ARM and Intel - Competitiveness and Achievements - Case Study Example

? Microprocessor on the March ARM and Intel have carved up the microprocessor industry but are as different and as unique in approach as two competitors can be. The global microprocessor industry has evolved since the 1990s and the pace has been such that no household today is untouched by one microprocessor. The multibillion dollar industry has entered every phase of a man’s life right from the cellphone to children toys. They have become so huge that even government policies and measures have been altered to accommodate the business of microprocessors (The Economist, 2012). The market In the recent times, the growth in the smartphone market drives the industry for microprocessors. By 2014, it is expected that the total market size for cell phone users alone shall be 1.7 billion primarily driven by the surge in smartphone demand in emerging nations (Fan, Liu, Zhang and Zhao, 2008). As for the market captured by laptops, they completely acquired sales for desktops and face stiff competition from netbooks and tablets who have reported tremendous rise in sales. There are two basic components that hinder entry into the microprocessor industry is prices and innovative technology. Competitors are spending huge sums in new product development, technological upgradation and innovations that can allow patents and hence target market advantage. Companies also need huge economies of scale in order to compete in prices. Off late the substitution in the phone markets has evolved greatly but the substitution of CPU’s is virtually unavailable. The microprocessor industry is extremely competitive in prices. Product differences between major producers like Intel and (Advanced Micro Devices) AMD are virtually absent. Microprocessor industry is a one that entails huge fixed costs but very low marginal costs. This gives each company, the power to undercut the other. Exit costs of the microprocessor industry are also very high owing to huge sunk costs involved. Technology products are characterised by very short product life cycles. Technology changes and industry standards evolve as rapidly as they expire. Innovation here becomes the key to survive. The case of Apple Inc can be cited as a perfect example of innovation that led to market leadership where innovation of the iPhone took away margins and sliced away profits of other cellphone manufacturers who could not keep up. Competitive Business Strategies The desktop market is characterised by slow growth in the recent times. It is presently the largest and one of the most important microprocessor markets with a total of 150 million unit sales globally. The growth figures don’t seem as impressive. Intel, a leading firm in the microprocessor industry, has significant technological and resource advantage in the segment. The low end segment is price sensitive and so companies like Dell and Intel should keep its strategy aligned to prices to maintain itself as a market leader (Fan, Liu, Zhang and Zhao, 2008). In strike contrast to the desktop market, the laptop market needs an entire different strategy. Here front end technologies and processor performance drive sales for a company. In the fig 1 below, it is observed that concentration of exterior design is not as important as data protection. Figure 1: Consumer Need Preference Hierarchy in the Laptop Market (Source: Fan, Liu, Zhang and Zhao, 2008) With a view to capture the laptop market, key industry competitors are targeting the new generation. The trend requires thin and light laptops that do not need batteries and coolers like in CPU’s. Secondly, firms like AMD are increasingly trying to differentiate their laptops by bundling as done in the Centrino platform. The company also seeks to specialise in technologies, like the vPro to enhance security of data, a huge demand fulfilment of the business class. Thirdly, companies like Intel are trying to take on market leadership in the emerging nations via the price advantage. The use of Atom processor has strengthened Intel’s focus on low end markets, an area on which Intel never really focussed. Lastly, consolidation can be seen as the key to growing and retaining customer base. AMD might fall back in competition by capital shortages but it is increasing gaining a hold on a huge market like China where it has established a FAB plan in Dalian and joined hands with Suning, a major electronic retailer. Mobile Computing has changes ways of life in the recent past. Rapid transformation in the microprocessor industry has altered the way chips have been viewed in the semiconductor industry. So much so that certain processors originally developed for smartphones, like Apple’s A4, Intel’s Atom and Qualcomm’s Snapdragon have moved on to PCs and computing. Figure 2: Bar Plot for Change in Global Handset Sales by Device Type (Source: Fan, Liu, Zhang and Zhao, 2008) The figure above represents how the demand smartphone industry has changed from 2004 over 2010 and has cause major losses to browser-phone manufacturing companies. Anti competitive practices In 2009, the Federal Trade Commission sued Intel for its anti competitive ways and creating an illegitimate monopoly that raised prices and deterred quality. Intel had been alleged of threatening computer manufacturers like HP, Dell and IBM and forcing them to chose Intel’s chips over anybody else’s. In 1999, when Intel’s dominant position was threatened in US, the company responded by engaging in anti competitive trade practices that denied AMD any access to the CPU market share. They coaxed consumers and manufacturers into faster CPU performance by secretly imitating key software called the compiler that