Case study: Intel Corporation 1968-2003
Case study: Intel Corporation 1968-2003
Intel has made numerous strategic changes to its business model over the last 30 years to address changing market conditions and therefore maintain its ability to add value, buttressing the organizations effectiveness at capturing profits. The technology landscape has been extremely dynamic over this period and companies that have not adapted rapidly have faced extinction. Intel is amongst the survivors while others such as Compaq no longer exist.
The first major course correction that is relevant to this discussion is Intel's transition from being a supplier of memory chips to designing and manufacturing microprocessors. Though Intel's exit from the low margin highly competitive memory chip market was evolutionary, it was nevertheless perhaps the most critical "added value" preserving action the company has taken. Cross licensing patents in the memory chip business made it very difficult for Intel to control its pricing. There were many other suppliers in the DRAM market with lower cost structures, suppressing margins in the industry. Intel's ability to add value was being inhibited by this abundance of competitors with an aggregate production capacity greater than the market was demanding.
Transitioning to the microprocessor business allowed Intel to create a new portfolio of patents, and set it up to dominate the market for personal computer microprocessors. After gaining huge success as a microprocessor supplier to IBM, Intel wisely broke free of IBM's requirement that the company license its technology to secondary suppliers. This decision dramatically improved Intel's ability to add value and extract profits from the PC business. As a result of this decision Intel's leverage relative to the PC manufacturers such as IBM, Compaq and Dell dramatically increased. The OEMs were now clamoring for the scarce supply of the most advanced microprocessors that they could only source from Intel. Per Exhibit 1 Intel’s revenue
Intel has made numerous strategic changes to its business model over the last 30 years to address changing market conditions and therefore maintain its ability to add value, buttressing the organizations effectiveness at capturing profits. The technology landscape has been extremely dynamic over this period and companies that have not adapted rapidly have faced extinction. Intel is amongst the survivors while others such as Compaq no longer exist.
The first major course correction that is relevant to this discussion is Intel's transition from being a supplier of memory chips to designing and manufacturing microprocessors. Though Intel's exit from the low margin highly competitive memory chip market was evolutionary, it was nevertheless perhaps the most critical "added value" preserving action the company has taken. Cross licensing patents in the memory chip business made it very difficult for Intel to control its pricing. There were many other suppliers in the DRAM market with lower cost structures, suppressing margins in the industry. Intel's ability to add value was being inhibited by this abundance of competitors with an aggregate production capacity greater than the market was demanding.
Transitioning to the microprocessor business allowed Intel to create a new portfolio of patents, and set it up to dominate the market for personal computer microprocessors. After gaining huge success as a microprocessor supplier to IBM, Intel wisely broke free of IBM's requirement that the company license its technology to secondary suppliers. This decision dramatically improved Intel's ability to add value and extract profits from the PC business. As a result of this decision Intel's leverage relative to the PC manufacturers such as IBM, Compaq and Dell dramatically increased. The OEMs were now clamoring for the scarce supply of the most advanced microprocessors that they could only source from Intel. Per Exhibit 1 Intel’s revenue