2014

Business Report on Intel Corporation

Vikram Sreeram (H00032512)

University of Liverpool

Executive Summary
Intel Corporation is the largest microprocessor manufacturer in the world. It dominates the
microprocessor market for personal computers, but it is almost insignificant in the emerging
market for processors for smart phones and tablet computers. I apply Michael Porters (1979;
2008) Five Competitive Forces framework to determine the threats and opportunities faced
by Intel Corporation. I also review scholarly articles by Christensen & Overdorf (2000) and
Gilbert & Bower (2002) to explore possible lessons for strategic change to cater to the
disruptive changes being faced at present. Based on my findings, I strongly advocate that Intel
Corporation consider dedicating an exclusive business unit to develop processors for the fast
growing market for smartphones and tablet computers while maintaining a continued focus
on its core business.

Table of Contents
1.

Introduction .................................................................................................................................... 3

2.

Analysis of Intel Corporation based on Porters Five Forces .......................................................... 5

2.1 Porters Five Forces ....................................................................................................................... 5
2.1.1 Threat of New Entry ............................................................................................................... 5
2.1.2 Power of Suppliers ................................................................................................................. 5
2.1.3 Power of Buyers ..................................................................................................................... 5
2.1.4 Threat of Substitutes.............................................................................................................. 5
2.1.5 Rivalry among Existing Competitors ...................................................................................... 5
2.2 Summary of the Analysis............................................................................................................... 6

3.

Disruptive Change and Specific Challenges .................................................................................... 7

4.

Literature Review ............................................................................................................................ 8

5.

Conclusions and Recommendations ............................................................................................. 10

6.

Updates ......................................................................................................................................... 11

7.

References .................................................................................................................................... 12

1. Introduction
Intel Corporation was founded in 1968 by Robert Noyce and Gordon Moore, both scientists,
to develop semiconductor memory products (Intel Corporation, n.d.c). The initial name of the
company was supposedly Moore & Noyce Electronics, later renamed Intel, a portmanteau of
the words integrated electronics (The Inquirer, 2007). Intel Corporation developed the
worlds first microprocessor in 1971 and has continued to dominate the market ever since.
Intel Corporation with its global headquarters located in Santa Clara, California employed
over 107,600 people across the world as of 2013 with 55 percent of employees situated in
the United States of America. Intels net revenue as of 2013 was $52.7 billion (Intel
Corporation, n.d.c). Brian M. Krzanich is Intels current Chief Executive Officer and Andy D.
Bryant is the Chairman of the Board.
Other than microprocessors, Intel Corporation also develops motherboard chipsets,
integrated circuits, graphics processors, network interface controllers, software, solid state
disk drives and other communications and computing utility devices. Intel Corporation also
owns the McAfee brand of computer security software. My examination of Intel Corporations
(2014, pp. 4 & 105) operating segments, as illustrated in Figure 1, leads me to believe that it
follows a Global Product Structure (Daft, 2013, p. 230). Intel Corporations (2014) operations
are divided into the following segments: PC client group, software and services operating
segments, data center group, other Intel architecture operating segments, and all other (pp.
4 & 105). The majority of Intel Corporations revenue continues to be derived from its PC
Client Group (Intel Corporation, 2014), as illustrated in Figure 2.

Figure 1. Intels Business Organisation and Operating Segments (Intel Corporation, 2014)

Figure 2. Percentage of Revenue by Major Operating Segment (Dollars in Millions) (Intel Corporation, 2014)

55.4% of Intels US workforce are Caucasian followed by 30.7% being Asian with 74% of the
US workforce being male (Rogoway, 2014), a level of diversity which appears to be typical of
the technology industry in Silicon Valley (Pepitone, 2011). 51% of Intel employees work within
the US (Intel Corporation, 2014, p. 12). Intel Corporation (n.d.b) has design centres in the
Germany, Israel, India, Malaysia and USA; manufacturing centres in Israel, China and USA;
with most of its other worldwide locations are primarily involved in sales. Intel employs a
Global Diversity and Inclusion Director (Intel Corporation, n.d.a) to address matters of
intercultural diversity.
While Intel Corporation continues to dominate the personal computer segment for its
processors (HIS, 2013), recent growth in the smartphone and tablet computer markets, where
Intel Corporation is an insignificant player, have been cannibalising the previously steady
personal computer market. Intel Corporation possibly needs to re-examine its strategy and
organisational design to deal with the current disruptions in the markets it caters to. This
report examines the challenges faced by Intel Corporation from this perspective.

