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Internet Mini slighton 10 Intel Corporation J. David hunger In 1968, Robert N. Noyce, the co-inventor of the integrated circuit, and Gordon E. Moore left Fairchild Semiconductor transnational to fix a unsanded high-pitched society. They took with them a young chemical engineer, Andrew plantation, and c every last(predicate)ed the in the altogether upstanding Intel, short for integrated electronics. The phoner successfully make money by manufacturing data processor keeping modules. The beau monde produced the rootage microprocessor ( as well as called a chip) in 1971. A secern turning point for the new companionship was IBMs end in the betimes 1980s to select Intels processors to authorize IBMs new line of own(prenominal) computers.Today, more than 80% of the worlds PCs run on Intel microprocessors. One of the friendships early innovations was centralizing its manufacturing in giant chip fabrication plants. This allowed Intel to launch chips at a lower embody than its competitors who made custom chips in teeny factories. The founders back up a corporate burnish of disagree and commit in which engineers were encouraged to constantly think of new ship canal of doing things faster, cheaper, and more reliably. Massive investment by Japanese competitors in the late mid-seventies led to go prices in computer memory modules.Faced with possible bankruptcy, chief executive officer Moore, with plantation as his second in ask (Noyce had retired from active focal point), made the strategic decision in 1985 to abandon the computer memory business to focus on microprocessors. intercommunicate growth in microprocessors was base on Moores prediction that the number of transistors on a chip would double any 24 months. In what was curtly called Moores Law, Gordon Moore argued that microprocessor engineering would improve exponentially, regardless of the extract of the economy, the diligence, or any one company.Thus, a company had to be at the brochure of innovation or risk falling behind. According to Moore, If you lag behind your contestation by a generation, you dont just fall behind in chip performance, you get undercut in cost. ______________________________________________________________________________ This case was prep bed by prof J. David Hunger, Iowa State University and St. Johns University. procure 2006 by J. David Hunger. The copyright h sexagenarianer is solo responsible for case content.Reprint permission is totally when granted to the publisher, Prentice-Hall, for the books Strategic vigilance and line of work Policy11th Edition (and the internationalistic version of this book) and Cases in Strategic Management and Business Policy11th Edition, by the copyright holder, J. David Hunger. Any early(a) return of the case (translation, any form of electronics or other media) or sale (any form of partnership) to another publisher will be in violation of copyright law, unless J. David Hunger ha s granted an additional written permission.Sources acquir able-bodied upon request. Reprinted by permission. To raise money, Intels management agreed to make do 12% of the companys stock to IBM for $250 million, a run a risk it later repurchased. Moores Law soon became part of the corporate culture as a fundamental expectation of all employees. Andy woodlet replaced Gordon Moore as Intels chief executive officer in 1987. Moore continued to serve on Intels come along of directors until 2001. During plantations tenure as CEO from 1987 to 1998, Intels stock price rose 31. 6% annually and revenues grew from $1. 9 billion to $25. 1 billion.With 55% of its sales coming from exterior the United States, Intel was transformed into a ball-shaped corporation. The company became central to the growth of personalised computers, booth phones, genomic research, and computer-aided design. Strategic Decisions Lead to commercialize Dominance IN ORDER TO succeed IN THIS HIGH-TECH BUSINES S, MANAGEMENT WAS constrained TO MAKE A NUMBER OF unfounded STRATEGIC DECISIONS. FOR EXAMPLE, INTELS BOARD OF DIRECTORS give IT DIFFICULT TO VOTE FOR A final cause IN THE EARLY 1990S TO displume $5 BILLION TO MAKING THE PENTIUM MICROPROCESSOR snickFIVE TIMES THE AMOUNT inevitable FOR ITS PREVIOUS baulk.IN flavor BACK ON THAT BOARD MEETING, THEN-CEO ANDY orchard REMARKED, I think back PEOPLES EYES LOOKING AT THAT CHART AND GETTING BIG. I WASNT EVEN SURE I BELIEVED THOSE NUMBERS AT THE TIME. THE PROPOSAL act THE union TO BUILDING NEW FACTORIESSOMETHING INTEL HAD BEEN backward TO DO. A WRONG DECISION WOULD cerebrate THAT THE fraternity WOULD END UP WITH A KILLING AMOUNT OF OVERCAPACITY. BASED ON GROVES PRESENTATION, THE BOARD fixed TO TAKE THE GAMBLE. INTELS RESULTING MANUFACTURING EXPANSION lastly equal $10 BILLION, BUT RESULTED IN INTELS DOMINATION OF THE MICROPROCESSOR BUSINESS AND huge CASH PROFITS.In 1994, soon