E-BUSINESS STRATEGIES - Term Paper Example

«BUSINESS TO BUSINESS INTEL'S E-BUSINESS STRATEGIES» EXECUTIVE SUMMARY Intel Corporation, semiconductor chipmaker, is providing advanced technology for the computing and communication industries. Its mission is the delight customers, employees, shareholders with continuously delivering the platforms and technology innovations that are essential to the way we work and live. In 1997, with tremendous competition from Advance Micro Devices (AMD) and Texas Instrument (TI) and over 50% of its customers outside the United States, Intel decided to implement a global e-business system. With e-business, Intel was able move $1 billion in revenue to its online e-business system in the first two weeks, surpassing the company's initial launch goal of moving $1 billion in the first quarter. Intel's revenue in 1998, from online orders was $1 billion a month. Independent customer surveys indicated that customers were extremely satisfied with Intel's e-business. In 2001, revenues received through the Web based order management system increased 90%. Today, in the United States, the market for semiconductors is valued, however, it is outperformed by that of Europe and Asia. In 2005, the market generated total revenues of $42.9 billion with a compound annual growth rate of 4.2% (2001-2005). However, during this same period, the compound annual growth rate was 6.8% for Europe and 16.2% for Asia. The strong demand for semiconductors in the growing economies of the Asia-Pacific will make the region's share of global revenues 64.4% by 2010. Founded in 1968, Intel Corporation is the maker of semiconductor memory products. In 1971, they designed the world's first microprocessor. The company has manufacturing plants in China, Costa Rica, Ireland, Israel, Malaysia, the Philippines, and the United States, and sales offices in more than 40 countries worldwide. Globally, Intel employs approximately 91,000 people in 48 nations. For decades, Intel has developed technology enabling the computer and internet revolution that have changed the world. It is the world's largest chipmaker and a leading manufacturer of computers, networking, and communications products. As the leader in silicon innovation, Intel develops technologies, products, and initiatives, which are continually advancing how people work and live. Originally, Intel was organized in a matrix structure consisting of both product and functional groups. The product groups included the Desktop Products Group (DPG), the Mobile and Handheld Products Group (MHPG), the Enterprise Products Group (EPG), and the Internet and Communication Group (ICG). The functional groups included the Sales and Marketing Group (SMG), the Corporate Business Development (CBD), the Technology and Manufacturing Group (TMG), the Content Group (CG) and the Microprocessor Products Group (MPG). In 2005, the company reorganised its entire structure around five platform based business units, which include the Mobile Group, The Digital Enterprise Group, the Digital Home Group, the Digital Health Group and the Channel Products Group. As a manufacturer of semiconductor chips, the company offers the following products and services: PCs, and enterprise systems - microchips, chipsets, and motherboards; Networking and communications – microchips, networking devices, hardware and software for integrated voice and data networks, wireless networking products, hardware components for optical networks, embedded control microchips; Wireless communications and computing - applications processors, base-band chipsets, and flash memory. In 2004, Intel reported revenues of $34,209 million, an increase of 13.5% over 2003. The United States, the largest geographical market, accounted for 19.2% of total revenues. Europe accounted for 22.7% of total revenues, which amounted to $7,755 million, a decrease of 13.9% over 2003. Most of its revenues are generated through the architecture business (85.26%), and the communications group (14.69%). During 2004, the architecture business reported revenues of $29,167 million, and increase of 11.4% over 2003; and the communications group reported $5,027 million, an increase of 28% over 2003. On April 19, 2006, Intel reported its first-quarter revenue of $8.9 billion, an operating income of $1.7 billion, a net income of $1.0 billon and a earning per share (EPS) of 23 cents. Excluding the affects of share-based compensation, the company posted operating income of $2.1 billion, a net income of $1.6 billion and EPS of 27 cents. The first-quarter gross margin was 55.1% compared to the 59% expected in January. The gross margin was affected by the lower microprocessor revenue and higher inventory write-downs. Expenses (R&D plus (MG&A) were $3.2 billion, compared to the $3.3 billion expected in January due to lower revenue and profit-related spending. The effective tax rate was 27.5% compared to the 32% expected in January. The decrease was primarily driven by a higher percentage of profits in low-tax jurisdiction