Intel Value Added Case

Intel Case

Memory  Microprocessors  Leverage Microprocessor to invest in growth of internet

* Memory Chips - DRAM - Mass-produced 1103 chips at very low cost. Undercut price of their competitors.

* Shared Intellectual Property

o All firms shared the rights to the same technology (IP), so this forced all players to compete of Price (volume), and innovation (next generation of chips).

o Key Learning (QUESTION 1) - Technology innovation cycles are very short. While they dominated with the 1103, the Japanese were able to produce the next stage of DRAM chips. Japanese were able sell at very low cost through efficient manufacturing and mass producing DRAM units. By the 80's the US was a generation behind and never were able to get a hold of substantial market share (1% at 1984). Furthermore, Intel didn't exit the market until very late in the game. Lastly, the Japanese were able to achieve the next generation of innovation by collaborating with their suppliers (Fujitsu, NEC, and Hitachi)

* EPROM

o The introduction of EPROM introduced a new differentiated product. Intel was the only provider of the EPROM chip and resulted in scarcity, increasing Intel's added value in the chip market.

o Leveraging their high added-value, Intel was able to charge a premium price on the EPROM chips (100 x original price).

o However, Intels added value significantly dropped when the Japanese entered the EPROM market. This resulted in significantly lower prices (decreased 90%). The added value of a player in the technology space greatly decreases when additional players enter.

* Intel Microprocessing

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o (QUESTION 2) By creating the open standard PC platform IBM held the largest added-value to the PC industry. This approach resulted in a structural shift in the PC market - from vertically integrated to horizontally integrated. This catapulted the existence of additional market layers (Operation Systems, Software, etc). In contrast, Motorola and Intel were both interchangeable players in the microprocessor market. This meant the added value of each player was relatively low when compared to that of IBM. As a consequence, Intel was forced to license their microprocessors to ensure IBM had supply. With the new changes in the PC market, IBM was able to greatly increase the overall size of the PC market.

* QUESTION 3 - ADDED VALUE

o Sole Sourcing

o Protect Copyrights and Trade Secrets

o Intel Inside campaign

o Intel Capital

o Collaboration