Intel Company and the Problems It Faces - Case Study Example

Intel Corporation Executive Summary The semiconductor industry at the moment is experiencing technological advancement and improved products are introduced to customers. As such, companies specializing on one product need to diversify their production to reflect on the current technological trends. Intel’s core business involves the manufacture of processors used to power PC’s .However, going by the current trends in technology, it seems customers are shifting from PC’s to lighter and mobile gadgets such as smartphones and tablets. This means that, PC’s may lose market with time and as a result, affect Intel’s business of producing processors for PC’s. As a result of the rapid change in technology, Intel needs to change its business strategy to remain relevant in the semiconductor industry. At the moment, Intel has to deal with the reality of an emerging competitor like ARM that designs chips used in tablets and smartphone. Changing Intel’s business strategy is achievable through conducting a PESTEL analysis and understanding Porter’s forces essential in the business environment in terms sustaining a competitive advantage. Introduction In a globalized business environment, technology is not static, but advances from time to time. As such, various companies that specialize in the production of semiconductors need to adapt to the changing business environment. This is important if a business entity is to remain relevant in a competitive market. In addition, as a result of globalization, it is possible that customer preferences change and businesses need to adapt to their customer’s preference in order to retain their loyalty. This is because, many companies that deal in the same product exist and their business strategy focuses mainly on attracting more customers. In a competitive market, differentiation plays a significant role in enabling a company maintains a competitive edge over other companies engaged in similar product. In this sense, while there are several companies involved in a similar product, a company can gain advantage by being unique. This involves adopting a business strategy that keeps a company above others. Customers are often attracted to a unique brand that accommodates most of their needs compared to other similar brands (Curley 2006, p.162). Intel’s business environment In regard to Intel’s business environment, the company is a leader globally in the manufacture of processors that powers PC’s. Having been in the field of manufacturing processors for decades, Intel boasts of the know-how and finance to back its production activity in a market that continues to experience stiff competition from new comers. In the semi-conductor industry, averagely 40% of the semiconductors are microprocessors and this is where Intel is a leader. However, as a result of new entrants in chip making, Intel has to improve its innovativeness to remain relevant in the semiconductor industry. Having developed a clientele that spans decades, the company has relied on sales revenue from loyal clients using their processors to power PC’S. Examples of a company that rely on products from Intel include, IBM. While it is an advantage for Intel to have a client base with huge financial backing, the company also has to come to terms with the constantly changing technology (Curley 2006, p.162). While the processors produced by Intel consume more energy, advancement in technology has resulted in the invention of low powered processors. Is this regard, while the company may insist on maintaining its traditional core business, chances are high that loyal customers may shift to the low powered processors. This is a challenge that the company needs to consider as it moves forward. On another note, the manufacture of processors involves a complex process for the company. This involves difficulties in terms of accessing the raw materials like, the metallic silicon. Further, the cost of establishing a fabrication plant is high and this is evident in the amount that Intel spent in 2008 to put in place a fabrication plant. The company further has to deal with new production challenges in the event they introduce new generation processors. In essence, new production has an impact on the company’s revenue in terms of increasing the cost of establishing a fabrication plant (Stepp 2011, p.62). While the profits of Intel is surging, the company also has concerns in regard to the declining PC market. This decline, further led to Intel shares dropping by 3% in the first quarter of 2014. According to recent observations by IDC, sales volume of PCs globally, reduced significantly in 2013. On the same note, another factor impacting on Intel’s revenue involves an increased spending in marketing and promoting the two-in-one portables. Conversely, the company’s monopoly is now threatened by ARM that designs chips used on smartphones and tablets (Drubin 2014, p.59). While Intel has remained steadfast in the production of processors used on PC’s, there has been an increased use of smartphones and tablets by customers compared to the use of PC’s. The chips designed by ARM and used on smartphones and tablets are considered to have a low energy consumption compared to processors used on PC’s. This is a challenge that Intel need to deal with presently in order to improve its sales in the PC market. As a result of advancement in technology, it is important for the company at the present to acknowledge the need to diversify its production that involves emulating the ARM architecture. Intel as a company maintains a focus on the production of processors that offer clients a high performance, but the company does not consider the power