Being First-Mover 2
Response to Competition 3
Cash disbursement Strategies 4
Appendix 1 5 Appendix 2 6
Appendix 3 7
Intel is a technology company founded in 1968. The company has a reputation as a leading innovator in semiconductor and various memory chips. In the early 1970, Intel firstly came up with the breakthough technology of mircroprocessro. However, Intel underestimated the importance of its techonology, and missed the opportunity to commercialized. Throughout the 1970, Intel continued to innovate, creating a second generation of microprocessor. Intel’s microprpcesspr sales contracts often stipulated that Intel facilitate the development of second sources. As a result, Intel only genereated only composes small prosion of the total sales from 19% to as much as 41%1. In mid 1980s, Intel refused to grand second-source contracts to customer other than IBM. As a result operating marigin began to rise, but this also raise competitive challenges. One source of competitive threats is immitation. Immitation were generally less expensive and tended to appear after demnd for the original had alreagde ramped-up. Company like AMD has made 27.5%2 of the market share through immiation. Another competitive threat was posed by alternative CPUs that did not attempt compatibility with Intel’s products. Products like Motorola’s 68000 and Fujutsu’s SPARC try to gain market shares through better performance or aggressive pricing .
Research and Development (R&D) represents Intel’s competiveness in the industry. It can be noticed from Intel’s annual statement that it spends aggressively on the R&D, which accounts for 42.07% of the total selling, general and administrative costs in 1987, and this number is expected to increase to 44.69% 3in 1991. The large portion of the R&D expenditure serves as a stimulant of Intel’s growth. This fact is evidenced by the increases in both of gross margin and the operating margin during the same period. Intel’s gross margin and operating margin are 54.27% and 12.9%4 in 1987, and are expected to increase to 60.28% and 22.60% 5respectively in 1991.
Intel is the “first-mover” that is the first one to produce microprocessor in the industry, and it has invested aggressively on R&D to maintain the rate of innovation. As a result, Intel is able to produce the state-of-the-art fabrication facilities and equipment and this makes exiting process more efficient. Additionally, as the “first-mover”, Intel is able to maintain the price level due to its monopoly power in the industry. Therefore, it is more profitable for Intel to produce microprocessors than its competitors.
However, such “first-mover” position also subjects Intel to some disadvantages. Aggressive spending on R&D does not ensure successful innovation. Moreover, even if the innovation is successful, its demand may not large enough to break-event. However, since imitators enter the market after the demand for the successful innovation ramp-up, they can avoid the costly development and market acceptance phases of the life cycle and save the substantial amount of costs incurred by innovation failure. As a result, imitators are able to set their products at lower price levels than Intel. And this in turn leads to considerable losses in Intel’s market power and market share.
Response to Competition
In response to these threats, Intel comes up with 4 strategies. The first strategy is to use the legal system to defend for the intellectual property rights. The second is that Intel would largely increase its spending in advertising to gain better brand recognition. In addition, Intel also increases its spending on R&D and equipment for the next two strategies. The first is to shorten lifecycles of its products in order to reduce the risk of being imitated by introducing new products frequently. The last is to…