Intel And The Microprocessor Industry Business Essay

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"But in capitalist reality as distinguished from its textbook picture, it is not (price) competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization ... competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of existing firms but at their foundations and their very lives" (page 42)

Joseph A. Schumpeter,

Capitalism, Socialism and Democracy, 1942

Introduction

Background history of Intel

Innovation in historical context

(Identify models of Innovation here)

Current Trends (RISC vs. CISC), Intel vs. the AMD platform and how competition flourishes.

Present Management Practice to encourage Innovation and effect

Limitations of these models

Summary

Introduction:

There is no doubt about the effect of IT technology in our model day economy and lifestyle. If any field is to be considered as making the most impact, all fingers will easily point to the ICT sector. However, much of these advances originate, not from the computers as we see on our desktops, but rather from the innovation and innovative management skill at the micro-processor level. One company which stands out is Intel. The original inventors of the microchip, they have continued to dominate this sector.

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We will take a long at Intel, evolution over time, watching closely the innovations techniques adopted by the management to keep the company going, in a sector where many of the initial players have gone under. We will look at their present innovative style in the face of competition and their future. We will then conclude by appraising this techniques and seeing if they are sufficient to keep the company going into the 22nd century.

Background History:

hip management and Intel has continued to dominate a strategic market in the world of I.T. The emergence brought about a furry of activities in a sector that little or no attention has been paid to in the past due to technological restrictions at that time. However, they continue to experience up and down especially with the activities of competitors and the changing demand for improvement by customers. On 6th of January, 2011,

In order to set the table straight, it is ideal to note that innovation can take two forms:

1: Make an existing value in the potential market, better (Incremental Innovation)

2: Create a new value for a new or existing market (Radical Innovation)

Historical Context:

Formed in 1968 by the pioneers in the semi-conductor field, Robert Noyce and Gordon Moore, The Company Intel created the microprocessor. It is worth mentioning that the two of them, while with their initial company, Fairchild are credited with inventing the Integrated Circuit. Joined later by "Andy" Grove, the company moved on from its involvement in the memory business to microprocessor used in running most of the systems today. Presently more than 80 percent of PCs worldwide use the Intel processor architecture (Jackson, 1997).

Key Dates:

1968: Robert Noyce and Gordon Moore incorporate N M Electronics, which is soon renamed Intel Corporation. They were soon joined by Andrew Grove.

1970: Company develops DRAM, dynamic RAM.

1971: Intel introduces the world's first microprocessor and goes public.

1974: Company introduces the first general purpose microprocessor.

1993: The fifth generation chip, the Pentium, debuts.

1997: Company introduces the Pentium II microprocessor.

1999: Intel debuts the Pentium III and is added to the Dow Jones Industrial Average.

2000: The first Intel 1-gigahertz processor hits the market.

2010: Intel announces that their systems will be based on the new intel ATOM platform.

Partial Source: Intel, company history via FundingUniverse.com

Figure1: PROCESSOR EVOLUTION??

However, lately, the speed of most processor from it stable has slowed down. "Chip performance increased 60 percent per year in the 1990s but slowed to 40 percent per year from 2000 to 2004, when performance increased by only 20 percent, according to Linley Group president Linley Gwennap" (IEEE, 2005)

Figure 2: S-Curve of processor speed)

This is running a little contrary to the ideology behind the law postulated by their founder, Gordon Moore. Known as "Moore Law", He said the number of transistors on a chip will double about every two years (Intel, 2010). It is left to be considered if, the law or the techniques adopted in making the Intel Microprocessor has reached its end of life. However, frantic efforts are been made to look for this alternative.

Fig: Transistor Count and Moore Law, 2008. Source: Wikipedia

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Presnetly, major advances are been in RISC and CISC….

Later in 2000 came the debut of the next generation processor for the early 21st century, the Itanium, the company's first 64-bit processor, which was initially designed to meet the needs of powerful Internet servers. With its continuing development of ever more powerful processors and its aggressive expansion into other key technology areas, Intel appeared certain to remain one of the linchpins of the information economy in the new millennium.