2. Analysis of Intel Corporation based on Porters Five Forces

2.1 Porters Five Forces
Porter (1979; 2008) identifies five competitive forces that shape strategy. The forces being
threat of new entry, the power of suppliers, the power of buyers, the threat of substitutes,
and rivalry among existing competitors.
2.1.1 Threat of New Entry
The threat of new entry is minimal due to the high costs involved and the technology barriers.
However, a potential threat could be posed from fabless companies that could licence
intellectual properties to existing manufacturers.
2.1.2 Power of Suppliers
Suppliers to the semiconductor industry have been consolidating in recent years (McKinsey &
Company, 2013, p. 20; Jelinek, 2014, p. 56), yet, the suppliers to Intel Corporation may not
enjoy real bargaining powers as Intel Corporation maintains several sources (Intel
Corporation, 2014, p. 19) and can always consider integrating backwards if threatened. Intel
Corporation also owns manufacturing facilities in the China, Israel and USA (Intel Corporation,
2014, p. 10).
2.1.3 Power of Buyers
The bargaining power could vary depending on the buyers. Intel Corporation has created a
strong brand among the end users of personal computers with it Pentium brand of
processors, which would place it at an advantage over most personal computer
manufacturers. A notable exception would be Apple, which enjoys almost fanatical loyalty
among its users who will not bother about the processors being used in the computers. Intel
Corporation does supply to Apple, but the bargaining power would rest with Apple.
The smartphone market is dominated by ARM (Bent, 2013), which would give the phone
manufacturers an upper hand in negotiations with Intel, if Intel Corporation needs to make
gains in this fast-growing market.
2.1.4 Threat of Substitutes
The threat of substitutes is relatively small, but Intel Corporation has been slow to react to
the smartphone and tablet markets. The smartphone and tablet markets are cannibalising the
personal computer market where Intel Corporation dominates. This could be viewed as an
indirect means of substitution.
2.1.5 Rivalry among Existing Competitors
Intel Corporation is the market leader in the semiconductor industry (Gartner, 2014). It enjoys
a comfortable lead over its rivals in the supply of microprocessors for personal computers
(HIS, 2013). It is yet to gain momentum in the fast-growing market for smartphones; now
dominated by ARM (Bent, 2013).

2.2 Summary of the Analysis

Intel Corporation is essentially a supplier of microchips to OEMs, though it enjoys some brand
recall and market share in the personal computer market, a segment which contributes to
63% of Intels revenue (Intel Corporation, 2014, p. 8). With the shrinking market for personal
computers and the ever widening upgrade cycles, Intel Corporation might increasingly find
itself at the mercy of buyers. Its pursuit of Moores law (Intel Corporation, 2014) might not be
economically sustainable in the future (McKinsey & Company, 2013, p. 6). It might need to
consider both forward and backward integration and find alliances with other, fabless
semiconductor companies.

3. Disruptive Change and Specific Challenges

Daft (2013) defines disruptive change as a result from sudden shocks and surprises that
radically change an industrys rules of the game for producers and consumers (p. 432). Many
technologies are being discussed and developed in the semiconductor industry which might
prove to be disruptive. Examples of some of the technologies and materials are synthetic
biology, organic electronics, flexible electronics, carbon nanotubes and graphene. Though
Intel Corporation itself is participating and investing in research in some of these areas, the
company that is first to market could have a disruptive effect and could enjoy a significant
advantage.
After the recent boom in the smartphone and tablet computer industry which had a disruptive
effect, the next growth areas appear to be in wearable technologies, automotive, and internet
of things.
One of the biggest challenges faced by Intel Corporation would be to make gains in the
smartphone and tablet markets. Smartphones and tablets, which form a subset of the Other
Intel Corporation Architecture segment of Intels businesses, contribute only to 8% of Intels
revenue (Intel Corporation, 2014, p. 8). As described earlier, the market is dominated by ARM.
Not being a manufacturer itself, ARM offers the advantage of greater control to its buyers.
Another fundamental challenge to Intel Corporation would be trying to identify the fast
changing trends in the technology industry which are going to drive the markets in the future.
Intel Corporation missed the shift towards mobile computing as acknowledged by its CEO
(Crothers, 2014) and cannot afford to miss the next big innovation.