after the creative activity of the Pentium micro processor, users noticed a small disgrace in the chip and began demanding replacement chips. The company soon fixed the problem and quick sent their computer- manufacturer customers new Pentium chips to replace the imperfect ones. point though Intel had no promise to deal directly with end users, the commonwealth to whom the computer makers sold their PCs, plantation and the board decided to replace all sorry Pentium chips wherever they might be. This was an expensive decision, save one for which the firm received high praise end-to-end the industry.Realizing that future victimisation of microprocessors would involve RISC applied sciencea technology Intel did not and so deportCEO Grove persuaded Hewlett-Packards CEO in 1994 to combine HPs work in RISC technology with Intels ability in harvest-tide development. This joint venture took on the multibillion-dollar outgo of creating 64-bit chip architecturethought to be crucial to Intels continued success. on with Bill G ates at Microsoft and Steve Jobs at Apple, Andy Grove had become a major figure in the computer industry at the dawn of the 21st century.Although Grove retired as CEO in 1998, he continued to serve until 2005 as Intels Chairman of the Board. Like Noyce and Moore before him, Grove took on the mantle of corporate guru. His 1996 book, solo if the Paranoid Survive, in which Grove depict how companies should deal with new competitors that emerge all at once and change the fundamental shape of the industry, was widely read. Even with no official title, Grove continued to serve the company as its senior adviser. Intel After Andy Grove A New Strategic Direction CRAIG BARRETT REPLACED ANDY GROVE AS INTELS CEO FROM 1998 TO 2005.HE WAS adequate to(p) TO PERSUADE THE BOARD IN 2002 TO authorize $28 BILLION IN THE in vogue(p) MANUFACTURING PLANTS AND TECHNOLOGIES DURING THE LONGEST DOWNTURN IN THE fly the coop INDUSTRYS HISTORY. THE BOARD HAD BEEN broken THAT NEW PLANTS COULD BURDEN T HE INTEL WITH OVERCAPACITY IF DEMAND FAILED TO MATERIALIZE. BY 2005, FIVE FACTORIES WERE ABLE TO MAKE 21? 2 TIMES MORE stopS THAN THE OLDER-GENERATION gathering PLANTS1. 25 MILLION CHIPS DAILY. BECAUSE OF THE HUGE comprise TO BUILD THIS slip OF PLANT, RIVALS TI, AMD, AND IBM EACH HAD alone ONE PLANT OF THIS ADVANCED TYPE IN 2006.TI CONCEDED THAT ITS CAPACITY TO PRODUCE THE LATEST-TECHNOLOGY CHIPS WAS peculiar(a) TO ONLY 250,000 PER DAY. During Barretts tenure, the company also invested billions of dollars in businesses outside the computer food mart that largely failed. In 2001, the firm exited from fashioning cameras and other consumer electronics gear after get wind customers Dell and Hewlett-Packard (HP) complained that Intel was competing against them. In 2002, Intel took a $ one hundred million charge against earnings when it scrub its entry into Web hosting.In 2004, Intel attempted to go after Texas Instruments with its version of digital manoeuver processors, a key ingredient in cell phones. Unfortunately, cell-phone manufacturers ignored Intels harvest-tide in favor of those by TI. manufacture analysts concluded that Intel had a steep schooling curve outside of personal computers. Even with this checkered history outside the PC business, in 2004 CEO Barrett launched an ambitious strategic move. Instead of Intel Inside, the plan was to be Intel Everywhere. under(a) the new strategic plan, Intel would offer chips that would be used in all sorts of applications, including PCs, cell phones, flat-panel TVs, portable video players, wireless household networking, and medical diagnostic equipment. The company targeted 10 new product areas for its chips, primarily in the consumer electronics and communications grocery stores. This plan was based on the operation in multiple industries from an parallel of latitude to a digital format. According to Barrett, conference is going digital. Entertainment is going digital. We are able to bring our expertise into assorted areas where we really had no unique cogency before. Supporting this announcement, Intel introduced a chip based on a new technology called WiMax that could be used to deliver high-speed wireless Internet access throughout a small city for rough $100,000, one-tenth the cost of fiber-optic lines. competition Heats Up MEANWHILE, INTELS PC CHIP BUSINESS WAS RUNNING INTO SOME DIFFICULTY. WHEN, IN 2004, INTEL AND HEWLETT-PACKARD RELEASED THE ITANIUM SERVER CHIP THEY HAD articulationLY highly-developed THREE geezerhood EARLIER, CRITICS CALLED IT THE ITANIC. DELIVERED TWO YEARS LATE AT A COST OF $2 BILLION, THE 64-BIT CHIP PERFORMED MORE easily THAN INTELS OWN 32-BIT CHIP AND SEEMED TO cast NO FUTURE.IN FEBRUARY 2004, CEO BARRETT ANNOUNCED THAT THE COMPANY WOULD RECONFIGURE ITS 32-BIT XEON CHIP FOR SERVERS AND ITS PENTIUM 4 FOR DESKTOPS SO THAT THEY COULD palm 64-BIT APPLICATIONS. UNFORTUNATELY, ADVANCED MICRO DEVICES (AMD) HAD ALREADY BEGUN sell ITS OPTE RON SERVER CHIP IN APRIL 2003. THE OPTERON HAD THE power OF RUNNING BOTH 32-BIT AND 64-BIT APPLICATIONS. SURPRISINGLY, INTELS JOINT VENTURE PARTNER HP heady TO SELL SERVERS WITH AMDS OPTERON CHIP on WITH INTELS PRODUCTS. BY DECEMBER 2003, AMD HAD OBTAINED 3. 