Summer 1998

Certification

The undersigned, certify that this document is my work product, and that I reviewed and proofread the document carefully and completely before submitting it for grading.

Andy Gruenbaum

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• See the bibliography # 1, 2, 3, 5, 9, 11 & 12.

1. A non-Windows based operating system being the operating system of PCs. As the market over the next few years moves away from the desktop and the need for processor speed becomes less intense, Intel will be in the position of having to create a solid secondary base for generating sales.
2. Since revenues have been stagnant for more than a year, Intel is caught depending on IS managers upgrading to new PCs to address internal computing needs. The emphasis of IS managers has shifted to developing intranets and extranets to address the needs of internal users and business customers. A faster processor will not matter at all if the needs of the business customer are not being addressed and if the applications that demand the additional processor speed are scarce.
3. The shift away from computer speed and a focus on connecting more houses to the internet leaves Intel falling short. If a user wants to operate a network computer or to run WebTV, they do not need an Intel-based PC in their house. Without the demand for the product, the sales and revenue will continue to drop.
4. Intel’s dominance has already led to FTC investigations and could easily lead to DOJ involvement. As the DOJ has taken on Microsoft, they may also go after other companies that have lopsided market share.
5. Since Microsoft has 90% of the software market, any ruling that affects Microsoft will have potential ill affect on Intel. As the power of the dominating operating system is reduced, so might the desktop system that powers the operating system be reduced.
6. Since Intel’s next generation 64-bit processor is going to be coming out ahead of Microsoft’s 64-bit operating system, Intel will be forced to create an early market for its new processors. This market will likely be the Unix workstations.

• See the bibliography # 6, 10 & 11.

1. With the simultaneous introduction of the i860 and the 486 processors, Intel showed themselves to be a market-driven organization. These processors are based on two different types of electronic architecture. If they were a company determined to go with the better technology, they would have chosen the better technology. Instead they opted to introduce them both and let the market determine which was the preferable product.
2. Also, Intel’s current advertising campaign of the people running around in shiny, colorful suits is indicative of being market-driven. I picture a product-driven company as being a company that sells a product based upon its merit. This would involve lots of numbers and comparisons with competition. Although Intel provides the numbers, they also make the customer want to buy the product based on the “cool” factor. “If you own a PC powered by Intel, you are much cooler than if you do not.”
3. “Intel Inside” was a very successful marketing effort. If Intel was obsessed with their product, they would likely be much more content to let a product speak for itself. Intel, however, has taken this marketing campaign into the computer industry and become a very recognizable name. Great marketing and a quality product make consumers demand Intel when performance is a necessity.
4. Lastly, if a company depending solely on its product, the market would be very unforgiving if the product had problems. Because Intel had quality problems in the earlier Pentium models, doubt was created in the minds of consumers. Although the problems were fixed with a recall, Intel’s name was temporarily tarnished. Intel’s marketing efforts easily overcame the doubt that was created in the Intel processors.

• See the bibliography # 6.

1. During the late 60’s, Intel was trying to become established and to introduce viable product
2. During the 70’s, Intel’s philosophy was “to push the envelope of product design and to be first to market with the newest devices”. As stated in the case, this strategy served Intel well until 1979. Up until 1979, Intel was first to introduce the next 4 generation of DRAMS. The next generation of DRAM was introduced by Fujitsu. Thus, Intel left the decade of the 70’s losing its technical edge in DRAM technology to the Japanese.
3. During the 80’s, Intel was involved in two very aggressive campaigns to establish the Intel processor as the standard computer processor. The projects were referred to as “CRUSH” and “CHECKMATE”. When Intel surpassed the goals these projects were meant to achieve, Intel emerged as the processor standard for the personal computer market.
4. During the 90’s, Intel focused on branding. “Intel Inside” means the PC has genuine Intel parts inside. Since not all computers have Intel chips inside, Intel attempted to create the perception that not all computers are of the same quality. Consumer are being led to believe the premium paid for an the “Intel Inside” logo is worth it. This branding allowed the new processors to be sold at incredible profits. These profits were then invested in research and development to insure Intel maintained its technical superiority.

• See the bibliography # 4, 6, 9, & 11. Using the Generic Value Chain Analysis, the following examples standout as being sources of competitive advantage for Intel:

1. Technologically, Intel is developing 2 families of their chips in tandem. This allows flexibility in how quickly newer generations of processors are released. It also allows Intel to reduce the processors features slightly on one release of the chip if it will allow them to hit certain price points within the desktop or laptop market. This type of organization gives them advantages over their competitors who are just trying to catch up to the most current releases of Intel’s products.
2. Because of the volume of processors Intel manufactures, they have a strategic advantage. They are able to make more chips and because of this volume, they are able to maintain higher profit margins on the processors. This rareness makes Intel a company not easily intimidated by its competitors.
3. The sheer volume of Intel processors in the market makes the “Intel Inside” logo very difficult to imitate. When Intel began this program, they received some resistance from a few computer manufacturers. When the remaining manufacturers joined those who were already a part of this marketing campaign, Intel was able to truly give the perception of quality when their logo was on the computer. Because of the advertising, any computer that does not say “Intel Inside” will be of questionable quality in the eyes of the consumer.
4. Although some of Intel’s competitors sell processors to some of the same computer manufacturers Intel does, none of them sell processors to all of the PC-based computer manufacturers. Not only do consumers believe Intel to be the highest quality product, all of the companies that manufacturer computers have recognized this and promote the Intel processor over all processors. This trait is another rare quality that puts all of Intel’s competitors at a disadvantage.
5. Intel can react very quickly to competitive pressures. One of Intel’s reactions to the low end PC market is a product code-named “Whitney”. This product will integrate many components of the PC motherboard onto the processor. This product is possible because of the wealth of technical knowledge Intel possesses. This technical knowledge and flexibility makes Intel very difficult to imitate.
6. Although Intel has had a couple of problems with releases of their processors, these problems have given Intel the opportunity to show its commitment to its consumers. If Intel’s competitors were forced to recall their processors like Intel has done, the recall would have been financially and logistically difficult for them. Intel may charge extra for their processors, but the quality of the customer service still makes Intel’s products valuable to its customers.

