Team S: Morris Li, Tiia Paananen, Santiago Sanchez Villalba, Jose Llanos, Tiia Paananen,

Bharat Pawar

What were Intels sources of competitive advantages in

DRAM and how were those different from the ones in
microprocessors?
Intel produced the first 1-kilobit DRAM (dynamic access memory) that provided
a solution to the growing memory market and was more cost effective to build,
had an increased performance and was smaller than its predecessors.

Intel

had strong product development and design backed up with talented staff with
strong executives with high investments in manufacturing but despite the short
market dominance, it failed to keep the market share and cash flows up.
Competition in the market was fierce and when the Japanese multibillion dollar
conglomerates entered the market was Intel up against a challenge. Japanese
competitors had close relationship with suppliers to improve the manufacturing
machinery to increase the profits.

Since the manufacturing and other fixed

costs were high for the process of DRAM, the chip prices (and finally the profit)
depended on how aggressively the competitors expanded their capacity.

While the battle for DRAM continued, Intel developed new solutions in the
background and introduced the microprocessor in early 70s. However, an
innovation that was led through exploration without a top-down initiative, was
never considered as a valuable invention by the top-management of the
company. By not patenting the microprocessor Intel allowed the competitors to
benefit from it, that lead to significant loses for Intel. In the end Intel did have a
ssuccessful shift from DRAM to microprocessors and the management took a
strategic decision and exit the DRAMs and focused on microprocessors while
the market for it developed quickly.

Intel learned to be more careful with one product strategy and protect the
technological innovation and know-how of the company to preserve the novelty
and lead. No competitive advantage is lasting as no company maintain the
leadership generation to generation as the design and manufacturing gets
more complex by time and firms with better manufacturing process have
bigger competitive advantage. When IBM entered the market, adopted a new
open standard and made the IBM-PC nonproprietary, it changed the industry
from vertical alignment to a horizontal alignment. Intel fought for market share
and created new microprocessors (8086 and 8088) that the top management
boosted with project CRUSH, a marketing and sales campaign and landed the
contract with IBM to provide microprocessor for its PCs.

The contract forced Intel to outsource production of its microprocessors to 12

companies and subsequently only captured 30% of profits. With the
development of a new product (80286) Intel reduced the number of licensees
to four and launched a new campaign (Checkmate) to promote sales and
marketing. This provided significant advantage in the market and improved
Intels position. Later Intel decided to become the sole-source manufacturer
and this way kept full control of the pricing. As the industry developed Intel
developed multiple internal sources, and various processes as well as launched
Intel Inside sticker in purpose to achieve a new look and feel to Intel and
increased

its

involvement

in

sub-system

and

full-system

design

and

manufacturing. Intel also invested in a campaign to educate the consumers on

the importance of microprocessors to eventually and in the end the sticker was
one of the worlds most recognized brands, One of Intels advantages was a
constant development and staying on top of their game. They decided to
support Compaq that challenged IBM and opened a new market. With the
cooperation with Microsoft Intel further strengthened its position in the market.