Intel's and Microprocessor Industry achievements - Case Study Example

ARM, Intel and the microprocessor industry in Executive summary This study evaluates the strategies of Intel as well as its competitive positioning in the microprocessor industry. Microprocessors, being an integral component of laptops and PCs form an important product in the electronics industry. However, the industry is dominated by two major competitors, Intel and AMD. Porter’s analysis reveals that supplier power is weak and threat of substitutes is increasing, especially due to increasing popularity of Smartphones and tablets. Though political and economic factors are favourable for Intel, the company has huge growth opportunities in emerging nations. Intel’s early entry into the microprocessor industry as well as quick control of its suppliers has provided a unique differentiation status to the firm. The company engaged its customers through diverse product portfolio, aggressive distribution as well as cost-leadership strategies. In order to cope up with the current shift in microprocessor industry, the company will have to come up with strategies with respect to innovation, cost leadership as well as new customer acquisition and retention. Contents Introduction 4 Porter’s Five Forces 4 Pest Analysis 6 Analysis of organisation’s strategy 6 Resource and capabilities analysis 6 Differentiation strategy 7 Value Chain Analysis 7 Critical appraisal of the strategy 8 Key industry success factors 8 VRIN Analysis 9 Current Issues 10 Conclusion 10 Reference List 11 Introduction This study will analyse the sustainability of Intel’s current strategies. The paper is divided into three parts. The first section will analyse the external environment of the company and its influence on the strategic options taken by the company. The second part deals with Intel and its internal strategies. It looks at the company’s resources, value chain, internal strengths and weaknesses and external opportunities and threats. The final part deals will be a comprehensive evaluation of Intel’s strategic sustainability, based on the above two analysis. Porter’s Five Forces Supplier’s bargaining power: In the microprocessor industry, the supplier’s bargaining power is strong. The semiconductor and microprocessor industry is already filled with more than 1000 chipmakers (Haberberg, 2014). As such, the demand for raw materials such as silicon wafers is set to rise. Though there are around 35 suppliers and producers of silicon wafers, supply is more concentrated for other elements required during the fabrication process (Haberberg, 2014). For instance, 65 percent of stepper’s supplies come from one single firm, ASML, while the industry relies on few Japanese firms for substrate suppliers (Haberberg, 2014). At the same time, the demand for microprocessors is set to increase, owing to its increasing application in internet, home appliances such as television and Fridges as well as requirement of double microprocessors in single laptops for higher technology usage. All these factors have resulted in an increase in the bargaining power of suppliers in this microprocessor industry. Buyer’s bargaining power: the microprocessor industry is observing a gradual shift in its buyer’s pattern. Historically, the server industry was dominated by few players such as Dell, IBM and HP as firms preferred to purchase these crucial components from reputed vendors only (Haberberg, 2014). However, with the launch of cloud computing the nature of business has changed. These firms no longer rely on vendors as they can rent the space to remote servers. As a result, there has been shift of power from vendors to third party service providers such as Microsoft, Amazon and Google. The above trend has significantly increased the buyers bargaining power as they need not depend on vendors and can directly buy processors and use them according to their own expertise and requirements (Haberberg, 2014). New entrant’s threat: The threat of new entrants in the microprocessor industry is high, mainly due to its high profitability. Intel saw an enormous increase in its profits and revenues after the launch of microprocessors, which lured many companies such as Apple into the segment. However, a business will need significant resources, large production house and high fixed costs in order to achieve economies of scale in this sector. After the success of AMD, many other companies are trying to enter the market, intensifying competition. For instance, Google has been trying to enter into the microprocessor market with its strong financial and intellectual backing. The company recently acquired Nest Systems for 3.2 billion dollars for improving its cash flows and subsequent investment is research and development (Haberberg, 2014). Apart from that, companies such as ARM are furiously trying to develop advanced microprocessors with better energy saving capacity which could be a potential replacement for traditional microprocessors (Haberberg, 2014). Rivalry among competitors: The microprocessor industry is dominated by two major companies AMD and Intel. Though Intel is at present the leader in terms of manufacturing and distribution, AMD has been aggressively selling its products in order to increase its customer base. Other companies such as ARM produce chips, but they are for other segments such as tablets and smartphones. Recently, ARM sold