Strategic Analysis of Intel Corporation A Report to the senior manager of Intel Module: BUAP08 Programme: MBA Student Number: 1814589 Due Date: 19 Apr. 2010 Date Submitted: 20 Apr. 2010 1450 words 1. 0 Introduction Intel Corporation is one of chipsets maker who is famous throughout the world. It is Intel who predominate the chipsets industry and the market share of chipsets of Intel is far more than its’ competitors. This report will examine whether there are strategic problems ahead and propose strategies for the future.
First the analysis of external environment will be given, which includes macro environment analysis, industry analysis and Key Success Factors analysis.
Secondly, an internal environmental analysis will be given which will highlight the strengths and weaknesses of Intel. Finally, some strategic recommendations that are based on the external & internal environmental analysis will be proposed in order to help Intel to make right decision in the future. 2. 0 External Environmental Analysis 2. 1 Macro Environment
External environmental analysis is crucial and critical to firms’ survival and success because the external environment affects firm growth and profitability.
(Miller & Eden, 2006; Williams & Mitchell, 2004) Most firms face complex situation when they made an analysis of external environment. Firm engage in external environmental analysis because it can help firms to identify the incomplete environmental data and can increase understanding of the general environment. According to Ireland,(Ireland, Hoskisson & Hitt, 2007) the continuous process of xternal environmental analysis includes scanning, monitoring, forecasting and assessing. A full scan of the remote & near environments has been undertaked. (see Appendix A) Table 1, below, highlights the most relevant and crucial trends. Table 1: Summary of main trends facing the Chipsets Industry Economic| Major recession (Chang, LA Times, 2010)The slump in the demand for computers. (Flynn, New York Times, 2009)| Technological| Massively turbulent environment; ever changing technologies in the micro processor industry| Legal| Patent and Anti-trust regulations|
According to Table 1, it has been summarized that the key challenges that Intel faced is the change in terms of economic environment, technological environment and legal environment. In terms of economic environment, the demand conditions of Intel chipsets are subject to OEMs business conditions because most chipsets are purchased by OEMs company. Besides, there has a slump in PC/Laptop demand because the major recession. In terms of technological environment, those competitors develop new technologies quickly.
So Intel must keep the fast pace and design new generation technology quickly, and keep the ability of innovation in chipsets area. In terms of legal environment, Intel should hold the patent of chipsets, follow the laws and the anti-trust regulations when develop the market share of chipsets. 2. 2 Industry Analysis Michael E. Porter’s well-known framework, known as the five forces model, helps managers to analyze competitive forces in the industry environment in order to identify opportunities and threats. Porter, 1980) The industry analysis of Intel corporation was undertaken using porter’s five forces framework. Figure 1 summarised the five force of Intel corporation. Figure 1: Porter’s Five Force Analysis of Intel Corporation For chipsets industry, the barriers to entry are high due to technical complexity of design and the very high cost of capital equipment. However, there are some alternatives made by other companies like ARM, VIA & Linux. For example, Lenovo produce linux laptop and use ARM CPU in notebook in China. So the threat of new entrants are low but may increase.
The bargaining power of suppliers is relatively low because Hi-Tech Production retained largely at in-house fabrication facilities. Besides, Intel start to sub-contract to 3rd party foundries. i. e. TSMC, for lower tech products. So the bargaining power of suppliers is low but may increase. The bargaining power of buyers is relatively low because the market share of Intel is significantly higher than its’ competitors. The sales of the chipsets of Intel account for a lower portion of the seller’s annual revenues because the revenue of Intel stream PC Makers(HP, Dell etc) plus emerging market.
So the bargaining power of buyers is low but may increase. The threat of substitute products or services is low because Intel hold more than 80% market share in chipsets industry. The real competitor is AMD. Customers may find that it is not easy to choose the product of AMD. To conclude the industry analysis, the chipsets industry is oligopoly and it is hardly possible for other company to enter. From the analysis that mentioned above, the following Industry driving forces, Key success factors, Opportunities and threats can be concluded, as presented and explained in Table 2, 3 and 4, below.