4. Literature Review
Intels commitment to Moores Law (Intel Corporation, 2014, p. 2) could be among its values
that left it unprepared when faced with a disruptive change in terms of the rapid growth in
the market for smart phones and tablets. It was only as recently as 2007 that the smartphone
market overtook the market for laptop computers (Want, 2009, p. 2). It is possible that Intel
Corporation did not find the market attractive enough considering its initially small size.
Christensen & Overdorf (2000) suggest that the managers track record at large companies
has not been good when dealing with disruptive change (p. 67). While good managers identify
the right people for the right jobs, they also need the similar ability to assess the strengths
and weaknesses of their organisations as a whole (p. 68). They suggest that three factors
affect an organisations capabilities, namely: resources, processes and values (pp. 68-69).
High quality and abundant resources do offer companies a better chance when dealing with
change, but it is not enough to just assess resources to deal with change (p. 68). They suggest
that it is the less visible processes working in the background, that have an influence on
decisions on budgets and resource allocation, which can curtail an organisations ability to
cope with change (p. 69). Certain broadly understood and consistent values can limit
managers views on what an organisation can or cannot do (p. 69). For example, a company
used to high margins may choose not to develop products or services that do not offer similar
margins (p. 69). They suggest that the larger companies grow, the less interesting they find
small and emerging markets (pp. 69-70).
Christensen & Overdorf (2000) suggest that organisations are more dependent on resources
during the start-up stage, but shift to processes and values as they grow (p. 71). Employees
soon come to view the processes and values that might have contributed to a companys
growth as the right way to work, which creates limitations in their abilities (p. 71). They cite
the example of Digital Equipment Corporation to highlight how a once successful company
with vast resources soon became irrelevant due to its ingrained processes and values (p. 72).
While successful companies are able to respond to sustaining innovation, a term coined by
Christensen (1997 cited in Christensen & Overdorf, 2000, p. 71), they are inept when dealing
with disruptive innovation (Christensen & Overdorf, 2000, p. 71). Disruptive innovations are
described as innovations that create an entirely new market or service (p. 72). Disruptive
innovations may be viewed as inferior at the time of their introduction versus existing
products which they ultimately displace (Christensen & Overdorf, 2000, p. 72; Gilbert &
Bower, 2002, p. 101). Disruptive innovations generally offer lower margins at the outset which
might not seem valuable to large companies (Christensen & Overdorf, 2000, p. 73).
Gilbert & Bower (2002) caution that the reaction to disruptive change must be measured and
balanced without succumbing to viewing the change in singular terms as either a threat or an
opportunity. Viewing the change as a threat alone could lead to committing too many
resources too early or conversely committing too few resources in the case of opportunities
(p. 95). They suggest that successful organisations treated the disruptive innovation as a
threat when allocating resources, but as an opportunity when it was time to discover and
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respond (p. 96). They highlight the importance of framing the issue properly (p. 96). Framing
the issue as a threat could lead to an aggressive and rigid response with a focus on defending
the existing business model (as opposed to creating a new one); they commit resources in
large lump sums (rather than in staged investments); and they tighten the existing
organisations authority (instead of giving the new venture autonomy) (p. 96). On the other
hand, when an issue is framed as an opportunity, an immediate need for change is not felt
which could lead to the organisation passing an opportunity (p. 97).
One way of dealing with change would be to reorganise and create a team which can redefine
processes and values to suit the new challenge (Christensen & Overdorf, 2000, p. 73). Another
option of dealing with change would be to spin off a company or unit dedicated to deal with
the change (p. 73). An excellent example cited by Christensen & Overdorf (2000, p. 74) is that
of Hewlett-Packard spinning off its inkjet printer business from its previously dominant older
sibling, the laser printer business. HPs Laser printer business was very successful and enjoyed
high margins. Inkjet printers, which initially formed a part of the same business, languished
as it was not considered to afford margins similar to the laser printers. The inkjet printer
business managed to flourish only after being separated into a different business unit. Gilbert
& Bower (2002, p. 99) too offer examples from the newspaper industry that suggest that units
that operate independent from their parent organisations performed better. Organisations
can also explore acquisitions as an option in order to gain capabilities to deal with change
(Christensen & Overdorf, 2000, p. 74). Gilbert & Bower (2002, p. 101) also recommend that
funding for a new venture must be phased and continued attention must be paid to the
existing businesses.

5. Conclusions and Recommendations

It is evident the Intel Corporation is faced with a challenge to its traditional model of business
that is dependent on the personal computer market. Intel Corporation must recognise the
shifts in stakeholder requirements and make changes to its model of functioning in order to
stay relevant in the coming years. Intel Corporation currently develops products for
smartphones and tablets under Other Intel Corporation Architecture operating segments,
which is too broad and caters to many other emerging applications (Intel Corporation, 2014,
p. 4). Based on Christensen & Overdorfs (2000, p. 73) suggestion, I would recommend that
Intel Corporation consider spinning off or dedicating a business unit to exclusively deal with
developing processors for the smartphone and tablet computers as it has done with its PC
Client Group (Intel Corporation, 2014, p. 4). Intel Corporation also appears to be developing
on its existing Atom family of processors for the mobile platforms. It might instead be wiser
to consider developing a product from the ground up to avoid legacy issues or acquire existing
technologies through acquisitions as suggested by Christensen & Overdorf (2000, p. 74).

