Tuesday, June 5, 2012

Intel: Riding the current, or swimming against it?

In this week’s reading article “Going from Global Trends to Corporate Strategy” by Becker and Freeman, one of the key principles state that “Large companies must innovate to take advantage of global trends without jeopardizing the core business”. It is vital not just in identifying the correct global trends, but also to ensure that the new strategies or portfolio shifts to meet these trends do not take the company too far away from its main line of business and fall into the “growth trap”. A failure in the core business will affect investor, shareholder and consumer trusts, which can ultimately cause the downfall of the company. To illustrate this, let us look into Intel Corporation’s strategy shifts over the past decade, as well as for the near future. Will the seemingly impeccable tech giant emerge victorious for the next decade, or will it crumble at the enormous load that it plans to lift?

Up until the turn of the millennium, high-performance microprocessors (aka CPU) were in demand. The trend was “the faster processor wins”. As it was able to consistently produce CPUs (i.e. Pentium D and Xeon) that are of higher clock speeds against its key rival, AMD, it was ahead of the competition. In the early 2000s, this global trend began to shift. Due to the onset of the Internet and the digital information age, such high-performance CPUs are no longer in significant demand. While large servers and commercial IT infrastructure still requires them, the increasingly popular consumer computers and laptops do not. Instead, slower but more energy efficient CPUs that run cooler and can multi-task better are preferred. Intel promptly introduced its new breed of CPUs (i.e. Intel Pentium M).

What was more interesting was that the Pentium M was not released alone. Instead, it was released together with Intel Pro Wi-Fi network adapters and Intel-chipset mainboards. Collectively, they were marketed under the name “Centrino”. From mid-2000s, Intel has transformed from a chip maker into a more diversified hardware solutions provider. Towards the late-2000s, Intel has ventured into new areas such as integrated graphics (Intel HD) and storage (Intel SSD) solutions. At the same time, it has maintained its CPU line of business with multi-core, multi-threading capabilities, superior power consumption and thermal dissipation.

As we can see, Intel has successfully ridden the current of the global trends and shifted its portfolio and strategy appropriately, thereby remaining profitable, at least up until today. At the same time, their core business in CPUs has remained strong and competitive. Now, let us take a glance at their future plans and to attempt to ascertain if their success would continue.

Ever since Apple launched the iPad in 2010, the tablet fever has stolen much of the spotlight from the desktops and laptops. In fact, tablets have the fastest ramp-up to $1 billion in sales of any product in history. Yet, none of Intel’s hardware solutions as used in the iPad, which uses ARM CPUs and PowerVR graphics solutions. In response, Intel will be redesigning its Atom CPUs for tablets (codenamed Clover Trail). In an article (see references below) released earlier today, Intel has partnered with new manufacturers to supply them with these CPUs to launch as many as twenty Windows 8 tablets in the near future.

While Intel is trying to ride the global trends once more, implementing such a strategy would inevitably strain its relationship with Apple, which has been using Intel CPUs in its iMac line of products for a long time. Apple will certainly not be pleased that Intel is actively supporting new devices that directly compete with its own. This is evident as there are already rumors that Apple has been talking to AMD, possibly to replace Intel’s CPUs in their iMacs.

Besides the tablet arena, Intel has also made a number of software acquisitions recently. At the Intel Investor Conference in 2010, President and CEO, Paul Otellini made the claim that “Intel wants to eventually be in a position to deliver software and services on top of its x86 silicon in every market segment—from servers to desktops and mobiles to embedded systems”. Since then, products such as the Intel Orange phone have emerged.

Intel’s new strategies will place it into more situations as with Apple. As it moves from hardware into software and produces more user-facing products and technologies, it will enter into direct competition with its OEM customers. Should Intel lose them, the loss in revenues may mean that Intel has to abandon some of its future endeavors. At the same time, its competitors will be given opportunities to narrow its lead, or even overtake it.


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