Strategy Assignment Intels Tetra Threat Framework Analysis

Date: 27-Mar-2012 SUBMITTED TO: Prof. Rushi Anandan SUBMITTED BY: Ameya Beri-09 PGDM-A (3rd Trimester) Pages: 03

Strategy Assignment | Ameya Beri | Roll No: 09 | PGDM-A Question: Apply the tetra threat framework in analyzing Intel's strategy to sustain competitive advantage in microprocessors? Answer:

Threat of Imitation
Added value

Threat of Substitution
Appropriated value

Threat of slack

Threat of holdup

Intel was formed in 1968 by Robert Noyce and Gordon Moore, both of whom were senior executives at Fairchild Semiconductors.

Threat of Imitation:
Semiconductor companies had historically not been very vigilant in enforcing intellectual property rights through patent infringement suits and related legal strategies, reason being technology moved so rapidly that patents quickly became economically obsolete. Also since most companies drew from common underlying technology bases it was not always clear who might be infringing upon whom. By early 1990s Intel faced credible threats from a number of rivals including AMD Texas Instruments and 2

Strategy Assignment | Ameya Beri | Roll No: 09 | PGDM-A Cyrix

which could produce microprocessors compatible with Microsofts MS-DOS Operating System. AMD had long made heavy investments in manufacturing facilities and in process engineering capabilities, it was weak in chip design but this flaw was remedied when it acquired NexGen in 1995. AMD spokesperson commented We intend to dog Intel forever. With the increase in sub-$1,000 PC market, there was a shift toward AMD and Cyrix. Intel responded by Intel developing higher capacity and cheaper microprocessors to compete. Intels Actions: Intellectual Property Protection (IPP) - Intel was able to litigate against competitors like AMD by protecting their microprocessor code with patents.

Intel Inside campaign The campaign was a result of Intel's desire for the end-users ability to differentiate Intel's microprocessors. It was designed to create brand recognition among the PC users.

Threat of Substitution:
Threat The RISC threat, introduction of alternate architectures. In 1989, when Intel launched its 4th generation microprocessor it faced a potential competitive threat from alternate RISC architecture. Intel used CISC. RISC was having speed and cost advantages over CISC. IBM decided not to sell any 386 based computers until it could develop a new architecture that used IBMs own proprietary components. Microsoft moved towards operating systems that were not tied to the x86 architecture (Windows NT, CE). This allowed Microsoft to extract more of the total surplus generated. Intels Action Intel hedged against the adoption of the RISC architecture by releasing the i-860. At the same time, they developed the technology for the Pentium.

Intel found a new customer in Compaq.

Intel backed operating systems other than Windows. Microprocessors for Linux - Red Hat

Sun Microsystems motto, "The Network is the Partnered with OEMs through programs like Computer." Intel Inside to promote not only the microprocessor, but the PC as well. Hedged by getting into servers like the 32-bit Xeon processor in 1998.

Strategy Assignment | Ameya Beri | Roll No: 09 | PGDM-A

Threat of holdup:
Intels Action Buyer Power Is it possible that all of the buyers (OEMs) were Intel Inside - At the outset, it may seem like Intel appropriating value from Intel? "Intel Inside" - PCs Inside increased the value of the PCs, but it value increased with the Intel brand. actually went against the power of each individual PC brand Allocation of new products in short supply - Intel released all new chips in short supply pricing them at a premium. Intel would allocate the new chips preferentially as a function of OEMs' past behavior Many buyers wanted RISC to become the standard Intel hedged with the i860 RISC processor and architecture. released the Pentium. Also, by introducing Intel Inside, it made the industry more dependent on Intel's CISC chips Supplier Power Suppliers were able to receive funds from Intel for Intel engaged in dual sourcing to avoid reliance on the development of new technology. The one supplier technology was for the industry at large, but Intel Through strategic partnerships, Intel was able to wanted access first. direct developments and get first access to technology (this is similar to what the Japanese firms did in the DRAM market) Suppliers made long-term contracts necessary for Intel never asked for custom solutions, because custom solutions. These were hard to write and they would get into a problem of holdup lacked specific investment funds. They wanted standard solutions that would be used by the industry at large. For Intel, complementors like Microsoft can contribute to the success or failure of a microprocessor. Both sides have the ability to gain from 'expanding the pie' instead of fighting for portions of the 'existing pie.' Intel senior management routinely met with Microsoft management to coordinate new developments. Intel Capital - the idea was to create a market ecosystem for development, by investing in complementors. Intel's strategy to pay $100 million to independent software vendors to accelerate their product plans helped Intel spread its roots with more software developers. Threat