9% OF THE MAINSTREAM SERVER MARKET AND WAS TAKING check AT THE PC MARKET AS WELL.Since 2003, AMDs chips had been faster, used less power, generated less heat, and cost less than did Intels. As a result, Intels theatrical role of the market in servers fell from almost 100% in 2001 to less than 85% in 2006. Its market role in laptop PCs declined from 88% in 2001 to 86% in 2006. Its share in screen backgrounds also dropped from 80% in 2000 to 74% in 2006. Dell, the biggest PC maker in terms of sales, decided in May 2006 to abandon its policy of only using Intel chips in its PCs by oblation AMD chips in its computer servers. This was a hard blow to Intels continued mandate of the market.AMD was able to make a momentous de nt in Intels market share by focusing its throttle resources on microprocessors for PCs and servers and letting others add the stay chips. When Intel ran into a parts shortage for its desktop PCs in December 2005, AMD quickly dispatched its sales people to fill the void. AMD-based desktop PCs began to oerlook the shelves at Best Buy, Circuit City, and other stores. By mid-2006, AMD held a 26% share of the U. S. server chip market and a 48% share of the multi-core processors, which put at least two chips on a single piece of silicon.As a result, AMDs gross margin of 58. 6% exceeded Intels of 55. 1% during the first quarter of 2006. In response, Intel began offering the first in a family of revamped chips called Core 2. These chips used less null while offering better performance. Intrigued by AMDs success, industry analysts wondered if AMD would be able to continue offering innovative products without succumbing to the supply problems that had dogged it in the past. Reinventing t he Company IN MAY 2005, CRAIG BARRETT TRANSFERRED THE CEO POSITION TO capital of Minnesota OTELLINI AND BECAME CHAIRMAN OF THE BOARD.PAST-PRESIDENT OF INTEL UNDER BARRETT, OTELLINI CONTINUED BARRETTS STRATEGIC DECISION TO PUSH THE COMPANY INTO MULTIPLE FIELDS WITH NEW CHIP PLATFORMS. PC yield WAS SLOWING. CELLULAR AND handheld DEVICES WERE NOW COMPETING FOR THE PRIMARY SPOT IN PEOPLES LIVES. OTELLINI AGREED THAT HE MUST REINVENT INTEL OR guinea pig A FUTURE OF EVENTUAL DECLINE. THE PC BUSINESS APPEARED TO HAVE REACHED MATURITY. REVENUE GROWTH HAD fairishD 13% FROM 2002 TO 2005, BUT ANALYSTS WERE ESTIMATING THAT THE COMPANYS SALES WOULD ONLY GROW 7% IN 2006 TO $42. BILLION. PROFITS, WHICH HAD BEEN INCREASING ON AVERAGE 40% ANNUALLY FROM 2002 TO 2005, WERE EXPECTED TO abstract ONLY 5% IN 2006 TO $9. 5 MILLION. Ortellini proposed that Intel should not just make PC microprocessors, but should also create some types of chips, as well as software, and then combine them into what he called platforms. Since taking over as CEO, Ortellini had reorganized the company, created business units for severally product area, and scattered the processor experts among the units. He added 20,000 people in 2005. Note Intels annual and quarterly reports and SEC filings are available via the companys clear site at www. intel. com. ) Paul Ortellini was the first non-engineer to serve as Intels CEO. He put particular emphasis on marketing because he thought that the only way Intel could succeed in new markets was by communicating more clearly what technology could do for customers. This went contrary to the corporate culture in which engineers had been the key players who made ever-faster chips and then let marketers try to sell them.Ortellini created development teams with people having a cross section of skills. Chip engineers, software developers, marketers, and market specialists directly worked together to develop breakthrough innovations. legion(predicate) engineers w ere frustrated with the changes and their loss in status. well-nigh of the design specialists who had been working on the Pentium 4 before it was cancelled left Intel for jobs at TI or AMD. Ortellinis ultimate goal was to provide the manufacturers of everything from laptops and entertainment PCs to cell phones and hospital gear with complete packages of chips and software.The old logotype of Intel Inside was to disappear, replaced by an updated Intel logo with a swirl to signify movement and a tagline of Leap Ahead. Meanwhile, the Pentium brand was to be slowly phased out and replaced by Viiv, Centrino, and Core. Intel was on a new path. It was leaving the Grove era behind and moving into chartless territory. This was not the first time that the company had bet everything on a new strategy. Would Intel succeed with its new strategic counseling?