PC was at the center of computing during
the 1990s, but if you look at the next decade, it is
the Internet. The PC is still very important in the
Internet era, but there are lots of other things that
are important as well. People are going to access
the Net off their cell phones, and more cell
phones are sold today than PCs. Networking is
becoming more important, whether it’s in the
home, small business, or enterprise. If you want
to be involved in this new era, you have to look
for the new growth opportunities. That’s what we
are trying to do.
---Craig Barrett (1999)
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16. Department of Business Administration
College of Management 吳宣儀 D00741004
3 Becoming the builder of the Internet
Evaluate Intel’s shift in strategy under CEO Craig Barrett.
1998 Craig Barrett was named CEO in March, succeeding Grove.
• PhD in material science; Former Professor at Stanford University.
• Joined Intel in 1974; COO in 1993; President in 1997; CEO in 1998
Aggressive Strategy Moves
▪ To enter new business: spent roughly $12 billion on
acquisitions and internal ventures in new markets such as
networks, wireless, communications, and online services
Craig Barrett
from 1998 to 2000.
1927-1990
▪ To shift to the new position: changed the corporate
mission statement to “being the preeminent building-block
supplier to the worldwide Internet economy” in 1999.
2001 Huge lost in 2001
Lost in -13% -65% ?
Net Income (1998) (2001) (2002)
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17. Department of Business Administration
College of Management 吳宣儀 D00741004
3 Becoming the builder of the Internet
Why? 新官上任三把火
Intel invested a large amount in such a short time, but not
matured enough for the new competition and new business.
However, it could have been worse if Intel did do so.
1. There was a recession and decreasing on world PC
microprocessor revenue (Exhibit 8).
2. The competition in new business was even stronger than
its core business (see Exhibit 10b).
3. Internally, Intel had a series of implementation errors
(p.15).
2001-2002 Intel shut down businesses ranging from Web hosting, network switching,
and network appliances to Intel consumer products. Barrett introduced a
back-to-basics program to achieve operational excellence.
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18. Department of Business Administration
College of Management 吳宣儀 D00741004
3 Becoming the builder of the Internet
Do you think that Intel should maintain these strategy moves
in 2003? Yes, because the strategic position was right to the
future market and demand. The lost was temporary due to
ill-management and unfocused diversification strategy.
32-bit Celeron (1999) Microprocessor
Value-based lower prices
for higher volumes Mainstream High performance
32-bit Celeron 32-bit Pentium 32-bit Xeon 64-bit Itanium
32-bit Pentium (1997) (1999) (1997) (1998) (2001)
Low- and mid-range
Low-end consumer PC Mass PC corporate server and Corporate server
workstation
32-bit Xeon (1998)
Client part Network connectivity Server/data farm
Convergence of computing and communications is the major
64-bit Itanium (2001) growth driver of the Internet, and we are in both.” – Craig Barrett
2002 Intel successfully pulled a generation ahead of AMD.
Intel had roughly 89% market segment share in mobile CPUs.
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19. Department of Business Administration
College of Management 吳宣儀 D00741004
5 Conclusions
Technology Strategies Maidique and Patch (1978)
DRAMs Microprocessors Internet
First-to-Market or Protecting PC and
Intel Lead Intel Lead
Leader Strategy server platforms
Second-to-Market Establishing new
or Fast Follower standards in
Strategy Beat by Japanese Block network and
communications
(WiFi)
Late-to-Market or
No complimentary
Cost Minimization Run and block ?
assets
Strategy
Market Intel got the lead for
Segmentation or Lost the market segmentation ?
Specialist Strategy (brand value)
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20. Department of Business Administration
College of Management
Q&A
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