Intel Leading the Semiconductor Industry - Case Study Example

Intel Case Study Table of content Semiconductor Industry 2 Manufacturing semiconductors 3 Intel leading the semiconductor industry 4 Intel’s competitor 5 Rivalry in semiconductor industry 6 Intel controlling the competitive forces 7 Conclusion 9 Reference 10 Semiconductor Industry The semiconductor industry came into existence and gradually expanded across the globe with the increase in demand from various segments of consumers. Earlier it was easy to enter the semiconductor industry due to its fragmented presence in nations such as US where the industry took its first breath in the late 1950s. As the industry grew larger in size and number of small sized firms started entering the semiconductor manufacturing industry it became tougher for the new players to enter the industry. This helped the larger firms to dominate the industry as they were for mass manufacturing of standard semiconductors devices. Despite the tough condition, several high level firms entered into the industry in the 1980s. These firms focused on manufacturing products which were application specific. Such novice attempt helped them to recapture the US semiconductor industry. The US semiconductor industry faced tough competition from the Japanese firms and many firms of the European origin which resulted in the varying positions of top ten semiconductor manufacturer across the world since 1970s. The competition became even tougher with the emergence of Korean and Taiwanese semiconductor manufacturing firms. US however, remained the leader and accounted for 30 percent of the total sales of semiconductor across the world. Among the top ten firms of semiconductor manufacturing industry across the world five of them were of US origin while three belonged to Japan and two of them were of European origin. By 1990s the US origin firms reduced in number from ten to three in the list of top ten semiconductor manufacturing firms across the globe. The global sales of semiconductors rose from 18 percent to 20 percent and the position of US based semiconductor manufacturer jumped from the eighth position to the peak within the period of 1989 to 1995. This also indicated the loosening of Japanese firms hold over the semiconductor industry (Dicken, 2007 p334). Manufacturing semiconductors Manufacturing semiconductors is a lengthy process which consists of numerous steps by which a specific circuit is copied several times on the surface of single wafer. The integrated circuits are formed by laying numerous layers on the wafers thereby forming a specific pattern on it. Generally the number of layers varies from eight to twenty which are either mounted on or placed inside the substrate. The process of semiconductor manufacturing begins with the production of wafers which provides the base to the layers. Generally these wafers are very thin and are mostly made of silicon which is extracted from sand. The process by which silicon is mutated to become wafer involves the use of several machineries and chemicals for polishing. Because of such extensive use of chemicals and machines the wafer gains mirror-like lustre. As soon as the wafers are produced they are sent for ‘fabrication’ which is considered as the core step of the integrated circuit manufacturing. During this process the circuits are arranged on the wafers. This is a highly sophisticated process and requires a dust-free environment. On an average, ten to thirty days are consumed in the process of wafer fabrication. Fabrication of wafers is a complicated process which involves several sub-steps by which fabrication of wafers are successfully accomplished (Anonymous, n.d.). Intel leading the semiconductor industry Intel has remained as the most prominent name in the list of semiconductor manufacturer around the world. It has supported the US to hold the leading position in the semiconductor manufacturing industry across the world. Microprocessors manufactured by Intel are the most common processors found in the computers used across the world. Intel has invested huge amount of funds to set up highly productive plants through which it has achieved significant rate of production. The company has a very high rate of production which is very much evident from the fact that the number of microprocessors manufactured by Intel in a day is more than the number of microprocessors manufactured by many small firms in a year. The company is considered to be the fifth most valuable brand across the world. Intel has proved to be very effective in terms of maintaining its position in the industry through its innovation and strategic moves. Initially it focused on microprocessors manufacturing which helped them in gaining recognition across the world. With a continuous success rate the company kept on raising its bar. Under its innovative approach, in 2006 the company adopted new strategy of identifying and creating the markets. Identifying new market opportunity has enabled Intel to focus on several industries apart from the microprocessor manufacturing for personal computers. Sectors such as consumer electronics, wireless communications, and healthcare industry has been identified as other potential sectors for Intel where it can crate market and improve its business operations. Manufacturing chips of various types in terms of their applicability and integrating them on single platforms has supported the company in gaining unique image in the industry. It is true not only in case of any specific industry but all of the business sectors have gained a lot from the chips manufactured by Intel. These microchips manufactured by Intel have improved the business productivity of many organizations irrespective of their industry type. Business organizations have gained support in improving their communication and computational capabilities from the chips manufactured by Intel. The core benefit obtained from the products and technologies offered by Intel is that it makes the day-to-day activities of people easy by setting their work related to their work, home and health (The Times 100, n.d.). Intel’s competitor The semiconductor industry has seen a gradual increment in the competition level with the entry of new firms on continuous basis. The competition among the firms has become stiffer with the entry of many small and medium sized firms in the semiconductor industry. Intel holds the leading position in the semiconductor industry and has very less threat from small and medium sized firms due to its extremely strong production process and advanced infrastructure. The company has maximum threats from the firms which share the leading positions with it and possesses capacity to challenge the production capacity of Intel. The pricing of the microprocessors manufactured by Intel or any other manufacturer are done on the basis of negotiation between the manufacturer and the original equipment manufacturers (OEMs) which purchase their products. The original equipment manufacturer (OEM) negotiates with microchip manufacturers considering the various economic forces acting on the industry. Major OEMs such as Dell, HP and IBM are major buyers of Intel’s products for which they