• See the bibliography # 6, 7, 8, 10, 11 & 12. Intel should continue to develop processors, but they need to focus on discovering other markets that are more profitable. With the recent attention Microsoft has received from the Department of Justice, Intel must prepare for a similar encounter. In preparation for this, Intel’s management must review all decisions to try and avoid DOJ scrutiny. To address these concerns, some of the following recommendation should be considered:

1. One way to do this would be to consider creating “Baby Intels”. This method would allow Intel to focus on the many opportunities available within the computer and telecommunications industry. Intel’s present size does not allow them to be as agile as they should be. The creation of smaller more focused business units would allow Intel to more specifically address the needs of the different technology communities. This focus would provide Intel the information it needs to develop products to serve the industries it elects to create products for. Whether the focus is on network products or video cards, Intel needs to create new markets where they can maintain the profit margins they have grown accustomed to making. Additionally, the creation of “Baby Intels” might satisfy DOJ concerns regarding anti-trust issues.
2. Because of the decision middle managers made with Intel’s DRAMs products in the 1980, Intel pursued the more profitable microprocessor market. The executives of Intel need to get some advice from those same middle managers. If the middle managers believe the company’s products need a complete redesign or some sort of modification to reach an untapped niche, their opinions need to be considered. Intel must focus on markets that take advantage of their people and product assets.
3. Intel must maintain a non-proprietary standard on their future generation of processors. The Pentium II models use a proprietary slot to incorporate the processor onto the motherboard. If Intel continues this proprietary and non-standard approach, they will stumble. Because IBM focused so heavily on their own standards and not industry standards during the 1980’s, the industry soon left them behind. If Intel wants to continue to manufacture proprietary equipment, they will see innovations within the industry that will also leave their technology behind.
4. Intel must be the processor for all operating systems. Since the future of Windows based products is somewhat uncertain, Intel must make inroads into the Unix market. Also, the recent popularity of palmtop computers should encourage the development of processors to fill that growing need. Intel needs to understand the segments emerging within the industry. If Intel misses an opportunity, the only party to blame will be themselves.

• See the bibliography # 10 & Exhibit A.

1. The amount of money invested in research and development should be a key in how Intel’s performance is evaluated. Successful companies of the past relied on earning per share and the revenue that was generated. In the technology sector, these measurements are no longer as reliable. If a company continues to spend substantial amounts of its revenue on bettering its product, it should continue to have a product that exceeds the product of its competitors. Besides the quality of the product improving, a company that can afford to spend substantial amounts of money on R & D has to be making large amounts of money. It is a catch-22. If the company does not have the revenue, they cannot spend as much on R & D. If a company does not spend the money on R & D, the revenue stream will slowly dry up. Intel and many other technology companies have success because their revenue allows the large R & D budgets.
2. Additionally, market penetration of a companies products should also be used. Intel processors are powering an overwhelming majority of the PCs in the world. This puts Intel on a pedestal that will be very difficult for any of its competitors to reckon with. This dominance gives Intel and many other companies that have a similar dominance the ability to introduce additional products. The new products are guaranteed an audience due to the penetration of the present product. As Microsoft has an instant audience awaiting its Windows 98 product, Intel garners similar attentions by introducing additional products and more powerful processors.

• See the bibliography # 3, 6 & 10. By using the strategic groups framework, the “duopoly” of Intel and Microsoft would quickly shed some additional light on the challenges and opportunities that Intel has ahead of it.

1. As long as Microsoft’s sales into the desktop market are strong, Intel will continue to have success within this market. As Microsoft’s desktop software sales fall, the need for PCs powered by Intel processors will also decline.
2. Microsoft will continue to market the benefits of using Office 97 and other related desktop products. Because of the assured income from the desktop market for some years to come, Intel needs to maintain the technological edge of its processors. Additionally, they need to continue to explore other growth areas like telecommunications. The redistribution of R & D resources will allow Intel to maintain its present edge, but to begin to establish a superiority within additional markets.
3. If the Department of Justice declares Microsoft a monopoly and breaks them up, the fragmenting of Microsoft’s software developing efforts may reduce the need for upgrading to more powerful PCs. This would be very detrimental to the growth of Intel-based PC sales.
4. Because Microsoft has a reputation of delaying software releases, any release Intel might have that would rely on a Microsoft operating system release to take full advantage of the processors ability, could be jeopardized. Thus, Intel should be, and has been, in discussion with other developers of operating systems to insure a product is available to fully utilize any improvements in Intel processor performance.
5. As the internet becomes more and more a fixture of everyday life, the need to bring down the expense of internet access will grow. As the costs come down, Intel needs to insure they have a processor that can perform properly, both technically and financially. Microsoft has invested in WebTV, Windows CE, and other internet-based products in preparation of the internets longevity. Since Microsoft is developing contingency plans, Intel would be very wise to do everything they can to plan for a future that the present PC is not a large part of.

BIBLIOGRAPHY

EXHIBITS

Exhibit A