and an increase in non-United Stated R&D tax credits that together increased earnings by approximately 1.4 cents per share. FISCAL YEAR DATE: December 2005 (Millions U.S. Dollars) 2005 2004 2003 Revenue $38,826.0 $34,209.0 $30,141.0 Net Income $8,664.0 $7,516.0 $5,641.0 Net Profit 22.3% 22.0% 18.7% Employees 99,900 85,000 79,700 One Year Sales Growth: 13.5% One Year Income Growth: 15.3% 2005 Debt Ratio 5.8% Return on Equity 23.9% Cash $7,324,000,000 Current Ratio 2.30 Long-term debt $2,106,000,000 Shares outstanding 5,919,000,000 Dividend yield 1.3% Dividend payout 22.9% Advanced Micro Devices, Incorporation (AMD) is Intel's top competitor. AMD, is the second largest manufacturer of PC microprocessors and flash memory chips in the world. The company's headquarter is located in Sunnyvale, California and it currently has 16,000 employees. During the fiscal year, December 2004, the company reported revenues of $5,001.4 million, an increase of 42.1% over that of 2003. This increase resulted from the higher average selling prices of its computation products and increased demand for its flash memory products. During 2004, the operating income of the company was $221.8 million, as compared to an operating loss of $233.4 million in 2003. The net income was $91.2 million during 2004, as compared to a net loss of $274.5 million in 2003. Other competitors include Infineon Technologies (Infineon), which is engaged in manufacturing, designing, development and marketing of semiconductors. Primarily, it markets are wireless and wireline communications, automotive, industrial, computer, security and chip card markets. Headquartered in Munich, Germany, it employs 35,000 people. In September 2004, the reported revenue was $8,936.8 million, an increase of 17% over that of 2003. In increase was due to demand for products, especially for the DRAM. The operating profit during 2004 was $390 million compare to the operating loss of $427 million in 2003. As a semiconductor company, STMicroeletronics NW (ST) designs, develops, and manufactures and markets semiconductor integrated circuits (ICs), which are used in microelectronic applications, such as automobile products, computer peripherals, telecommunications systems, consumer products, and industrial automation and control systems. ST, located in Geneva, Switzerland, has operations in Asia-Pacific (APAC), Europe and North America. In December 2004, revenues increased 21% to $8,760 million. And its net income increased 137.5% to $601 million. Texas Instruments (TI), located in Dallas, TX, designs, manufactures and sells semiconductors for the communications, computing, automobile, military, and industrial and consumer markets. Operating worldwide, it employs 35, 500 people. In December 2004, TI reported revenues if $12,580 million, an increase of 28% over that of 2003. This increase was due to higher semiconductor sales to the wireless market and increased shipment of sensor products. Its operating profit during 2004 was $2,207 million, a 128.7% over 2003. And its net profits were $1,861 million during 2004, an increase of 55.3% over 2003. Micron Technology, Incorporation, provider of advanced semiconductor solutions, which are used in computing, consumer, networking, and communications products, operates in the United States, Europe, and Asia. The company is located in Boise, Idaho and it employs 18,000 people. In August 2004, Micron's revenue was $4,404.2 million, a 42.5% increase over 2003. This increase was due to its increase sells of megabits. The operating profit for 2004 was $249.7 million as compared to the operating loss of $1,186.5 million in 2003. In 2004, its net profit was $157.2 million, as compared to the net loss of $1,273.2 million in 2003. Intel's suppliers include the following: Asymtek, a Nordson Company - automated fluid dispensing equipment. Dainippon Screen Manufacturing Company, Ltd. - supplies Intel with semiconductor process equipment. Delta Design - tester handlers. Disco Corporation - precision singulation, wafer saws and grinding equipment. Hitachi Kokusai Electric Incorporation - vertical diffusion furnaces. Mitsui Chemicals, Incorporation - pellicle and ICROS tape. Murata Manufacturing Company, Ltd. - capacitors, EMI filters, RF components. Nichicon Corporation - aluminium electrolytic capacitors. NTK, a division of NGK Spark Plug Company, Ltd - FCPGA, FCLGA, FCBGA, OLGA, interposer, and ceramic packages. Securitas - Intel with security services. Senju Metal Industry Co., Ltd. - surface mount and lead-free materials. Shinko Electric Industries Company, Ltd. - plastic laminate substrates and heat spreaders. Sumitomo Mitsubishi Silicon Corporation - polished and epitaxial silicon wafers. TDK Corporation -multi-layer ceramic capacitors, RF components, inductors and EMI components. Tektronix, Inc- test, measurement & monitoring equipment TOK supplies Intel with litho materials. Tokyo Electron Limited - litho tracks, dry etchers, cleaning systems, diffusion furnaces and wafer probers. Its major customers are