intentionally enhance CPU performance. The fact was that Intel’s chips were not running faster, only the compiler software that forged faster functioning in the tests (Buskirk, 2009). The figure below plots consumer surplus, price, social surplus and innovation rates between a duopoly and market restriction between two major rival firms, Intel and AMD. It is observed that when AMD is increasingly put under market restriction, innovation rates as well as prices increased steadily. We also realise that despite the surplus gains being very meagre, accounting for innovation holds a lot of importance because of the existence of antitrust policy. Also, there is a decrease in consumer surplus in the current period. This reduction can be easily offset by the high future surplus generated on account of high innovation. Figure 3: Line plot of price, innovation rate, social surplus and consumer surplus between market restriction and assumed relative duopoly of AMD and Intel. (Source: Goettler and Gordon, 2009) Intel chip buyer, Dell also had to set aside $100 million fearing to invite probe and being proven guilty of anti-trust activities for buying chips from Intel. In another case, iPhone producer Apple Inc has been alleged of pursuing anti-competitive sales practices in Europe. Apple had been fined $1.5 million last year in Italy for purposefully pushing AppleCare warranty to consumers without their prior knowledge despite knowing that the European Union law already provided for a 2 year warranty as a standard (Lovejoy, 2013). National Competitive Advantage of USA The US market is presently saturated and the prevailing economic environment is weighing the demand down. This trend shall not continue very long because the US consumer is waiting for newer products. This promises a fresh new cycle of growth in the microprocessor segment (Perry, 2013) Porters Diamond Comparative advantage for a company remains in the factor endowments from being in a particular country to provide a national competitive advantage. Factor Conditions: The US semiconductor industry is a one with a very long history. They have an established technological base. When Japan sought to challenge the US market, US based companies like Intel, shifted their product mixes from being manufacturers of memory chips to moving towards producing custom logic and microprocessors that help them regain their lost market share. Demand Conditions: Domestic demand for microprocessors is probably the highest in USA. Apple has the largest share of its revenue from iPhone coming from USA. Also, companies like Siemens, CISCO and Intel have an established brand name which is globally known and trusted. Related & Supporting Industries: Competition in the microprocessor industry, faced primarily from Japan had induced a lot of research activities and thereby, a lot of developments in product mix. Intel’s radical shift to microprocessors led to technological advances in many other supporting industries. Firm Strategy, Rivalry & Structure: Intel’s shift to microprocessor manufacturing led to a huge competition where AMD shifted its concentration to graphic card development. Each one tried to establish in their niche areas and compete in prices. Government support US chip manufacturing firms had intense government supports.. The US governments provided inter-firm cooperation up to the extent of $100 million for the research consortium formed between 14 US chip manufacturing companies. It also relaxed anti-trust laws for US based companies to improvise on manufacturing technology (Brown and Linden, 2009). The fight for gaining a global advantage came with huge benefits to the consumer. Computer platform performances improved significantly, Microprocessor industry faces large swings in its business cycle. Also, fixed costs in design and manufacturing change very frequently making the cycle swings even more sever. Microprocessor – times beyond The global economy is a major victim of the microprocessor industry trends. The industry has become so large that even political events and economic policies are being designed to accommodate the impact of this industry. Microprocessor industry is here to stay and will continue to grow as long as innovation continues. Markets always need newer and better technologies to make life easy and god research along with good trade practices can support such activity. Reference List Brown, C., and Linden, G., 2009. How Crisis Reshapes the Semiconductor Industry. [pdf]. The MIT. Available at: < http://mitp-webdev.mit.edu/sites/default/files/titles/content/9780262013468_sch_0001.pdf> [Accessed 11 November 2013]. Buskirk, E. V., 2009. FTC Sues Intel for Anti-Competitive Practices. [online] Available at: [Accessed 11 November 2013]. Fan, W., Liu, L., Zhang, S., and Zhao, W., 2008. Competitive Strategies for the Microprocessor Market. [pdf]. Intel. Available at: [Accessed 11 November 2013]. Goettler. R., and Gordon. B., 2009. Competition And Innovation In The Microprocessor Industry: Does AMD Spur Intel To Innovate More?. [pdf]. Wharton Upenn. Available at: < https://marketing.wharton.upenn.edu/mktg/assets/File/dyndurable.pdf> [Accessed 11 November 2013]. Lovejoy, B., 2013. Potential European anti-trust investigation into iPhone sales tactics moves to next stage. [online]. Available at: < http://9to5mac.com/2013/05/27/potential-european-anti-trust-investigation-into-iphone-sales-tactics-moves-to-next-stage/#more-272507> [Accessed 11 November 2013]. Perry, D., 2013. U.S. PC Market Wraps Up Worst Year Since 2001. [online] Available at: [Accessed 11 November 2013]. The Economist. 2012. The Semiconductor Industry: Space Invaders. [online] Available at: [Accessed 11 November 2013]. Read More