9.25 Intel Corporation

Intel Corporation is an American multinational technology corporation founded in July 1968 and headquartered in Santa Clara, California. Intel makes motherboard chipsets, network interface controllers and integrated circuits, flash memories, graphic chips, embedded processors and other devices, but is best known as a semiconductor chip maker, where it now, based on revenues, is the world's largest.

Intel manufactured the first commercial chip in 1971, but it was the success of the personal computer (PC) that turned this division into its primary business. The company invested heavily in research throughout the 1990s and created successively faster chips, which fostered the rapid growth of the computer industry and gave Intel a dominating position in the industry. The market is fiercely competitive, and Intel has fought actions for illegal conduct brought by Advanced Micro Devices, and even in 1997 spent $750 million for control of the PC industry. {6} In 2005 Intel had 82% of the PC microprocessor market. {6} The company also conducted research into electrical generation and transmission, and has recently introduced a 3D transistor promising enhanced performance and energy efficiency.

Acquisitions made over the 2010-11 period show that Intel is again attempting to diversify away from chip manufacturing: McAfee (computer security technology for US$ $7.68 billion), Infineon Technologies' Wireless Solutions ( laptop, smart phones, etc. technology) and Fulcrum Microsystems Inc.( network switches). Intel Corporation 2011 net income was $12.9 billion from revenues of $54 billion. {13} The corresponding figures for the 2012 fiscal year were $14.6 billion from revenues of $53.3 billion. {14}

A 1990s 'Intel Inside' marketing campaign of the 1990s made its Pentium processor a household name. In the 2010 rankings of the world's 100 most powerful brands Millward Brown Optimor placed the company's brand at 48. {1}

This case study concentrates on two aspects of Intel's business, the development of semiconductor chips, and its 'Intel Inside' marketing campaign.

Chip Making

Intel started with memory chips, becoming the leading manufacturer of RAM and ROM chips in the later 1970s. The microprocessor (almost simultaneously invented by Intel and Texas Instruments) allowed Intel to mass manufacture its Intel 4004 microprocessor for calculating machines in 1971, which it followed by the 8008 and the 8080 microprocessors, though none were great revenue earners. With IBM's PC, introduced in 1981, rapidly becoming successful, Intel created the 80286 microprocessor in 1982, and the 80386 microprocessor in 1986, outdistancing IBM and making Intel a key supplier of reliable microprocessor chips. Intel invested $200 million in design and $800 million in production facilities for the 80386 microprocessor. {6} Memory chip production was phased out, and Intel ceased licensing the design to AMD and other companies. Intel set up exclusive supply from three of its own factories, and this control of the market, and increasingly advanced design, made Intel the unquestioned market leader by the early 1990s.

Intel introduced the 486 microprocessor in 1989, the Intel Pentium in 1993, and the Pentium II in 1997. After much trial and error, Intel created the Pentium 4 in 2001, and in 2011 the first Pentium mobile processor. {8}

Intel were slow to react when a floating point error was discovered in their Pentium microprocessor in 1994, but though the recall cost $500 million, the adverse publicity coincided with their 'Intel Inside' marketing drive, and perversely proved helpful.

Intel research has now diversified into solid state (flash) memories, and the company shipped its first solid state drive in October 2008, rapidly expanding capacity and efficiencies in the years following. Their 'Ramsdale' flash memory, shipped in 2011, has 40 GB memory and an interface speed of 220 Mbytes/second.

In common with its competitors, {4} Intel set up manufacturing centers abroad (Ireland, Israel, China, Costa Rica, Malaysia and Vietnam) {5}, after careful evaluation of all relevant factors. {3}

Intel have sold chips to many PC manufacturers, but in February 2009 their biggest customers were Hewlett-Packard and Dell. {1}

'Intel Inside' Campaign

Other companies manufactured microprocessors, and when Intel could no longer call the 386 brand its own, the company set up the 'Intel Inside' marketing campaign with nearly 200 OEM (Other Equipment Manufacturers) partners in 1991. The object was to create from what before had been of interest only to PC manufacturers a brand memorable to Intel's direct customers (dealers) and the end-users (consumers and business purchasers). Such a brand strategy was a fairly new approach, but aimed to make customers confident of their computer's inner workings. Intel had spent $4 billion on marketing its logo by 1997, but results were striking.

Intel research indicated that only 24% of European PC buyers were familiar with the 'Intel Inside' logos in 1991, but that figure had grown to nearly 80% by 1992, and to 94% by 1995, a recognition Intel continues to enjoy, helped by social media marketing. {10} Intel licensed the logo to some 1,000 PC makers, and found that some 70% of home PC buyers and 85% of business buyers stated a preference for Intel, saying they would pay a premium for the security and peace of mind offered by the brand. {9}

Threats to Intel

Most threats come from alleged abuse of its market position. {1}

1. The European Commission accused Intel of anti-competitive practices, mostly against AMD in July 200, and after extensive investigations, fined the corporation US$ 1.44 billion in May 2009.
2. South Korean regulators accused Intel of breaking antitrust law, and the Fair Trade Commission ordered Intel to pay a fine of US$25.5 million in June 2008.
3. Intel agreed to a settlement with the US Securities and Exchange Commission (SEC) in July 2010 to pay $100M in penalties for not accurately disclosing accounting information to investors.

Intel has also fought expensive lawsuits, particularly against Amdel, paying that company $1.25 billion in November 2009 to not progress its charges. {1}

Points to Note

1. Scale of spending required, for R&D and protection of market position.
2. Marketing spend required for 'Intel Inside' campaign, recouped by charging a premium for its products.
3. Punitive scale of fines and damages that can be awarded for unfair practices.

Questions

1. Provide a short history of Intel's chip-making activities.
2. How has Intel tried to make the process more efficient?
3. What was the 'Intel Inside' campaign, and how did Intel recoup its expenses? Quantify your answer by looking at microprocessor prices on specialist sites.
4. What legal challenges has Intel faced, and what seems to be its policy here?

Sources and Further Reading

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