consumption which is a major issue with customers emphasizing a user friendly product. As such, Intel is losing customers to smartphones and tablets powered by ARM’S low power processor (Navarro 2005, p.78). The company also relies on its own resources which are rather straining particularly with the dwindling PC market. While Intel produces its own chip, ARM focus on selling chip designs and benefits from royalty for every processor sold that incorporates its design. The company also collaborates with fewer loyal customers like Microsoft rather than expanding its business to include other small groups. This is important in improving the royalty that the company receive for selling its design to other companies. In essence, Intel at the moment is experiencing difficulties penetrating the microprocessor market and needs to diversify its production to include the low power processor used in tablets and smartphones (Burgelman & Siegel 2008, p.156). Intel’s current strategy Intel’s current strategy involves being a leader in the manufacture of semiconductor chips that is used in the digital economy. In addition, Intel intends to expand in all relevant markets. The company boasts of core competencies in terms of the know how in the production of integrated circuits and a stable financial backing that ensures the company competes at the highest level possible. However, as time changes, the customer’s needs also change (Woolard 2013, p.19). This, require companies dealing in microprocessors to improve their business strategy. Sticking to the traditional core business may deny a company the chance to explore new markets and adapt to technological changes. From the 2013 Intel’s annual report, it seems that the PC market continues to decline and this means Intel may lose customers of chips to competitors. Currently, Intel has to deal with competition emanating from ARM. This is because, their product resonates with the current changes in the semiconductor industry (Woodard, Ramasubbu, Tschang & Samamurthy 2013, p.538). As a strategy, Intel need to carry out PESTEL analysis to help improve not only its core business, but also diversify its business to include manufacture of low power processors. PESTEL Analysis of Intel As a result of the changing business environment, there are often opportunities and threats and as such, Intel needs to rely on PESTEL analysis to develop an understanding of the current business environment (Curry, Guyon, Sheridan & Donnellan 2012, p.61). Political Forces As a multinational company, Intel has to comply with different policies that exist in the countries where the company is operating. As such, any form of instability impact on the economic growth in the sense that political instability tends to affect business operations. For example, a country can introduce a policy that impacts negatively on foreign investment. As a result, investors may lose profit from a valuable market. A continent such as Africa, present a prospective destination for Intel to venture, but the political instability in most African countries mean Intel’s profitability can be affected (Curry, et al 2012, p.62). Economic Forces The economic patterns play a role in determining the direction that most companies take. Such factors include patterns related to the gross national product, inflation rate and unemployment. On another note, where the labour costs are high, most companies tend to relocate their manufacturing plants abroad. As a company, Intel needs to take advantage of the low labour cost in Asia to improve its profitability (Curry et al 2012, p.64). Social Cultural Forces Various social values also play a role in determining how a business implements its strategies to achieve success. Considering factors such as literacy rate brings skills and experience to a company. Intel as a company recognized the potential offered by China and Vietnam in regard to a reliable workforce (Curry et al 2012, p.64). Technology Technology exposes a company to both opportunities and threats which Intel must take into consideration when implementing its business strategy. Further, technology has a broad spectrum of influence on any company. This is because any change in technology means a change in how a company conducts its business. As such, some companies fall into ruins, but a company like Intel can survive because of its technical know-how and financial backing. In essence, Intel can take advantage of the latest changes in the digital market such as production of wireless devices that includes the mobile phone market (Curry et al 2012, p.65). Environment An increased lobbying for environmental conservancy means that companies also have a social responsibility to protect the environment. This is important in the sense that, social corporate responsibility improves a company’s image. Intel for example, has to focus on reducing CO2 emission from the products it manufactures (Curry et al 2012, p.68) Legal In the business environment, there are rules that check on prices, the quality of products, competition and patents. These regulations are important because the business world is more globalized. As such, Intel needs to be careful in regard to malpractices that may lead to a legal suit from the company affected (Curry et al 2012, p.68). Porter Five Forces On the other hand, Intel can rely on Porter’s five forces in implementing a strategy that should capitalize on opportunities while keeping check on the threats to Intel’s business. The Porter’s forces is necessary in strategy implementation by Intel because it helps the company understand the pattern of competition and how it can gain an edge over other companies (Grover & Kohli 2013, p.655).These forces include: Competition or