Table 2: Industry Driving Forces| IDF| Explanation & Implications| Globalisation is cutting company costs and increasing Brand image| Globalisation can enlarge the market share of Intel chipsets and build strong brand image. | The demand of fast speed and lower heat of chipsets. | Consumers want chipsets to be faster and power should lower. | Various product type of chipsets (like PC server & notebook)| It depends on the various demands of consumers for chipsets and electronic equipment. | Table 3: Key Success Factors| KSF| Explanation & Implications|
The Brand power| Intel inside is famous throughout the world. Consumers believe this. | Innovation| Moore’s law is famous because Intel will introduce their next generation CPU within 18 months. | Technology| Consumers need up-to-date processors because it is speedy and low power. | Market penetration power| The market share and market penetration of Intel is powerful. | Table 4: Opportunities & Threats Opportunities| Explanation| Changing attitude towards computing| Customers need various types of CPU products like ARM and mobile micro processor. New technologies for business innovation| Design various types of CPU products. | Technological leadership| Intel has strong technological leadership. | Threats| Explanation| Presence of major competitors (AMD)| AMD is one of the real competitors in chipsets industry area. | Threats of infringement and espionage| The activity of plagiarism for new generation chipsets. | The chipsets of VIA| VIA developing cheaper chips for OLPC| Anti-trust LAW| Intel was been sued by AMD because they infringed the Anti-trust LAW. | In conclusion, the present market situation of Intel is strong and stable.
The opportunities of Intel is various due to the changing attitude towards computing. Intel should keep the fast pace in terms of developing next generation chipsets and keep the ability of innovation. It is time that Intel started evolving with the market. In contrast, Intel is facing a hostile environment with its main competitors AMD. Because the price of CPU of AMD is lower than Intel and Intel are losing market share. 3. 0 Internal Environmental Analysis According to Keil & Laamanen, the process of internal environmental analysis will have significant influence on firm’s strategy management. Keil & Laamanen, 2007) In this part, the analysis of tangible and intangible resources of Intel will be given which can identify the strengths & weaknesses of Intel. Secondly, a value chain analysis will be given. Lastly, a VRIO analysis will be given which can identify the strengths & weaknesses of Intel and help Intel to build their core competencies. 3. 1 Tangible & intangible Resource Analysis The resources as against the competitors has been given in Appendix B. Table 5 summarises the tangible & intangible resource analysis of Intel. Table 5: Tangible & Intangible Resource Analysis
Resource| Strengths| Weaknesses| Tangible Physical Resources| Ability to manufacture powerful microprocessors for PC’s. Four times worth property, plant & equipment, when compared to its nearest competitor. 90% of it is owned. Ability to develop better processors every 18 months. | Most of it within the United StatesThe cost is very high. | Tangible Technological Resources| Patents, trademark. Strong R&D technology| Anti-trust LAW limited the patents of Intel. | Tangible Financial Resources| Sound financial position when compared to the competitors. —| Intangible Reputational Resources| Very strong brand image throughout the world| Increasingly lose market share| Intangible Innovation Resources| Ideas, scientific capabilities and capacity to innovate| other competitors(AMD, VIA, IBM)| Human Resources| Highly skilled and dedicated human resource. Normally loyal and valuable workforce, strong abilities in marketing and manufacture| Loyalty of employees are slightly low. | In conclusion, this analysis highlights that the tangible & intangible resources of Intel is strong and sound, but other competitors(AMD etc. still enlarge the market share in terms of microprocessors area. Besides, the general cost of Intel is slightly higher than those competitors. 3. 2 VRIO analysis The VRIO analysis identify the capability and can help Intel to build core competencies. Figure 2 analyze the VRIO of Intel. Figure 2: VRIO analysis of Intel •Valuable: capabilities which neutralise threats & maximise opportunities • Intel’s Technological & Market Leadership (meet/beat Moore’s Law consistently). • High investment in R&D. Over $5Bn in each of last 5 years. > 15% of revenue. Rare: capabilities that are not possessed by others • Intellectual Property & Patent portfolio. • The best technical people in the industry. • Market Leadership (1st to market) & Brand Recognition (Intel Inside + ‘the tune’). •Imitate: costly to imitate capabilities or no strategic equivalents exist • ~$17. 5Bn of Plant & Equipment (2008 Annual Report). • Additional $50Bn in total assets. (2008 Annual. Report). •Organised: to maximise resource benefits to secure competitive advantage • Relationships with existing customers (too close for EC Competition Commissioners liking). New Markets, with the boom in mobile devices requiring data processing capabilities, • Intel is spreading its future market potential away from traditional PC’s 3. 3 Value Chain Analysis The value chain analysis of Intel has been given in Table 6. Table 6: Value Chain Analysis Firm Infrastructure: sound and effective, but not efficient. | HRM: good, but not efficient, needs improve. | Technology development: excellent, the ability of R&D is high. | Procurement: sound and efficient. |
Inbound logistics:Good on raw materials management and supply chain management,| Operations: Market leader, chip manufacturing,Excellent on technology development| Outbound logistics:Sound and effective on distributing the product to OEMs and customers. | Marketing & sales:PromotionAdvertisingOEM relations| Service: Needs improvement on customer service| The value chain analysis highlights that the firm infrastructure of Intel is sound and effective. The senior management has strong ability to handle the whole strategy of Intel among those competitors.