perform negotiations on the prices of their products. These negotiations have been both long and short term which has supported the OEMs to update their products range after every three or four months. The level of negotiation has reached a constant position among which many of them have also found to be less frequent. The constant level of negotiation between Intel and its client OEMs has leaved AMD with several opportunities to grab (Cooper, March 2008). AMD in one of the trade show has also declared that it has reduced its technological gap between them and Intel by reducing their manufacturing process half of the total time. Apart from this AMD has also expanded its product range which has included low priced PCs and graphics cards for video games. The company has also started its venture with IBM in Germany where it has planned to produce 45-nanometer products which will be used for servers and desktop computers (Flynn, March 2008). Rivalry in semiconductor industry It has remained very prominent that Intel has leaded the microprocessor industry since a long time but with the increased level of competition the company has been accused by many agencies for adopting unfair means to retain its leading position in the microprocessor industry. Intel has been accused by New York State Attorney General Andrew Cuomo who has filed federal antitrust lawsuit against the company for reinforcing the inappropriate means of using its power to dominate the microprocessor market. Though Intel has denied the allegations made on it. According to Cuomo Intel has signed agreements with several large computer manufacturers for buying its microprocessors in exchange of huge payments made by the company. Intel has found to be harsh with those computer manufacturers who have shown reluctance in using its microprocessor. Many of the computer manufacturers have been punished by Intel for developing close business relations with its rival organizations who are also into the manufacturing of microprocessors (James, November 2009). Intel has observed high competition on the pricing of products from its rivals such as AMD which is considered to possess the capability of defeating Intel. AMD has been found to assault Intel on the ground of US antitrust laws for violating them for gaining profits and market share. AMD in its lawsuit against Intel has mentioned that Intel has violated the laws for gaining competitive advantage over its competitors. According to AMD Intel is trying to lure customers through inappropriate discounts on its products to gain maximum number of customers. AMD has requested for certain measures through which giant players in semiconductor industry such as Intel could be controlled and restrained from performing aggressive pricing competition against its rivals. The problem highlighted by AMD focuses that even after the discounts Intel successfully covers up its cost of manufacturing but after that also their prices remain higher than that of AMD’s prices (Cooper, March 2008). Intel controlling the competitive forces The competition level in the microprocessors industry has been found to be increasing at a rapid pace considering which Intel is required to tackle the forces generated from its competitors. The strategic approaches adopted by Intel to face the competitive forces resulted into their entry in the consumer electronic segments and healthcare segments. The company has restructured itself which has influenced its huge employee base of 90,000 working at different levels in the organizations. According to the new Chief Executive Officer of Intel better sales of technology can be achieved in present day by making the technology simpler from the consumers’ perspective. The company has expanded its ventures with other organizations belonging to different sectors such as Motorola which is involved into manufacturing and selling of mobile phones and related devices. In healthcare sector Intel has formed ventures with many hospitals and health institution which have extreme need of information sharing and storage. With the help of Intel’s technology hospitals have become capable of storing information in electronic tablets which has replaced paper records and prescriptions. This has been made possible due to the efforts made by the company for new product development which is specific to the industry and their respective needs. New Product Development at Intel (Source- The Times 100) The company has focused on digitizing the various aspects of people which are very much fundamental such as their home, workplace, healthcare, and mobility. Each of these aspects has been considered under the new product development at Intel. To bring into effect Intel has also worked upon its internal environment where it has emphasized team building approaches for gaining expertise. Engineers and developers are made to work in a team with the marketers and market specialist in order to identify the needs of consumers and develop products to meet their requirements through technological innovation (The Times 100, n.d.). Conclusion The intense level of competition between the firms involved in microprocessors development has brought Intel in a situation where it has become very important for the company to develop plans for retaining its position. Different types of forces are being observed by the company in terms of competition such as legal steps taken up by rival organizations to influence their business performances. Intel has been found to adopt unfair means to face the price competition which has hurt both its rivals as well as its consumer segments. This could lead to significant loss of market share by Intel to its rival firms. The situation has become tougher because of significant growth recorded by the rival organization AMD which has posed maximum threat to Intel. Forming strategic ventures could an effective option for Intel to control over the issues emerging in its line of performance. Reference Anonymous. (No date). High Performance Analog Solutions- How Semiconductors are Made. [Online] Available at: http://rel.intersil.com/docs/lexicon/manufacture.html [Accessed on March 24, 2010]. Cooper, R. (March 2008). GCP- The Online Magazine for Global Competition Policy- AMD v. Intel: An Assault on Price Competition. [Online] Available at: http://www.gordonmoore.org/pressroom/legal/docs/Cooper_GCP_Mar08.pdf [Accessed on March 24, 2010]. Dicken, P. (2007). Global shift: mapping the changing contours of the world economy. 5th ed. SAGE Publications Ltd. Flynn, L. (March 5, 2008). The New York Times- A.M.D. Cuts Time Needed to Shift Production Method. [Online] Available at: http://www.nytimes.com/2008/03/05/technology/05amd.html?_r=2 [Accessed on March 24, 2010]. James, F. (November 4, 2009). Intel Sued By NY Atty Gen Cuomo For Alleged Antitrust Violations. [Online] Available at: http://www.npr.org/blogs/thetwo-way/2009/11/intel_sued_by_ny_atty_gen_cuom.html [Accessed on March 24, 2010]. The Times 100. (No date). The Times 100 case studies- Intel: Identifying and creating new markets - a new strategy for a global leader. [Online] Available at: http://www.thetimes100.co.uk/case_study.php?cID=85&csID=227 [Accessed on March 24, 2010]. Read More