Rivalry There is often a stiff competition between companies in the same industry, the competition result from a need to gain market share. As the demand for new products by customers continue to increase, Intel needs to notice the emergence of stiff competition from ARM. On this note, Intel should channel its investment to R&D and marketing its new products to the identified market (Grover & Kohli 2013, p.658). The buyer’s bargaining power A critical role of any company, involves meeting the needs of its customers, this is the only way that a company’s products can sell. For example, a higher price does not resonate with customers and this means they might resort to a substitute product. However, where the price is high, then products need to focus on quality which is an added value customer. Since Intel no longer enjoys monopoly in the microprocessor industry, there is need to focus on quality and competitive pricing (Grover & Kohli 2013, p.658). The supplier’s bargaining power A business entity stands to gain when the supplier’s bargaining power is low. Intel being in a specialized market is susceptible to exploitation by the suppliers. However, the exploitation by suppliers can be avoided if Intel diversifies its business (Grover & Kohli 2013, p.659). The threat from a new entrant In some sectors of business, it is often difficult for other companies to infiltrate because the existing company or companies have already established a trusted brand. Intel at the moment should take notice of an emerging threat from ARM (Grover & Kohli 2013, p.661). Threat from substitute products High prices for products often push customers to use substitute products that is substandard compared to the original product. For example, Sun Microsoft Systems can substitute Intel. As a result, Intel needs to control its pricing to prevent customers from shifting to Sun Microsoft Systems (Grover & Kohli 2013, p.661). How Intel can sustain competitive advantage Sustaining a competitive edge is important in an industry that continues to experience change from time to time. This means that Intel has to remain vigilant to any change and improve investment on R& D to enable the company focus on unique products. In essence, the company needs to differentiate itself by focusing on new ideas meant to revolutionize its microprocessor business. As such, Intel needs to understand client’s needs in order to improve their products. The company should further gather information related to their competitors in order to understand the threat that competitors present to Intel. Furthermore, sustaining a competitive edge require Intel to gather information regarding sales. This ensures that Intel understand how competitors price their products and the customer’s reaction. As such, the company is able to make an informed choice regarding the sale of its products (Cohen, Agrawal & Agrawal 2006, p.132). In addition, when gathering information regarding sales, it is important for Intel to understand the strengths and weaknesses of competitors. This would assist Intel come up with a unique strategy to improve sales that is different from competitors. Sustaining competitive edge also involves comparing product features to competing products. This would ensure Intel comes up with product features that are superior to that of their competitors. Intel as a company should also engaging in contemplating future moves. This would allow the company to take necessary measures to avoid being overtaken by events in the microprocessor market. Conversely, in order to counter a threat from a competitor, it is critical for Intel to pre-empt is own move (Cohen et al. 2006, p.134). Conclusion While Intel is a leader in the microprocessor business, it is important for the management to understand the current trends in technology. This means that, as Intel maintains a focus on its core business, other companies in the same industry are embracing new technologies. As such, Intel needs to increase its investment in R&D to help the company diversify its business by introducing new products that resonates with customer’s needs. At the present, smartphones and tablets presents a bigger market for processors compared to the PC’s. As a result, Intel other than producing processors for PC’s, should consider venturing into production of low power processors used in smartphones and tablets. References Burgelman, R. A. & Siegel, R. E 2008, ‘Cutting the Strategy Diamond in High-Technology Ventures’, California Management Review, Vol. 50, no.3, pp.140-167. Cohen, M. A., Agrawal, N., & Agrawal, V. 2006, ‘Winning in the aftermarket’, Harvard Business Review, Vol. 84, no. 5, pp.129–138. Curley, M 2006, ‘The I.T transformation at Intel’, MIS Quarterly Executive, Vol. 5, no. 4, pp. 155-168. Curry, E.; Guyon, B.; Sheridan, C. & Donnellan, B 2012, ‘Developing a sustainable it capability: lessons from Intel’s journey’, MIS Quarterly Executive, Vol. 11, no. 2, pp. 61-74. Drubin, C 2014, ‘Intel Acquires Mindspeeds Wireless Business’, Microwave Journal, Vol. 57, no. 2, p. 59. Grover, V & Kohli, R 2013, ‘Revealing your hand: caveats in implementing digital business strategy’, MIS Quarterly, Vol. 38, no. 2, pp. 655-662. Navarro, P 2005, ‘The well-timed strategy: Managing the business cycle’, California Management Review, Vol. 48, no.1, pp. 71-91. Woodard, C. J.; Ramasubbu, N.; Tschang, F. T & Sambamurthy, V 2013, ‘Design capital and design moves: the logic of digital business strategy’, MIS Quarterly, Vol. 37, no. 2, pp. 537-564. Stepp, L. K 2011, ‘Building an Internal Organization Design Capability at Intel’, People & Strategy, Vol. 34, no. 4, pp. 60-63. Woolard, C 2013, ‘Top digital marketers: Kevin sellers’, B to B., Vol. 98, no. 3, p. 19. Read More