The HRM of Intel is good but not efficient, it needs improve. The technology development of Intel is excellent and the ability of R&D of Intel is significantly high. Intel is marker leader in microprocessor area. But the customer service still needs improvement. 3. 4 Key Success Factor audit with competitors Table 7, below, summarises the KSF analysis with competitors. Table 7: Key Success Factor Comparison with competitors Function| INTEL| AMD| VIA| Low cost, reliable quality| Good (expensive)| Good (expensive)| Excellent(cheap)| Strong brand image| Excellent| Good| Not Good|
Marketing /distribution strength globally| Excellent| Good| Not Good| Customer focus| Good| Good| Not Good| Market share| Excellent| Good| Not Good| This analysis highlights some crucial problem areas. As mentioned in table 7, the brand image, distribution and market share of Intel is excellent whereas VIA is not good on all these factors. But Intel do not focus on the demand of customer. This can be improved. 4. 0 Conclusion: Strengths and weaknesses Table 8, below, summarises the main Strengths and Weaknesses that emerge from the above analysis. Table 8: Strengths and Weaknesses
Strengths| Weaknesses| Market & Technological leadership| Dependence on one product type & market| Strong Brand image| Cost is relatively high. | Organised rare resources which are difficult to imitate| Focus on internal production maximisation rather than customer orientation. | Economies of scale – the numbers power| Customer Service department need improve. | HRM abilities to recruit and retain the best employees in the industry| | In conclusion, it is obvious that Intel is a giant among chipsets area. The strengths of Intel are clear in comparison with those competitors.
However, there are also several weaknesses that should be realized by Intel managers. Intel should always monitor the change of external & internal environment, and design some sound and deliberate strategies and visions for the future in order to keep the strong position among those competitors. 5. 0 Recommendations The TOWS matrix analysis which are based on the analysis above, are potentially helpful for Intel to make wise strategic decision. There are several strategic recommendations in terms of four sections. The recommendations about the long-term strategy and structure of Intel have been given specifically as follows.
In terms of Strengths vs Opportunities, Intel should maximise internal strengths whereas maximise external opportunities. Recommendations are: 1. Break business into hi-tech CPU. 2. Realise the demands of customer. 3. Continue to spend > 15% revenue on R&D. 4. Enlarge brand value because consumers trust ‘intel Inside’ 5. Taking the best people on board in order to maintain technological leadership In terms of Strengths vs Threats, Intel should maximise internal strengths whereas minimise external threats. Recommendations are: 1. Diversify CPU products. 2.
Develop new markets, customers and applications. 3. Build customer relations. 4. Continue to maximise Brand Awareness & Value 5. Re-engage in OLPC project. 6. Continue to invest on R&D project. In terms of Weaknesses vs Opportunities, Intel should minimise internal weaknesses whereas maximise external opportunities. Recommendations are: 1. Use IP & Tech lead to design low cost CPU. 2. Leverage IP & Tech lead to design new silicon for emerging markets. (ie mobile) 3. Embrace & build relationships with 3PM’s 4. Specialist differentiation of product (ie Power, Heat etc)
In terms of Weaknesses vs Threats, Intel should minimise internal weaknesses and external threats. Recommendations are: 1. focus on diversification of products & markets, with respect to production as well as sales 2. scrutinise competitor product – IP infringement 3. reduce the cost of products 4. focus on high technology products and process development Appendix Appendix A: External Environmental Analysis of Intel Appendix B: Resources of Intel, AMD and VIA References C. Williams & W. Mitchell, 2004, Focusing firm evolution: The impact of information infrastructure on market entry by U.
S. telecommunications companies, 1984-1998, Management Science Michael E. Porter, Competitive Strategy (New York: Free Press, 1980) R. Duane Ireland, Robert E. Hoskisson, and Michael A. Hitt, 2007, The management of Strategy: Concepts and cases) 8th ed. South-Western Cengage Learning S. R. Miller & L. Eden, 2006, Local density and foreign subsidiary performance, Academy of Management Journal, 49: 341- 355 Y. Deutsch, T. Keil, & T. Laamanen, 2007, Decision making in acquisitions:The effect of outside directors’ compensation on acquisition patterns, Journal of Management
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