Distributors, Original Equipment Manufacturers (OEM) of computer systems and peripherals, and PC users who buy the PC enhancements, business communications products and networking products through reseller, retail and OEM channels, and other manufacturers, including makers of a wide range of industrial and telecommunications equipment. Regarding new entrants, the handset providers have the opportunity to build differentiated devices, new smart phones, and new PDAs, even new kinds of devices in handheld gaming and various vertical enterprise devices are a possibility. Strengths Industry Balanced Geographic Mix Financial Performance Weaknesses Poor Performance in Home Market Unethical Business Practices Customer Concentration Opportunities Growth in China Growth in Mobile Computing/Notebooks Markets Capacity Expansion Threats Slowdown in PC Sales in the United States Consolidation in the PC Business Intense Competition According to MarketWatch December 2005 Report, the company's strengths are that they are the industry leader. They have a balanced geographic mix and an excellent financial performance. As industry leaders, Intel is the world's largest microprocessor manufacturer. Eighty percent of the company sales are the x86 microprocessor, which is 90% of Intel's revenue. Intel has 82% of the PC processor market and four fifths of the new PCs have their Pentium and Celeron microprocessors. The company is the global market leader in the production of flash memories, and produces embedded semiconductor for the communications and industrial equipment markets. Its bargaining power has increased and its brand image has enhanced due to its market position. Because of Intel's geographical diversification, the company has a balanced portfolio of many sources of revenue. As a multinational company, Intel operates in Europe, the Americas and Asia-Pacific. Its largest geographic market is in the United States, which in 2004 accounted for 19.2% of the total sales. Europe made up 22.7% of total sales; Taiwan (15.8%); other Asia-Pacific (excluding China and Taiwan) (15.6%); China (13.6%); Japan (9.1%); and not including the United States the other Americas accounted for 4.1%. Being present in numerous international markets provides protection from underperformance or depressed conditions in any specific market. Intel's financial performance has been excellent. Since 1995, the company has reported 18 consecutive years of profitability and increased revenues. From 1995-2004, the company experienced increase revenues at a compound annual growth rate of 8.7% from $16,202 million to $34,209 million. In 2004, Intel's revenues improved by 13.5% above the $30,141 million of that in 2003. Its operating income increased at a compound annual growth rate 7.8% as well. The company's operating margin is 30.1% compared to the 22.5% industry average. Their net margin is 22.4%, 5.2% higher than the industry average of 17.2%. For these reason, Intel has a massive financial and operational base. Regarding Intel's weaknesses, the company has performed poorly in its home market. Sales in the United States have been weak. From 2000-2004, revenues have decreased at a compound annual rate from $12,382 million (14.7%) to $6,563 million. In 2003-2004, the company's revenues fall by 14.1%. In the largest geographical market, this has certainly offset the company's overall performance. As result, Intel resorted to unethical business practices to increase sales. In June 2005, Advanced Micro Devices (AMD) sued Intel for anti-competitive practices. Based on evidence received fro 38 companies, AMD says Intel used unethical practices to persuade customers not to deal with them. According to Michael Capellas, former chief executive officer of Compaq, Intel delayed delivery of chips as punishment for Compaq's business dealings with AMD. Such unethical practices have had a negative affect on Intel's brand image and sales. Due to Intel's limited customer concentration - Dell 19% and Hewlett-Packard 16% of Intel's total sales. Its dependence on few customers has led to a decline in sales or factor lockout, which affects customers. If there any disruption were to occur in the contracts between Intel and its customers, this would adversely affect the company's sources of revenue. Intel has opportunities for growth in China. In 1998, investment managers based in Hong Kong, Shanghai and Beijing invested in about 50 Chinese companies in nine cities in mainland China and Hong Kong. In 2005, Intel created a 200 million venture capital fund to invest in Chinese technology companies that develop hardware, software and services. This fund is utilized to invest in companies that balance Intel's technology initiatives and expand the Internet infrastructure in China. For examples, Intel capital investments in China include BCD Semiconductor Manufacturing, an analog power integrated circuit design and manufacturing company; Comlent Holdings, a radio frequency chip maker; HiSoft Technology International, a software outsourcing