Basic Introduction in the Innovation Concept:

The improvement of the Processor Capacity from e.g Core 13 to core 15 to 17 is not an evidemnce of of disruptive innovation…rather the emergence of the atam processor is…why..it has a lesser technological advantage but it satisfies two major criteria

1: it is cheaper

2: it is for an entirely difference market that could have eluded any major player.

3: It can play in an entire new market: Mobile but connected market

The most ideal sector which can justify it's use in a sector dominated by speed, efficiency and ruggedness is in the cloud-computing sector. This area invites users that are very mobile, need to work but don't nessearily need to carry their work with them. All they need is access because they can very easily connect to a central storage database and processing unit at any thing. This market created largely, I would say by apple and google with their OS system and Ipod could have a disruptive effect on the big, highend players…but by watching closely, they have backtracked to plug the massive hole created by this innovation. This clearly keep thenm in the game and opens a potentially new market that can bolster productivity. Here is where the advantage of open innovation comes in. By migrating with their partners, they have helped the industry, both the major players on the backend (Datacentre Builder e.g IBM) and frontend(System builders e.g Lenovo etc~) to migrate together towards the disruptive innovativeness of cloudcomputing, hence maintenaning their leadership in the processor and IT industry at large.

Leaders shd create space for starting the innovation in the first places..

There should be careful market watch for innovative concepts entering the market and match with the trademarks for disruptions

Know about how you can play it better.

Encourage Open innovation by creating the module operandi

Know when to switch from one area to the other…(Strick operations via space for mistakes)

Look for the most undemanding customer and why they haven't entered the market

Involve customers in research

(Bring in S.conway at this point~)

Innovation in historical context

1: Sustaining Innovation, Creative Destruction and the Sailing Ship effect:

Intel's first product release of significance was the 3101 Schottky bipolar memory. They had several other products within the pipeline at this time but the first dominant design was the 1103 DRAM pushing out Jay Forrester's magnetic core memory which had been the leading product at that time. (Ref)

In 1971, they went on to create the 4004, the world's first microprocessor. This innovation, conceived by Ted Hoff, was initially a job for Busicon in redesigning calculators ( Christenson , 2003). The 4004 crammed 2,300 transistors onto a one-eighth- by one-sixth-inch chip, and had the power of the old 3,000-cubic-foot ENIAC computer, which depended on 38,000 vacuum tubes. (Ref)

Two major observations from this producst are:

1: There was clear evidence that shown that the company initial innovative strides came from closed innovation. This was dominant back in those days with companies rushing off to get patent as soon as they have perfected any technological breakthrough regardless of economic advantage.

2: In doing this, they had created a product that caused a perfect example of the creative destruction effect theorized by Schumpeter in the market and put other system at their end of life.

A third phenomenon occurred within that period which determined the path Intel would take in their history. This was the incursion of the Japanese into the Memory chip market.

But what is this concept of Sustaining Innovation and Disruptive Innovation? In sustaining Innovation, a competitor takes over the market using radical process innovations which improve the delivery of value to the existing market. In disruptive innovation, the introduction of a new product or service (Value) into exiting new market causes uproar in those already offered by previously established and existing players. This may be caused by creation of a new market that kick-starts massive adoption to the detriment of the previous standard. According to Schumpeter, this is caused by the innovative entry of entrepreneurs. Clayton elaborated more on this when he pinpointed that this effect may not necessary be technology based in nature but rather the strategy embraced by this innovation.

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"Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream." Christensen 1997, p. 15)

The established player doesn't feel or heed the impact of this innovation until it is too late. At this point their business experience what Andrew Grove referred to as points of inflection. . Here to the established player, the business dynamics they are just to, suddenly doesn't apply. This is because the product from inception, may not offer the quality of benefit derived from the established product but this quickly becomes irrelevant as the new product is quickly embraced and undergoes rapid improvements (Andrew, pg3 1996).

Fig : Effect of Destructive innovation to the existing players.

