1. Strategic Management Intel: Creating advantage through core competencies (resources and capabilities)

2. Professor Jeff Dyer Intel: Creating Advantages in Microprocessors n Become the Standard – License the technology at low cost to many suppliers to set up the X86 architecture as the standard – At this stage, low bargaining power vis-a-vis IBM, the major buyer; Intel does not reap high profits from the standard n Become a Proprietary Standard – Intel eliminates licensing on the 386 once it has capacity to supply the industry; IBM is only competitor – IBM does not choose to incorporate 386 as the PC standard right away, opening the door for Intel to negotiate with Compaq – Speed to market capabilities allow Intel to be first to market with next generation microprocessors

3. Professor Jeff Dyer The Structure of the Microprocessor Market Before and after the 386 Intel Licensee IBMIntel IBMCom paq HPDellPC Mfr. Licensee Up Through 286 386 and Later PC Mfr. PC Mfr. AMD

4. Professor Jeff Dyer Intel: Creating and Sustaining its Advantage n Speed to market capabilities – ability to develop next generation of microprocessors faster than other players n “Intel Inside” campaign – creates brand equity and loyalty over time (in 2001 Intel brand name valued at $35 billion) – creates bargaining power over, and tension with, computer manufacturers n Skill and experience at high volume, low cost chip production – “copy exactly” processes; high yield rates in fabs n Cost and complexity of market entry – cost of development and fab is approximately $1 billion n Intel’s financial resources allow it to: – buy options on a wide variety of new technologies – vigorously defend its patents

5. Professor Jeff Dyer Intel’s Key Resources and Capabilities (Core Competencies) n Resources: – “Intel Inside” Brand Name – Financial resources – Stock of engineers/ scientists – Intellectual property (patents) and lawyers to enforce – Relationship with Microsoft, IBM, Compaq, etc. n Capabilities: – Speed to market in chip design and mfg. ramp up. – Yield rates in fabs (mfg. expertise; “copy exactly” processes). – Ability to attract high quality people (aided by location) – Ability to create brand names??? (“Intel Inside” & Pentium).

6. Professor Jeff Dyer Semiconductor Price Changes Over Time

7. Professor Jeff Dyer THE RELATIONSHIP BETWEEN PRICE AND COST Different companies within an industry will have similar prices but will have accumulated different amounts of experience Predictable Unit Cost Differences Predictable Profitability Differences Cost/Unit (Constant Dollars)* Accumulated Experience (units of experience) Industry Price Cost A B C * Location of deflator info: www.jsc.nasa.gov/bu2/inflate GDP.html

8. Professor Jeff Dyer THE IMPORTANCE OF RELATIVE MARKET SHARE Relative market share (RMS) is an excellent proxy for relative accumulated experience: - of leader relative to next largest follower - of all followers relative to leader Therefore, there will be a relationship between RMS and profitability Profitability Low High Low High Relative Accumulated Experience (Relative Market Share) Relative market share is a key indicator of relative long-term profitability