company; Maipu Holdings, a router and data communications; and Pollex Mobile Holdings, a cellular phone software applications provider. This was an effort to strengthen its market position in Chinese accounts for 3.6% of total sales and supports the company’s goal to accomplish high returns on its investments. As performance and price improve, there is anticipation that the mobile computing market, which includes notebook computers, will grow faster than any other PC segment. By 2008, the sales of notebook systems will increase from 28% of the combined market for desktop PCs and notebook systems in 2003 to 39% of the combined market. That is, a compound annual growth rate of 22%. It was estimated in 2005 that the global mobile phone market would have 2 billion subscribers due to the demand in developing economies such as Asia and Latin America. Intel should take advantage of mobile computing market - subscriber growth and upgrades to more sophisticated handsets - to increase revenues from the communications group segment. Depending on production efficiencies and delivery times of various machinery and equipment, and construction schedules, the capital expenditures of $5.3 billion in 2005, which are projected to increase, will be spent to raise the capacity on the company's 65-nanometer process technology in 300mm factories. Due to expansion in its production capacity, this will allow Intel to service the market better. Threats include a slowdown in PC sales in the United States, consolidation in the PC business and intense competition. About 80% of Intel's revenues are from the PC end market whereas 9% of sales are from handsets (Flash) and 8% are from the communications infrastructure market. This year the United States market for PCs is, suppose to fall approximately 4%-5%. And by 2008, desktop PCs will account for less than 50% of the client devices in use at the enterprise level. Sales to PC manufacturers are Intel's main portion of sales and a slowdown in the market will surely reduce sales. Because the PC market, the biggest customer segment of the computer storage devices industry, is consolidating, mergers and acquisitions in the PC business (HP-Compaq and IBM-Lenovo), will affect Intel margins. Due to the higher bargaining power of its customers, Intel's margins may come under pressure. Furthermore, Intel has serious competition in all segments. The communications group division’s products compete with the products of Qualcomm, Samsung Electronics, Spansion (a subsidiary of AMD), STMicroelectronics, and Texas Instruments. Products in the architecture business segment compete with Advanced Micro Devices (AMD), Intel’s major microprocessor competitor and International Business Machines (IBM). Such competition could affect Intel's revenue. Because of the advances in information technology, e-business has a major role in the world economic growth. In 1998, due to competition, and with tremendous competition from Advance Micro Devices (AMD) and Texas Instrument (TI) and over 50% of its customers outside the United States, Intel approached a Business-to-Business project (B2B) as an innovative new way of doing business. The company decided to create a self-service extranet, a Web based order management system that focuses on procurement and customer support for its products and services. Due to this decision orders received via the telephone and fax are automatically processed over the internet. By using the Web, the company improved decision-making, which accelerated the speed of sales, revenue and profits. Since low cost strategies will minimize transaction costs, Intel has decided not to assemble the e-business infrastructure from to ground up. Using business systems and internet technologies, the company's focus is on building relationships with direct customers, including the original equipment manufacturers (OEM) and the distributors online. Intel built on the infrastructure that was already available. To re-engineer and automate business processes the following strategies were employed: broadening and deepening sales outreach, targeting middle tier companies for greater efficiencies, and improving customer service by personalizing information delivery. To extend the reach of the sales force, Intel automated its order management and information delivery system. Converting the unwired to wired, Intel replaced the traditional phone and fax as a means of communication with PC-based online communication tools. Because their medium sized customers had not invested in electronic data interchange, maintaining a consistently high level of one-on-one contact with middle-tier customers was difficult. Intel's target customers were the middle-tier, those who accounted for 25% of the total accounts in 35 countries. Providing access to real-time information, allows customers to be more knowledgeable regarding products and future direction for better decision making. According to Gary Anderson, director of the sales and marketing application development team in