Intel Company Analysis
Today, Intel is used in many personal computers and lab-tops. The company has made a brand for itself and has been able to sustain ranks among many notable competitors. Today, Intel holds greater than 80 percent of the microprocessors market because of the success of its Pentium chip (Semiconductor 1). This report contains information pertaining to the Intel Company from the beginning and up to 2001. As many computer chip companies Intel had battles being at the top of the competitor’s lists, as well as producing products worth individual attention.
This report will give a background of the company, an industry analysis that will explain Intel’s top competitors in detail, a SWOT analysis, a financial analysis and will conclude with suggestions that can help the company grow further. The Intel Corporation began in 1968. Two men are named the founder’s of this company; Robert Noyce, Gordon Moore. Originally, Noyce and Moore wanted to name the company “Moore Noyce” after their names but realized it sounded like “more noise” and was not a suitable name for a computer chip company. The company was then named Intel for “integrated technology. The early focus of the company was on integrated circuit memory devices. One of the first tasks encountered by Intel was producing a DRAM (dynamic random access memory) with a lower price. In 1970, the 1103 was produced. The 1103 was the world’s first 1-kilobyte DRAM. This undercut prices and had increased performance while being smaller. By 1972 the 1103 was the bestselling semiconductor memory chip in the world and the first commercial computer available was the HP 9800 series. Intel was able to gain market share at this time and this allowed them to continue researching and developing new products.
However, by 1978 Intel was a full generation behind the Japanese when it came to the 16K DRAM and by 1984 Intel’s total share in DRAMs was barely 1%. The EPROM was produced and it allowed easy programming and gave users the capability to erase memory with ultraviolet light. It was not until Intel decided to raise the prices of the EPROM technology that it made money and in 1984 the EPROM was Intel’s “money maker. ” The microprocessor was invented in 1971 and at that time Intel did not see the potential to use it for personal computers.
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The 4004 microprocessor was primarily used in calculators but in 1974 the 8080 microprocessor became the standard and Intel became the Industry leader in 8- bit market (Intel 1). Then in 1980, Intel’s 8088 microprocessor was teamed with IBM’s first Personal Computer. This gave Intel a large competitive advantage. Grove stated: “The presence of IBM in the early ‘80s was crucial. By winning that contract, we won the whole industry design. ” This led to the development of the 80386, the first 32-bit processor in 1985. The 386 was an instant success and at that time Intel also decided to sole-produce and stop sourcing to AMD.
This led to an eight year legal battle that was eventually negotiated in 1995. To continue gaining competitive advantage Intel moved into other markets. In 1998 Intel begins moving into digital photography, video, networking equipment and Internet commerce markets by manufacturing special chips (Intel 1). However, by 2001 Intel announced it was going remain focused on microchips. At that time Intel had a clear competitive advantage over the microchip market. The SIC code for Intel is 3674 for semiconductors and related devices. The NAICS code is 334413 for semiconductor and related device manufacturing.
The semiconductor industry is very cyclical. For instance, in the year 1995 sales grew 40% and were up to $150 billion but in 2001sales fell sharply to $139 billion (Semiconductor 1). In order for Intel to gain and maintain market share they needed to have unique success factors. There are many key success factors for Intel. Intel started with innovators. Noyce and Moore were able to take chances and risks that caused a very successful company. These two were also good managers. They made few mistakes and really took advantage of all their employees.
They placed their employees as a top priority and stressed openness, innovativeness and responsibility (Carmichael 1). Intel Corporations top competitors are Texas Instruments, AMD, and Motorola. Texas Instrument started in 1930 by Dr. Clarence Karcher and Eugene McDermott. It started as a Geophysical service that had a unique way of using seismology to explore oil. In order to keep their equipment out of sight from competitors they hired J. Erik Johnson. The company made headway by teaming with the military and in 1961 TI invents the first computer with a silicon integrated base for the Airforce.