This formed the bases of Schumpeter's' theory in creative destructive (Tidd, 2010, pg 29)

However, What generally happens is that both player stuggle it out, with each one

Fig: Sustaining Innovation, Disruptive Innovation and the Sailing Ship effect. Source: Neusa Hirota: Impact of New Technologies. www.12manage.com

However, it is important to note that this has varied implication. One could be massive economic sabotage and market recession. This could leave to the wiping away of entire markets and cause economic distress. However, according to Schumpeter, this experience is short lived and would leave to a boost in the later period

Memory Chips: Sustaining Innovation via Mass Marketing and the Sailing Ship Effect

In the mid-eighties, two major inflection curves affected the Intel group. The first one was the incursion of the Japanese. Thurman talked about the aggressive commoditizing and mass production of memory chips by Japanese companies. According to him, the Japanese always built their business on improved product delivery and marketing. By commoditizing, the Japanese made sure the source of the product (U.S based or Japanese produced) was irrelevant. It was made possible by improved and innovative techniques that not only improved the quality of the output from the process, but ensured a steady and large scale production from their factory (Thurman, 1989). As if this wasn't enough, they reduced the cost to a point where competition had no choice but to bow out due to losses incurred from their smaller factories (Saxenian, 1994). This was done for the DRAM, the Static RAM and EPROM (Electrically Programmable Read Only Memory) market.

This pushed all the big players out of the market. In a sailing ship effect move, the established films tried to hold on to their market by improving on their product quality, production capacity and even via media publicity. However, this failed to stop the impact of the Japanese market. Those that survived either moved into other business paths in a move described as radical Paradigm shift in the actual memory chip industry (Tidd 2010, pg 24) and radical product innovation in the semiconductor industry. Intel on it part move to the microprocessor chip market. Others that failed to move collapsed.

Fig: Product Shift Curve

Comparism between disruptive and sustaining innovations (here we look mat product curve. From One platform to the other. Try to locate where the platform started and the dominant design chosen before all these…

Microprocessor chips and Minicomputers/Pc: Disruptive Innovation and the Sailing Ship effect

With Intel invention of the microprocessor, they caused a disruption of their own. The microprocessor was a differnet technology in an industry dominated by vacuum tubes and mainframe computers. Because,it was smaller, simplier, faster and easy to produce, it quickly entered the market. To drive cost further down, developers went from into large scale production, thus improving sales and profit marginally Andrew, 1996).Pg 46. It pushed a Minicomputer industry that was virtually non-existent. Because, it was initially sold to individuls who couldnt afford the mainframe systems, the market was ignored by most but a few e.g. IBM. Later on, even this minicomputer market was replaced by the personal computer as low income earner bought into the innovation. A major beneficially from this era was Compaq( They became the fastest Fortune 500 company to reach the $1billion mark. (Andrew, 1996)

However, the minicomputer had several effects on the market at that time. Because it was produced by smaller independent companies, the industry observed a shift in the market structure from vertical to horizontal.

Sales and Distribution

Application Software

Operating System

Computer

Chips

DEC

Sperry

Univac

Wang

IBM

Sales and Distribution

Application Software

Operating System

Computer

Chips

Mail Order

Dealers

Supermarkets

Retails shops

Others

Word perfect

Word

ETC

IBM

HP

Dell

Compaq

Unix

Mac

OS/2

MS DOS and Windows

RISCs

Motorola

Intel Architecture

In order to survive, most producers of the established mainframe computers quickly stepped into line. Those who rejected the move, lost out,a common sailing ship caused by creative destruction.

In a paper by NICOLA DE LISO, and GIOVANNI FILATRELLA, they identified this effect is rampant when two different technologies provide the same function or service. This is also glaring with the Vacumn tube and semiconductor platform. There is an improvement in the old technology with the presence of the new one. The new technology further undergoes refinement to improve in value above the old technogoly. This continues indefinitely until one gives way and the other becomes the preminant design. (FILATRELLA, 2007).

Further Process Innovation by Intel:

In a move that can be regareded as radical process innovation, Intel began the Pentium "Intel Inside" campaign, hence creating a market which was present.

Fig: Product and Process S-Curve(Intel Campaign)

Open Innovation, Closed Innovation and Intel's Approach

The concept of open innovation was elaborated by Chesbrough.It basically refers to a structure or orientation that permits the inflow or outflow of knowledge or information. The party involved could be colleagues, partners, collaborators, competitors, or even customers. The means could be formal or informal. The information passed could be relating to the work at hand or future trends. It may be concepts or ideas. Chesrough broke it down into two aspects. Inside out and outside in. With the outside in, Innovating firm generate ideas from a diverse group of sources and work on them to produce value. This may vary from the end-customer or user of product, to supplier in the chain, complementors in their field and even to the competitors with released products or based on shared information agreement. (Chesbrough, ….)