its newly launched advanced microprocessor to Google for its chrome-book laptops (Haberberg, 2014). The overall share of ARM microprocessors has seen a significant rise from 14 percent in the year 2012 to 22 percent in 2013 (Haberberg, 2014). The microprocessor business is composed of low marginal costs and high fixed costs, resulting in intense pressure and price and capturing incremental customers in the process. As a result, the profit margins are extremely low and rivalry is intense. Threat of substitutes: The popularity of advanced microprocessors however, is increasing because of the growing popularity and usage of smartphones and tablets. Also, AMD is planning to introduce ARM based processors which the company claims to be much better as well as cheaper compared to smartphones processors. Such replacements can be a potential threat to the traditional microprocessors as well as current smartphones processors in the making (Haberberg, 2014). Pest Analysis Political: Microprocessors are integral component of PCs and Laptops, which are growing at a fast rate in emerging nations. As a result, any change in government policies might affect microprocessor manufacturing companies (Haberberg, 2014). Economical: The major economic factors affecting the microprocessor industry are money supply, inflation rate as well as GNP trends. The microprocessor industry requires huge production costs. Apart from that, the sale of PCs has seen a continuous decline owing to the significant rise in tablets and smartphones usage. As a result, there is an increased need for advanced microprocessors. This might increase in significant production and R&D costs for companies in this industry (Haberberg, 2014). Social: Social factors such as preference, education and culture as well as income levels influence the patterns of demand in different markets and subsequently, Intel’s operations. Emerging markets are increasingly shifting towards low-cost tablets as they are affordable and increasingly accessible. Technological: Demand for advanced microprocessors is increasing among consumers and industries. As the market is brimming with tablet computers and smartphones, the requirement for more powerful chips is also increasing. Again, home appliances such as television are increasingly becoming connected to Wi-Fi and internet services. This has forced companies such as Intel to come up with more powerful and advanced microprocessors. To counter this, Intel developed lower-power processors Atom and tried selling them to smartphones and tablet makers. However, the business has not been profitable yet as the company saw a revenue decline by 7 percent in the year 2013 (Haberberg, 2014). Analysis of organisation’s strategy Intel’s internal analysis will consists of its differentiation strategy and value chain analysis Resource and capabilities analysis In case of Intel, the firm has achieved competitive advantage through innovation. The firm has been successfully establishing customer value from experiences, novel products as well as delivery models. This has also helped the firm in achieving cost leadership. Differentiation strategy Intel is the leader is microprocessor and semiconductor industry. The company is one of the first to enter into the sector and has gained major control over the suppliers and distributors in time. Strong capital reserves are the major strengths of Intel. Intel has been the leader of innovation which has differentiated the firm from its competitors. The company was first to launch 8008, 8-bit microprocessor, 8080 (first microprocessor for general use) and Pentium series which established its intellectual dominance in the market. According to analysts and critics, the company’s technology development is always 2-4 years ahead of its competitors (Haberberg, 2014). Another differentiation strategy followed by Intel is its aggressive pricing policy. The company offers a broad product portfolio at very flexible and wide price points which makes its very difficult for competitors to find any unoccupied niche (Haberberg, 2014). As a result, Intel is the preferred choice among its buyers. In order to further analyse the organisation, value chain analysis has been done Value Chain Analysis Primary Activities 1. Inbound Logistics: Inbound logistics of Intel is due to its control over suppliers. The company is a pioneer manufacturer of microprocessor and other PC components. Strong network as well as long term contractual relationship with suppliers provides Intel an advantage over its suppliers (Haberberg, 2014). 2. Operations: The operations of Intel include transforming raw materials into final products for distribution. This is performed in state of the art facilities and manufacturing sites across the globe. The company maintains strict standards of policies and only recruits staff and employees who are skilled. The company invests nearly 20 billion dollars every year in its fabrication plants (Haberberg, 2014). 3. Sales and marketing: The Company has garnered positive recognition for its innovative advertisements. In the year 1991, the company launched “Intel Inside” campaign aiming to convince consumers of the technological offerings. The campaign has been a huge success (Haberberg, 2014). 4. Outbound Logistics: Outbound Logistics include distribution of final goods to the target customers. Technologically advanced equipments help Intel in faster distribution and meeting demands much before its competitors. 