Then, in 1967 TI invented the first hand-held calculator. Texas instruments have a variety of products from clocks to digital signal processors. Texas Instrument’s main competitive advantage over Intel is calculators. While Intel’s focus was personal computers, Texas Instruments was dominating calculators and the education campaign. AMD Corporation is a company similar to Intel. During the early years AMD and Intel worked together to produce quality products. AMD began in 1969 by founder Jerry Sanders. In 1982, IBM had AMD sign as a second source to Intel for their manufacturing (AMD 1).
It was clear that these companies were competing to have the competitive advantage over each other. Another semiconductor company in the industry is Motorola. Motorola began in the 1920s by Paul Galvin. In 1993 Motorola was ranked third of the world’s semiconductor manufacturers (Semiconductor 1). During the early years Motorola had a communication focus. There first product was a battery eliminator that allowed customer’s to use radios without batteries. They began developing pagers and cell phones and their six sigma quality allowed for good competitive advantage.
The five forces model helps to draw conclusions about the entire industry. For threats of new entrance the condition is low. In the semiconductor business many companies have patented products. The products produced in this industry are based on innovation. These patents will make it hard for a new entrant to join the industry. Another reason the threat of a new entrant is low in this industry is the asset specificity. This industry requires highly specialized technology and most potential entrants will be reluctant to acquire these specialized assets. For these reasons the threat of new entrants in this industry is low.
For bargaining power of suppliers the condition is high. The condition is high because there is a significant cost to switch suppliers. An example of this is Intel’s relationship with PC manufacturers. Intel cannot switch manufacturers without expecting a high cost. The bargaining power of customers is associated with the impact that customer’s have on a producing industry. In the industry of Intel the power of customer’s is medium to low. In this industry the producer’s supply a critical portion of buyer’s input. Intel is the producer in this instance.
They are supplying a crucial piece to the buyer and the buyer needs to be willing to pay the price for the piece of equipment. However, to have a competitive advantage in this industry there needs to be some bargaining power to the customers. Maintaining a reasonable price compared to other competitors is very important so the buyer’s keep coming back. In any industry there is going to be a threat of substitutes. In the industry of Intel the threat of substitutes is medium. Competitors in this industry are always going to try and invent the best processor that all individuals will eventually need.
However, because of the number of patents and copyrights in this industry substituting other firm inventions become difficult. The last condition facing industries according to the five forces model is rivalry. In this industry the rivalry condition is high. There are many reasons it can be said that the rivalry is high in this industry. For one, the exit barriers are high. Even if the firm is unprofitable at a certain time the cost to exit the industry forces the firm to compete and stay in the industry. Second, high fixed costs in this industry intensify rivalry.
The fight for market share in this industry is high because firms must fight to sell the large quantities in production. Another reason of high rivalry in this industry is the number of firms. With the large number of firms competing the rivalry increases because each firm wants to gain market share. Intel as a company can be looked at more in depth by a SWOT analysis. This analysis focuses on strengths, weaknesses, opportunities and threats to the company. Intel has many strengths. One strength is their strong market position and brand name.
The company started out with nothing and has become one of the best microprocessor companies. Advanced technology capabilities are also strength to the Intel Company. Without these advance technologies Intel would not be a successful company. The innovative technologies are at the core of the company. Another strength of Intel is their strategic alliances and partnerships. “The company has partnerships with major players including Asustek Computer, Comstar, Cisco, Fujitsu, IBM, Microsoft, Micron Technology, Sun Microsystems, Sprint,Verizon, and Yahoo! (Datamonitor). These partnership have enabled Intel to produce very significant projects. Also, partnering limits competition in the market. Without worrying about what the other company is going to come out with next, partnering allows for both companies to work together to come up with a great product Some weaknesses of the Intel company include their lack of customer concentration. Intel is a micro processing manufacturing company so the number of customer’s consuming the products is low. Intel has high dependence on these customers which reduces bargaining power. Not being able to reduce prices quickly can also hurt Intel.