Pre-Microprocessor Era: In the technology world, what I would describe as a free-open Innovation method was adopted. People with new discovery or innovation patented and published their work. Others copied, modified or improved and mass-produced to flood the market. Then, it was referred to as Second-Sourcing (Andrew, 1997, pg69).

Fig: InsideOut Open-Innovation: (Reverse of the convention chesbrough pipe)

However, IBM in daring move refused to do the norm when they stopped this free knowledge sharing and demanded a for the technology. Because competition refused to pay, they ended up the only source and enjoined serious monopoly in this market for several years. Their reason was the competition created by the late adopters in pushing the out of the market.

Fig Double time-line curve. (SC diagram…check my yellow pad for this)

Competition in response, decided to develop an indepedent version of the product (Andrew, 1997, pg70).

What were the benefits?

1: They set a standard template for the PC industry

2: Because the platforms all looked alike, Software developers could work on software that worked in fundamentally similar platforms.

Although the industry has watered this down, another ne company that has however not migrated to this or restricted its adoption of open-innovation is Apple. . Apple products operate user the vertical system of production the company is responsible for production form, hardware design, to OS and Applications. They however get produced modified microprocessor with the AMD RISC architecture. The limit of openness lies with interacting with customers. While most of the research is done in-house, with patent on IP, they tend to work with their end-customers for feedback on user compatibility. The result is the release of an OS platform that can work with other proprietary applications without hitch. The implication is that they have carved out their own market which at the same time gives their customers the option of user third-party application on an otherwise closed product innovation

Riding Two horses: RISC to CISC

From a technology point of view, the concept of "Riding Two Horses" comes from the difficulties of making a decision on which path for technology to follow.

1: It can be intrinsic to the technology Industry e.g. on discovery of a technology innovation, they have to decide which platform to continue with. The decision to stick to the old platform or migrate to the new innovation?

2: It may be as a result of options given to the end-user by rival technology industries. Do they adopt the new old stick to their old and supposed reliable vendors? The option chosen dominates the market and improves overtime. The other, due to reduced market loses streams and fades into historic oblivion.

However, the two rival platforms or process could run side-by side for an undetermined period of time. Various economic and technological reasons that justify technological persistence have been investigated from different perspectives. Katz and Shapiro (1986) tackled the problem of technology adoption in a context in which there exist two incompatible technologies subject to network externalities. Arthur (1994) looked at competing technologies and came to the conclusion that when there are increasing returns to adoption, if the process of adoption of an inferior technology goes far enough, the market becomes locked-in to an inferior choice. However,if not, the old technology remain the dominant platform while the new evolving technology goes into oblivion

Intel experienced the Intrinsic effect when they were faced the decision to chose between Reduced Instruction Set Computing "RISC"(newer and faster) and Complex Instruction Set Computing "CISC" (slower and older). They had overtime spent sufficienct resources developing production. They had their Technical torn apart on which to chose. Andrew Grove finally made decision.The CISC won the day because it was compartible with most software and the industry wasn't ready for the unknown (Andrew, 1996, Pg103).

With the RISC and CISC however, ove rht eyears, both have been completeing with no one giving way. ~One reason is the presence of innovative and open-ended research of both major players in this field (Intel and AMD). Both technolgoies have are developing at incredulous rates even with the inherent limitations and weakness of the ideaology. One major factor that has played in their flavours in

1: Intel's partnership with Microsoft in the Wintel agreement. This ensure that Intel has guarantted market.

2: AMD adoption by the news technology market and the fact that they have craved for themselves a niche market in what previously wasn't very large3: The telecom sector. In the recent blog, it is

Sometimes it pays because the new innovation doesn't always break through. It is possible maybe because nobody took that final step of venturing into the dark. But in manageing innovation, there is the need not to discard outright advance of innovation but consider them both

(Andrew, 1996).

Summary to this aspect

Where describing the innovataion technique adopted, Andrew insisted that no standard company manual could prepare one as the direction of the market is entirely unpredictable. Pg 5(Andrew, 1996).

Conclusion: