Strategic Operations of Intel in the Semiconductor Industry - Case Study Example

Executive Summary The case study scrutinizes strategic operations of Intel in the semiconductor industry. From the PEST analysis, it is found that public authorities control powers of the firms in this industry by issuing licences. Firms in the industry, like, Intel, need to invest large amount of money for the purpose of research and development and have an expensive product manufacturing process. The bargaining powers of suppliers are high and the prevailing rivalry is quite intense. The cost efficiency and technological expertise of Intel are its core competencies. Even so, companies like, Google and ARM Holdings, are improving their revenue through sale of processor chips and designs of the rarest kind. In future, Intel needs to acquire the knowhow of building similar chips. The brand awareness of the firm is high in the industry; and with such strategic changes, Intel would be able to rule out competition of ARM Holdings. Contents Contents 2 Introduction 3 Analysis of Business Environment and Industry Success Factors 3 Analysis of Intel Strategy 6 Intel’s Value Chain Analysis 6 Introduction The case study examines the strategic management operations of Intel. From 2012 to 2013, the industry has experienced an excellent rate of turnover, which is as high as 4.8%. This industry is dominated by certain giant corporations like, Intel, Samsung and Broadcom. This examination will be done by studying the business environment where the company operates, along with its current business strategies on basis of the case study. Finally, the report will analyze ways through which Intel would be able to sustain competitive advantage in the industry as it has been noticed that companies like, ARM Holdings, are encroaching on large proportion of assured market demand of Intel. Analysis of Business Environment and Industry Success Factors PEST Political The forecasts regarding business of the semiconductor industry are made by the World Semiconductors Trade Statistics Organization (WSTS). Hence the firms in the industry are highly conscious about the reports published by this agency, as it influences their brand images in the market. The royalties and licenses of new technological developments are provided to the firms of semiconductor industry in each nation by public governing authorities. Hence the firm’s operational freedoms are highly manipulated and controlled by the public authorities. The competitive strengths of these firms in semiconductor industry are substantially controlled by public authorities through impositions of legal regulations. Economical The semiconductor industry is experiencing rapid growth; given that in 2013, worldwide revenue of $ 305.6 billion was recorded. The firms in this industry invests large amount of money in business and generates high revenue. However, the volume of revenue earned by each firm is highly volatile in nature. The current growth pattern of the industry primarily favours prosperity of firms that manufactures modern processor chips .like Snapdragon chips. The companies within the industry experience high degree of competition among them. Perhaps this is the reason for which the firms like Intel and ARM are found to invest large amount of money for product and process development procedures in business. All firms in this industry, like, ARM Holdings and Intel, possess large financial reserves to feed their business development projects. Social The consumers in the modern world prefer using innovative technological gadgets. The degree of communicational integration has enhanced with rise in use of internet. This has spurred demand for technological smart gadgets like, smartphone and laptops, which had in turn increased the demand for semiconductor processor chips. Demand for semiconductors has also augmented because of rising demand for smart home appliances in the market like, smart televisions and refrigerators. Technological The semiconductor industry has experienced huge transformations in terms of technological development. Semiconductors are used in microprocessor chips, whose manufacturing requires complex multistage procedures. At present, companies like, ARM Holdings, are trying to manufacture new types of microprocessors that consume relatively less energy resource and firms like, Intel, are inventing Atom processors. The companies in this industry try to incorporate upgraded technologies, facilitating quality improvement of contemporary electronic gadgets like, smartphone and televisions. Thus, with the essence of such technological improvements the firms in this industry are likely to multiply their revenue in the long run through cost effectiveness. Porters Five Forces Bargaining Powers of Buyers (moderate) The companies like, Intel, Qualcomm and AMD, experience high degree of competition in business. The buyers’ demands are relatively elastic as their switching cost is low. However, as stated in the case study, rivals of Intel constantly try to estimate the latter’s upcoming business strategies. The firms, thus, seek operating on the basis of strategic behaviour; in this manner, output and pricing decisions made by a firm significantly depend on that of the other. Hence, prices of all companies are nearly similar. The buyers lack power to influence the pricing decisions of competitive firms. Thus, in some cases the buyers are able to exercise higher power while in the other cases they cannot; hence their overall bargaining strength in the industry is moderate. Bargaining Powers of Suppliers (high) In order to produce micro and other types of processors, companies require metallic silicon as the primary raw material. In this industry, there are 35 producers and suppliers of silicon wafers. Nevertheless, all types of raw materials required in fabrication plants are delivered by giant dominant supplying firms (figure 1 Appendix). For example, ASML provides 65% of steppers in the market. For other inputs like, substrates, the few major supplying firms are more often than not Japanese. So, it can be analyzed that bargaining powers of the major suppliers are high in the industry. Threat of Substitutes (low) There are no such potential substitutes to semiconductors in the market. The companies like, Intel, try to upgrade quality and features of semiconductor processors produced. Without the essence of semiconductors, smart electronic gadgets like, smartphone and tablets, cannot be manufactured. Threat of Rivals (high) The rivalry present in the semiconductor industry is high (figure 2 in Appendix). Intel and AMD are two major dominant rivals in the industry, where both the firms manufacture personal computers and PC processors for corporate networks. For instance, the British firm, ARM Holdings, uses completely different architectural designs in processors. There also lies a high degree of indirect rivalry between Intel and ARM Holdings. Currently, Google is trying to enter in this industry with its intellectual and financial resources. Threat of New Entrants (low) It can be determined that threat of new entrants in the industry is low; this is because if a new firm plans to enter in the concerned industry, then this would require large pool of finances for investing in construction of new plants and technologies as done by Intel and ARM Holdings. Nevertheless, Google has recently entered in the industry with huge financial and instinctual competencies. Analysis of Intel Strategy Intel’s Value Chain Analysis Inbound Logistics The company produces a micro processor’s semiconductor chip, which comprises the circuits required in computers. All raw materials used in processors are framed in form of metallic silicon wafers. So, Intel procures raw materials like, substrate, which is the material used for coating silicon wafers. Though the firm can acquire raw materials from 35 different suppliers, yet the special inputs required in its plants are obtained from dominant Japanese supplying firms. The stepper machines are primarily purchased by ASML. Since the aggregate raw materials of the company are procured from several supplies, the bargaining power of each of them is minimized in its business. However, ASML highly manipulates the prices and supply quantities of its stepper machines, as it is a dominant supplier of the same in the industry. Operations The microprocessors produced Intel can be reprogrammed and manufacture of this product incorporate a complex multistage process. Hence Intel engages in conducting complicated operational procedures in business. Stencilling and etching are two important steps of this process. However, this coating process is done by a machine named stepper. All such manufacturing processes are conducted in fabrication (fab) plants of the firm. These plants are kept clean with purified air and workers in special attire. The cost of manufacturing in such fab plants is high for Intel; this was recorded as $3.5 billion in 2008. The processors of the company are manufactured by its own unique x86 architectural design. This shows that the company invests large amount of money in its manufacturing and designing processes. The large number of employees of Intel is responsible for conducting operational activities, which is nearly 105,000. The company is considered as the most talented software developer as it houses high technological skills in order to manufacture unique processors. Intel employs innovations in the products as well as processes involved in various segments of business. In 2012, the company had started to produce its own range of Atom processors. The co-founder of Intel, Jordan Moore has instilled the concept of Moore’s Law in business, whereby the company can easily add more power to its chips. Outbound Logistics The company desires to spread its business among a wide base of customers. Intel is planning to set up new factories in the immediate future for facilitating higher production. The firm has recently announced to construct advanced fabricating plants to manufacture ARM designed processors for most potential clients. The company is also acquiring finances so as to produce fifth generation processors. Sales and Marketing Through the campaign of “Intel Inside” in 1991, the company tried to make customers aware of its rare technological offerings. Even so, financial performance of the company had weakened in 2013 (figure 3 Appendix). This is because; demand for advanced processors like, Snapdragon (used in Smartphone and tablets), has increased in the market. Consumers now prefer low cost tablets over PCs. The company is selling its newly invested Atom processors range to smartphone and tablet makers like, Samsung and Lenovo. Despite that, business of the company has declined by 7% in 2013 (figure 4 Appendix). In 2013, aggregate sales of Intel were $ 50 billion; but, the company regarded that growth of the entire industry demand was still unfavourable for long-term individual progress. This is because consumers in the market appear to prefer smartphone and tablets whose processors are not manufactured by the company. Furthermore, low powered Chromebook laptops manufactured by companies like, Google, experience higher demand in recent years. The sales of Intel from business with cloud service providing firms have increased by 35% in 2013. Service Operating cash worth $20 billion is generated by the company and is annually used for research and development investments and new plant construction. Through this, the company tries to deliver superior products to customers. The company’s services in the recent years do not cater to relationship building process with companies like, Dell, IMB and HP. The firm is trying to build better service relationships with cloud service providing firms. Presently, the company focuses on fostering superior selling relationships with companies like, Microsoft. It should be noted that Intel does not serve directly to the consumers as it produces an intermediate input with which electronic gadgets are manufactured. Read More