5. Services: Intel has been continuously enhancing its services through innovation. The company has a pool of scientists involved in creating better technologies for its consumers as well as enhancing technological efficiency for better after sales services Secondary activities Intel’s secondary activities are as important as its primary functions, providing crucial support to the overall running of its strategies. Procurement: Intel’s high brand reputation and established base is likely to procure highest quality raw materials and products. Technology Development: the company has integrated many advanced technologies in its logistics in order to optimise transportation management and performance (Haberberg, 2014). Infrastructure: The world class infrastructure of Intel has helped in improving its profitability through legal and accounting intelligence. In the year 1992, the company became world’s largest manufacturer of semiconductor and is still holding the place. This has been possible due to its heavy infrastructural investments (Haberberg, 2014). At present the company owns two fabrication plants which are fully utilised with Intel’s advanced technology. Critical appraisal of the strategy Key industry success factors Many factors drive the success of the microprocessor industry. Microprocessors are chips which form an essential component in PCs, laptops, Smartphones and tablets (Haberberg, 2014). As demand for better and smarter equipment is rising, companies in the microprocessor industry are trying different ways to tap these opportunities and achieve success and competitive advantage. Having first mover advantage is critical for companies in this industry for achieving a sustained advantaged. Intel was initially started in the year 1968 making computer memory (Haberberg, 2014). Even though microprocessor industry has seen evolution such as advanced microprocessors from AMD, Intel is still dominating this industry with 65.3 percent market share (Haberberg, 2014). Another major success factor in this industry is innovation. With the increasing usage of new-age devices such as tablets and smartphones, up gradation of home appliances such as Television and Fridges as well as requirement of more than one processor in mobile devices, the demand for microprocessors have increased manifolds (Haberberg, 2014). As a result, quick distribution among target customers and minimising the demand supply gap form a crucial element for a sustainable competitive advantage. For instance, Intel has a diverse product portfolio and follows deep penetration strategy maximising customer reach and barring competitors from spreading across regions (Haberberg, 2014). VRIN Analysis VRIN Tool Template (Core Competency Analysis) Resources Valuable Rare Costly and Difficult To Imitate? Non-Substitutable Core Competency Financial           Internal funds yes no no yes  Temporary Advantage Physical           Technology  yes  yes  yes no  Temporary Advantage Products/services  yes yes  yes  no  Sustainable competitive advantage CAPABILITIES           Management           Financial management   yes  no no  yes  Temporary Advantage Marketing           Marketing advertisements  Yes  Yes no  no  Temporary Advantage Current Issues The company has seen a recent decline in its overall revenues and profits, which might hamper its further development strategies. There is a strong threat to its core and traditional business which is evident from its low PC sales. There was a 10 percent decline in PC growth in the year 2013, compared to last year (Haberberg, 2014). Also, Intel’s long term allies like Dell are struggling in their PC business. The microprocessor industry is highly volatile as it is directly related to the sale of PCs and laptops. Thus, any change in the economy can affect the production and distribution of microprocessors. However, in order to overcome the above threats and establish its sustainability, the company has come up with various launches and campaigns. For instance, Intel has developed new range of Atom processors for the smartphones and tablet market (Haberberg, 2014). There is a major shift in Intel’s customer base. The company needs to build its relationship with providers of cloud services such as Microsoft, Google and Amazon, as they are increasingly penetrating the microprocessor market (Haberberg, 2014). Conclusion Intel’s resources provide long term competitive advantage to the firm because of its high capital reserves and continuous R&D processes. In order to compete with the increasing external challenges, the company has developed strategies such as extensive research into customer insights as well as tie-ups with companies to reduce competition and increase flexibility. The company has, by far achieved sustainable competitive advantage though its highly skilled employees and research and development process as well as innovations in the field of technology and product development. Intel’s strategy is to mainly focus on research and development and fulfil the ever changing demands of its customers. However, in order to maintain its sustainability in future and diversify its risks, the company has also planned to foray into new business segments. Reference List Haberberg, A., 2014. ARM, Intel and the microprocessor industry in 2014. London: University of East London Read More