Intel's e-business group, "It's that information that enables our customers to design their end products". With online access, customers have more access to Intel's resources and closer contact. Electronically, Intel moved resources away from the phone and fax toward more efficient and productive tasks. The sales people rarely need to hand deliver confidential product information. Intel converted its system and data from the old vendor-centric model to the new customer-centric model to improve customer service by personalizing information delivery then automated the information delivery and routine sales tasks. The company had to customize its Web sites within customer's accounts because management, procurement, sales and marketing, and engineering have different informational needs. Delivering personalized information online allows Intel to support multiple levels of customer organisation in a manner that best meets individual needs. This way, research is much easier for customers. Customers visiting the extranet Web site find their names and specific applications available to them based on their personal profile. The user profile permits customers to get confidential information that is important to them. As a general manager, the customer has access to pricing and availability, order placement, backlog status, committed delivery dates, or the information desk. Intel's chief e-business strategist, Chris Thomas says putting the customer order-entry system on the Web reduced the paper based order form errors by 75%. Intel's e-business strategy - tailored e-business to customer's needs, avoided unfamiliar markets and risks, followed conservative and traditional management principles, delivered personalized Web content, focused on quality, used of vigorous and flexible systems architecture, opted for the best security- helped the company to improve its performance. As a result, the new e-business system allowed 200 of its customers in 30 countries to place orders for products, check availability and inventory status, receive marketing and sales information, and obtain customer support 24 hours a day, seven days a week. Worldwide, Intel is able to eliminate faxes to customer. For example, Taiwan eliminated 45,000 faxes per quarter. Independent customer surveys rated the company at a 94% satisfaction level. Intel reached $1 billion value in e-business in its first month of operation in July 1998. For the year of 2000, Intel's profits climbed to $10.5 billion allowing the company to become the fifth most profitable company in the United States, up from the eighth rank the previous year. Since the B2B project emphasized customer market needs, the Virtual Worldwide e-business Project Team strongly suggest that Intel's sales and marketing be responsibility for making things happen. In the implementation of the e-business project, the following teams were required: A project planning team: customers, technical and logistical representatives who defined the scope and objectives of the project. Business analysts: defined the workflow of business and assessed how information was given to customers. Sales and marketing staff: researched and decided how to work with customers via the e-business system. Planning and logistics group: helped the IT department develop the solutions to integrate the new e-business with existing business activities. The IT Department: enablers of business by playing the role in implementing the integration solutions from the planning and logistic groups. For Intel, e-business has created a competitive advantage, increased efficiency in the multi-functional areas of management information; integrated suppliers and vendors, provided better distribution; lowered transaction costs, a better marketing coverage and expanded geographical exposure. Because management is better able to process sales data reporting and analysis, there is a more efficient production, inventory and distribution, marketing and sales, improved financial planning, and effective R&D and product development. Enhanced integration of suppliers and vendors give Intel a better understanding of needs and encourage a higher level of product and service delivery. Thereby, leading to cost efficiency, acceleration of interactions, and faster market response capability. The benefit of better channel partnership is enhanced by having the right products available at the right time and price, and knowing how to sell them effectively. With e-business, Intel provides faster information about product availability, changes in the product, pricing, and promotional policy. However, the reductions in costs and efficiency are the most significant benefits. Because internet based transactions systems reduce the need for huge organisation systems, they ultimately cost less. With e-commerce transactions, customers' profiles can be used to predict market trends; target repeated or related sales, and track and discount loyal customers. There are borderless boundaries because e-business can be access