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Intel Case Study
Intel Case Study
W h a t w a s In t e l’ s St r a t e g y f or D RAM ?
Intel’s Strategy with DRAM
Innovative Design: Intel was the first to develop DRAM. Moor’s
Law was the brain child of Gordon Moore who was the founder.
The law was based on the demand of memory . Intel also
produced World’s first 1Kb DRAM.
Price High in early life-cycle: make money and reinvest in
subsequent generations.
Move Quickly to New generations: As competitors offered
substitute products and overall market price decreased, Intel
moved to new generations.
Thus, Intel emphasis was on product design, not so much on
process development or realizing efficiencies through
manufacturing .
Why was Intel unsuccessful
in the DRAM Market?
Japanese Entered the Market
› Access to Capital with lower interest rates.
Japanese investors had a more long term view
than US investors.
› Related industries helped advance DRAMS (eg
Nikon)
› Sophisticated Demand: DRAMS were used across
different products
› More competitive industry: with greater
competition Japanese firms had greater need
to be efficient, which increased their access to
get trained labor.
› Strength in manufacturing: Yields were high as
80%, where in US it was around 60%.
Why was Intel unsuccessful
in the DRAM Market?
Japanese Strategy
› Closer relationships with equipment
suppliers, enabling them to develop
manufacturing machinery that
produced higher results.
›
› The strategy was build on building
capabilities and working to improve
process development.
›
Why was Intel unsuccessful
in the DRAM Market?
Japanese Institutional Factors
› Japanese banking Systems provided
lower cost of capital by channeling
funds through loans.
› What is the implication of having lower
interest rates in silicon industry? And
how it relates to pricing strategy?
› Japanese Stock market revolved around
long-term investment horizons.
› Continuous investment despite
economic downturns.
›
Why was Intel unsuccessful
in the DRAM Market?
Increased complexity
› Each subsequent generation was more
complex in terms of design and
manufacturing.
› Firms with better manufacturing process
had more competitive advantages.
› US firms failed due to overreliance on
product strategy and lack of access to
capital
Wrong Strategy
Why was Intel unsuccessful
in the DRAM Market?
Wrong Strategy
› Intel though that pushing product design
through new features
› Lack of process capabilities and efficient
manufacturing capabilities resisted
putting new features to market.
› Japanese also entered the EPROM
market
›
What did Intel learn?
Be careful with unidimensional (one
product) strategy
Protect your technological innovations or
avoid commodity business. When a
novel technology becomes a commodity,
the company(s) with higher
manufacturing capability wins.
Competitive advantage is temporary. Life
span of strategies are getting shorter.
Use current profits to develop
complimentary capabilities.
Intel Corporation: Entry to
Microprocessor
Market share in memory chips (DRAM) was in steep decline
• Existing capabilities, Circuit Design (CD )& Technology Design (TD) did
not match competitive dynamics
• Exploration did not focus on manufacturing scale (& large market)
t size , t h e r e w a s a sh if tHigher
t ow a r dCapacity
s t o Cy r ixand
a n dCheaper
AM D Microprocessor
Creating and sustaining competitive
advantage in microprocessors
Substitution
THREATS Intel’s Response
Hedged against adoption of RISC by releasing
iv e a r ch it e ct u r e , e sp e cia lly RISC
Introduced Pentium (improved version of x86)
›
›
OS that were not tied to x86 architecture›(eg
Intel backed
NT) OS other than Windows like Lin
Partnered with OEMs to promote Processors as well as PCs through
ems Motto “ The network is the Computer”
Hedged by getting into servers with 32-bit Xeon Processor in 1998.
Creating and sustaining competitive
advantage in microprocessors
Saturation
THREATS Intel’s Response
Gr ow t h in PC t a p e r e d of f Concentration on Mobile computing and Intern
›
Creating and sustaining competitive
advantage in microprocessors
Buyer Power
TH REATS Intel’s Response
Hedged against adoption of RISC by releasing i-860
uyers wanted RICS architecture
› made industry more dependent on C
Intel inside campaign
Introduced Pentium (improved version of x86)
›
Building of Motherboard through forward integration
›
ecalling Pentium Processors Replaced all the microprocessors
Creating and sustaining competitive
advantage in microprocessors
Supplier Power
THREATS Intel’s Response
Intel
con t a ct s n e ce ssa r y never
f or Cuasked for
st om solu
custom
t ion s solutions, rather focused on st
›
›
Cases were dropped by virtue of Intel’s goodwill in rep
Accused three times by FTC › suppliers appropriate value from Inte
Intel showed that
Creating and sustaining competitive
advantage in microprocessors
Complement Power
THREATS Intel’s Response
cr osoft ‘ b a r g a in in g Pow e r ›
CREATE market ecosystem by investing in comple
Partnerships with Apple (later in 2006), Linux-Red h
›
›
DRAM vs Microprocessors
Disadvantages withWhat
DRAMIntel did right with Microprocessor