Intel Punit

Strategy Assignment
Punit Rajmohan Roll No: 140
Apply the tetra threat framework in analyzing Intel's defense strategy to sustain competitive advantage in microprocessors.
Whenever we think of Santa Clara, California based company Intel, we probably think of microprocessor chips that serve as the brains of personal computers. But the company over the years has been expanding its horizons well beyond chips for laptops and desktop computers. They want to touch every human on earth through its technology. But, this brings along a significant amount of risks and threats. But, Intel has successfully survived threats and tough times, including its successful shift from memory to processors (1974 1984). Intel started up with various defense strategies and activities to get sustainability and efficient competitive advantage over its competitors and ward off the threats and risks it faced.
Threat of Imitation
To stay on the leading edge of the process technology, Intel relied on innovation and product design. It attracted lot of competition and attraction for competitors. It tried to handle the threat of imitation in the following ways through various defense strategies at different point in time:
1. When producing DRAM it tried to get to economies of scale by its capacity power and also by licensing and contracts to other people for producing DRAM for mass market. Also this statement can be supported from the fact stated in case that initially when they came into market, they took many parts and supplies from outside vendors since from starting they were targeting a huge market.
2. In 1980, Intel initiated project CRUSH, a sales effort intended to secure 2000 design wins. It showed scope economies and was a form of retaliation because of fierce battle between Intel and Motorola. 3. When AMD and Cyrix imitated Intels microprocessor, Intel responded with intellectual property protection. It also launched Intel Inside Campaign, which not only was aimed at creating brand awareness but it also included software vendors to tell people that software runs better on a Intel Microprocessor. 4. As there was an increase in market size, which also saw a shift towards to Cyrix and AMD, Intel tried to increase capacity of the microprocessor and produce even cheaper microprocessor. 5. As the product life cycle of microprocessor was shrinking, Intel believed in continuous up gradation and innovation, which helped the company to charge higher price and generate profits in the early life cycle of the new product. 6. Intel was the largest purchaser of semiconductor, so to achieve standardization; it relied on best in breed sole supplier and tried to maintain healthy relationship because of high dependency. Though, it shifted to dual sourcing later on in order to mitigate the risk. Punit Rajmohan PGDM-B 140 Page 1
7. Also Intel tried to make and retain very good relationship with its complementors i.e. Microsoft due to which the ultimate end consumers of its product found it difficult to switch over and thus it created high switching costs for its product.
Threat of Substitution
It has never been an easy life for Intel to survive turbulent market environment. Whenever it tried to introduce any product, competitors were always ready with similar product with more value addition and a lower price which acted as substitutes for Intels products. The top management continued to consider Intel a memory company even though the market share in memory was in steep decline. But, Innovative Culture empowered middle management to invest in innovative product and finally persuaded top management to exit from DRAMs. At all times, Intel tried to respond to this threat of substitution with the best possible response through its various defense strategies. 1. During 1980s, the pace at which Japanese firm were producing new products with better capacity and higher volume gave them cost advantage. They also invested heavily in new plant and equipment as compared to Intel, which did not respond to this pace of Japanese firm and finally had to lose significant market share. 2. Initially Intel was reluctant to exit memory business even after declining revenue from this business. It continued with both microprocessor and DRAM because it was difficult for top management to believe that it is no longer a memory company. It was only after the independence shown by middle management that it switched entirely to microprocessor technology and took exit from DRAM. 3. The biggest thread that Intel faced was the presence of alternative architecture, especially RISC, which was having speed and cost advantage over the CISC architecture of Intel. Intel was not sure of the future of RISC and the usability regarding its compatibility. Intel decided to hedge against adoption of RISC by releasing i-860. It also introduced Pentium (the improved version of x86). 4. When Microsoft moved to operating system that were not tied to x86 architecture, Intel responded by backing operating software other than windows, like Linux. 5. When Sun Microsystems came up with the motto The network is the computer, Intel responded to it by partnering with OEMs to promote processors as well as PCs through Intel Inside Campaign.
Punit Rajmohan
PGDM-B 140
Page 2
Threat of Hold-Up
1. Contracting Intel tried to enter in the market with scale economies due to which it had many contracts with its suppliers to provide the parts for mass production. 2. When buyers were more inclined towards RICS architecture, Intel hedged against adoption of RISC by releasing i-860. It tried to reduce the bargaining power through Intel Inside campaign, which made the industry more dependent upon CISC architecture. 3. It also decreased the bargaining power of buyer by building a motherboard through forward integration, and sold to a number of OEMs, including Dell, HP, Gateway, and Zeos. 4. Intel also tried to reduce the bargaining power of the suppliers by not only focusing on long term contract but also on standard solution, rather than custom solution. 5. Intel also tried to decrease the bargaining power of Microsoft by investing in its complementors and partnerships with apple, Linux-red hat. 6. Intel tried to maintain a trust and build a relationship with all complementors and suppliers, i.e. the whole value chain. All the complementors were quite dependent on the other for their product
Punit Rajmohan
PGDM-B 140
Page 3

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Strategy Assignment

Punit Rajmohan Roll No: 140

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