With Intel, reducing prices for customer’s quickly could hurt other areas of production which could lead to dissatisfaction in other areas. The response to customers is seen as weakness because in order to have a competitor advantage appealing to the customer is crucial. There are many opportunities for Intel as a company. Proposing acquisitions could broaden Intel’s portfolio and help them gain competitive advantage in the market. Intel could also grow in the global and PC market. “Intel offers products including microprocessors and related chipsets designed for the notebook and netbook market segments.
Moreover, the company's Atom processor for these segments is very prominent with growing demand. Growing PC market will contribute to steady revenue flows for the company in near term (Datamonitor 11). ” The last part of the SWOT analysis is the threats a company has. Increasing competition is a threat to Intel. When Intel’s competitors succeed in producing something a customer wants before them, Intel could run the risk of losing market share or position. No company wants to lose market share to another competitor. In Intel’s industry there is always a threat that another company will produce something at greater speed.
Another threat to Intel is litigations and the regulatory commission. In the past Intel was investigated for alleged unfair business transactions, and alleged security failure. Future occurrences of these event will harm Intel’s reputation and investor reputation. The financial ratios and graphs can be found on the attached pages. The first analysis to look at is profitability. The net margin was used in calculating these numbers. By the graph you can see that Intel’s margin was the most profitable in the time periods 1999-2001.
When a company has a high profit margin it means that they are selling their products at higher premiums. The graph shows that Intel sold its products at the highest premium. The next analysis estimates liquidity. Liquidity is the ability for a company to be able to meet there near term obligations. The current ratio was used in calculating these numbers. A firm wants a current ratio greater than one. If a firm has a current ratio greater than one it means that they are able to satisfy their near term liabilities. If a firm has a current ratio less than one it means the firm could have a liquidity issue.
The graph shows all the companies were able to maintain a liquidity higher than one except Motorola in 2000. The next financial analysis was looking at leverage. The debt-to-equity ratio was used to determine how leveraged Intel and the competitor companies were. The debt-to-equity compares the companies liabilities to their equity. Companies want to have a lower percentage because that means they are using lower leverage and have a stronger equity position. From the graph it is apparent that Intel has the best leverage because of the lower percentage rates.
The results shows that Motorola has a very low equity position because there liabilities outweigh there equities. The other two companies, AMD and Texas Instruments seem to be decreasing there liability numbers over time and in the coming years may have a better equity position. The last financial analysis estimate efficiency. The inventory turnover ratio was used to estimate these numbers. The inventory ratio tells you how often a company moves or sells inventory. To predict if a company has a good inventory turnover it is helpful to look at competitor’s results.
In the graph included in the attachments, it can be observed that in 1999 and 2000 Intel had the second highest inventory turnover. This means that it took longer for Intel to sell inventories than Texas Instruments or Motorola at that time. However, in the year 2001 it had the lowest inventory turnover. In order to obtain a long lasting company these recommendations could help the company. Some immediate recommendations that should take place in 90 days or less could be to obtain ideas from employees to improve the company or how to gain competitive advantage. Listening to individuals that work for the company may help gain new ideas.
Intel prides itself on the innovativeness their employees and it is important to give them a say in how they think the company is doing or where they think it can improve. Another immediate recommendation is a new marketing campaign to seek computer users to switch to Intel processors as opposed to competitors. I think it is important for consumer’s to understand the difference between core processors (such as Intel and AMD) not just the difference in the actual computer (like Dell and Apple). The average American does not know the difference and educating these individuals will help Intel gain a competitor advantage.
Short term recommendations could include a price-reducing analysis. If the company could find ways to lower the prices of manufacturing they can gain competitive advantage. Also a short-term recommendation could be to research more about the cellular and wireless industry to see if it would be worth it to the company to branch out further form micro processors. Long term recommendations expand industry further not just for computer but gain market share in cellular and wireless devices. Intel has been the leader of microprocessors for many years. If they can use their knowledge Intel could expand .
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Intel Company Analysis. (2017, May 03). Retrieved from https://phdessay.com/intel-company-analysis/
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