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6. Updates
There have been recent reports (at the time of writing this paper) that Intel Corporation
intends to combine its mobile processor division with it PC Client Group (The Wall Street
Journal, 2014). Such a merger goes against the earlier discussed suggestions of spinning off
(Christensen & Overdorf, 2000, p. 74) while maintaining continued focus on its core business
(Gilbert & Bower, 2002, p. 101). If true, this move could prove to be counterproductive and
detrimental to the organisation.

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7. References
Bent, K. (2012), ARM Snags 95 Percent of Smartphone Market, Eyes New Areas for Growth,
CRN [Online]. Available from: http://www.crn.com/news/componentsperipherals/240003811/arm-snags-95-percent-of-smartphone-market-eyes-new-areas-forgrowth.htm (Accessed: 01 November 2014).
Christensen, C. & Overdorf, M. (2000) 'Meeting the Challenge of Disruptive Change',
Harvard Business Review, 78, 2, pp. 66-76.
Crothers, B. (2014), Intel Corporation CEO talks Apple, water-cooled PCs, carbon
nanotubes, CNET [Online]. Available from: http://www.cnet.com/news/intel-ceo-talksapple-water-cooled-pcs-carbon-nanotubes (Accessed: 01 November 2014).
Daft, R. L. (2013) Organization Theory and Design, 11th edition, Mason, OH: Cengage
Learning.
Gilbert, C. & Bower, J. (2002) 'Disruptive change. When trying harder is part of the problem',
Harvard Business Review, 80, 5, pp. 94-101.
Gartner (2014), Worldwide Semiconductor Revenue Grew 5 Percent in 2013 [Online].
Available from: http://www.gartner.com/newsroom/id/2698917 (Accessed: 31 October
2014).
HIS (2013), Processor Market Set for Strong Growth in 2013, Courtesy of Smartphones and
Tablets [Online]. Available from: http://press.ihs.com/press-release/design-supplychain/processor-market-set-strong-growth-2013-courtesy-smartphones-and-t (Accessed: 01
November 2014).
Intel Corporation (2014), 2013 Annual Report, Intel, Santa Clara, CA.
Intel Corporation (n.d.a) A Message from our Global Diversity and Inclusion Director
[Online]. Available from: http://www.intel.com/content/www/us/en/companyoverview/diversity-message-from-global-diversity-director.html (Accessed: 08 November
2014).
Intel Corporation (n.d.b) Global Locations [Online]. Available from:
http://m.intel.com/us/en/about-intel/jobs/global-locations.html (Accessed: 08 November
2014).
Intel Corporation (n.d.c) Intel Facts [Online]. Available from:
http://www.intel.in/content/www/in/en/company-overview/company-facts.html
(Accessed: 23 November 2014).
Jelinek, L. (2014), The not-so-brave new world of semiconductor manufacturing, HIS
Quarterly, 2014, Q2, pp. 52-57.
McKinsey & Company (2013), McKinsey on Semiconductors [Online]. Available from:
http://www.mckinsey.com/client_service/semiconductors/~/media/mckinsey/dotcom/clien
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t_service/semiconductors/issue%203%20autumn%202013/pdfs/mck%20on%20semiconduc
tors_issue%203_2013.ashx (Accessed: 01 November 2014).
Pepitone, J. (2011) Silicon Valley fights to keep its diversity data secret [Online]. Available
from: http://money.cnn.com/2011/11/09/technology/diversity_silicon_valley/ (Accessed:
07 November 2014).
Porter, M. E. (1979), 'How competitive forces shape strategy', Harvard Business Review, 57,
2, pp. 137-145.
Porter, M. E. (2008), 'The Five Competitive Forces that Shape Strategy', Harvard Business
Review, 86, 1, pp. 78-93.
Rogoway, M. (2014) Diversity at Google and Intel in four charts [Online]. Available at:
http://www.oregonlive.com/siliconforest/index.ssf/2014/05/diversity_at_google_and_intel.html (Accessed: 08 November
2014).
The Inquirer (2007), Secret of Intel's name revealed [Online]. Available from:
http://www.theinquirer.net/inquirer/news/1031210/secret-intel-revealed (Accessed: 27
November 2014).
The Wall Street Journal (2014), Intel to Combine PC, Mobile Chip Groups [Online]. Available
from: http://online.wsj.com/articles/intel-to-combine-pc-mobile-chip-groups-1416270388
(Accessed: 27 November 2014).
Want, R. (2009) When Cell Phones Become Computers, IEEE Pervasive Computing, AprilJune, pp. 2-5.

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