from any place at any time. For a small remote business, this is beneficial because Intel can sell and deliver products and services across the world. However, the main limitations of e-business to customers and suppliers on the Web are the ease and speed of access. Other limitations include risk, privacy, confidentiality, and security. Intel must concentrate on its weaknesses, poor performance in the United States market, unethical business practices, and customer concentration and be more attentive to threats such as the decrease in sales in the United States as well as the consolidation in the PC business and the intense competition. For success, e-business needs top management that supports and visions e-business because the process affects corporate infrastructure and the supply chain. E-business solutions should complement rather than dismantle Intel's existing strategies to maintain competitive advantages. E-business should be improved to allow Intel to take advantage of market niche, proprietary content, low cost, high quality, superior service, and value-chain partnerships. Due to dynamic change, there should be continuous quality improvement. According to Intel's chairperson, Andy Grove "to succeed in the Internet economy, companies must build infrastructures that can grow rapidly and affordably with e-business demands". The distribution and supply chain model has to frequently be reviewed to maximize Intel's gain. When delivering personalized information, the content of the Web site must be accurate, current, and appropriate for each customer in the supply chain. Intel's e-business must continue to build trust, privacy, and confidentiality into its open PC system. The company's virtual market must be in place and a strategic position in the market has to be maintained. There must be values and selected benefits that are different and better than those of the competitor. And has to be a means of tracking new competitors and market shares. There should be excellent e-business education and training to employees, management and customers. Innovations must only be engaged in when risks are low and superb products and services have to be offered by e-business. To enhance B2B, Intel should consider implementing Customer Relationship Management (CRM), a practice relationship strategy that is based on individual customer. Business customers are valuable and Intel cannot afford the loss of a single customer. CRM will provide product information, product use information, and technical assistance 24 hours a day, 7 days a week on the web sites. Most importantly, problems will be identified before they occur or deficiencies will be corrected before another customer experienced the same problem. A user-friendly mechanism for registering complaints would permit customers to submit problems and complaints quickly. Internet cookies can be used to track customer interest or desired products. Customers with defined preferences can be identified then service strategies can be designed based on individual requirements and expectations. That way, follow up calls could be scheduled and managed. CRM will improve efficiency and effectiveness. All customer contact with Intel at all points will be tracked in a way that will allow sources and types of contact to be available to all users of the system. In addition, the CRM can be integrated into cross-functional systems, thereby providing accounting and production information to customer upon request. CRM will provide a method for retaining and attracting new customers. Though an e-commerce, Business to Business involves value chain, electronic purchasing and supply chain management, electronic order processing, customer service and cooperation with business clients, suppliers and partner. There are two types of e-business strategies: competitive strategies and cooperative strategies. Competitive strategies are concerned with how a company can gain a competitive advantage. While cooperative strategies involve collaborating through joint venture or value chain partnership to gain a competitive edge. By broaden and deepen sales outreach, targeting the middle tier and improving customer service, Intel was able to reach more customer, provide better efficiency and deliver personalized service. With such success, maybe Intel should consider becoming a total e-business organization. REFERENCES Angel, Robert. "A New Dawn for CRM: This Time It's B2B". Ivey Business Journal. July/August 2003. 20 April 2006 . "Company Spotlight: Intel Corporation". MarketWatch:Global Round-Up December 2005, Volume 4, Issue 12, Page 222-228. 24 April 2006 . "Competitive Strategy". Harvard Business School. Institute of Strategies and Competitiveness. 25 April 2006 . Damanpour, Faramarz. "E-Business e-commerce: Perspective and Strategy". Managerial Finance 2001. Volume 27, Issue 7, Page 16. ABI/Form Complete, Troy University Library Montgomery, AL. . "Defining the Value of e-Business: Seventeen Standard Measures". Intel.com May 2003. 22 April 2006 Read More