Company Analysis: Intel Corporation - Term Paper Example

?Company Analysis: Intel Corporation Executive Summary Intel Corporation is considered as one of the leading semiconductor manufacturing organizations in the world which has been innovating computing technologies since its establishment. This discussion reflects upon the financial performance of Intel and its closest competitors in the current phenomenon. Moreover, the discussion presented through this study also focuses on external analysis by utilizing certain analytical tools such as stakeholder analysis, Porter’s five forces and general evaluation of its external environment. Additionally, this discussion also bases its arguments on internal analysis of Intel by considering certain strategic tools including VRIO framework, value chain model to identify the organizational strengths as well as weaknesses. Furthermore, this discussion also identifies Intel’s current strategies as compare to its closest rivals. In its conclusion, the paper provides certain recommendations for Intel along with an outline of strategic implementation plan which shall help the company to attain long term sustainability and growth. Table of Contents 1 Executive Summary 2 Introduction 4 Intel Corporation: Financial Analysis 5 External Analysis of Intel Corporation 9 Stakeholder Analysis 9 General Assessment of Competitive Environment 9 Porter’s Five Forces 10 Internal Analysis of Intel 12 Value Chain Analysis 12 Strengths of Intel 13 Weaknesses of Intel 14 VRIO Analysis 14 Identification of Firm’s Strategy and Competitors’ Strategy 16 Intel’s Strategy 16 AMD’s Strategy in Comparison to Intel 17 Discuss Strategy Rationale 18 Advantages & Disadvantages 18 Recommendations 19 Strategic Implementation Plan 20 Discuss constraints the firm may encounter while pursuing your recommendations 21 Alternative recommendations 21 Conclusion 21 References 23 Introduction Intel Corporation is one the world’s largest multinationals which operates as a semiconductor and chip maker corporation. The company’s business primarily deals with designing and manufacturing of advanced integrated digital technological platforms comprising microprocessor, semiconductor and chip and also various other technologies which are required for improving the computer software and hardware performance. The business operations of the company has been thus aligned with the selling of this platform primarily to Original Equipment Manufacturers (OEMs), Original Design Manufacturers (ODMs) and various other industrial manufacturers in the computing technology industry (Intel Corporation, “Intel Facts”). The core intention of this discussion is to analyze the financial performances of Intel in the current market prospects. Additionally, this discussion also aims to evaluate Intel’s external business situation by utilizing various strategic tools, i.e. Porter’s five forces, Stakeholder analysis and Competitor Analysis. Moreover, this discussion also intends to present an internal analysis of Intel with the application of Value Chain analysis model, VRIO framework and SWOT analysis. Furthermore, another objective of the discussion in this study is also to indentify Intel’s current strategies as compared to its rival providing suitable recommendations regarding appropriate strategies for the future growth of the company. Intel Corporation: Financial Analysis In the fiscal year 2012, Intel recorded earnings of $53.3 billion with its net income ranging to about $11.0 billion and earnings per share of around $2.13 billion. Company generated approximately $18.9 billion of cash from its operations and its gross margin for about 62.1% as compared to the past few years. At the end of the fiscal year 2012, the repurchase and dividend payment in the company was accounted to be about $118.4 billion to stockholders. In this similar fiscal year, i.e. in 2012, the board also made a strategic investment for a huge sum in order to build innovative products at competitive prices. However, in 2012, company’s net revenue was accounted to be about $658 million. Additionally, company’s gross margin was about $606 million which recorded a decrease by 2% as compared to its previous year performances (Intel Corporation, “2012 Annual Report”). As per the fiscal year 2011, company’s net revenue was about $10.4 billion which marked an increase by 24% as compared to 2010. In this year, the PC Client and Data Centre Group revenue was also observed to have increased by $6.3 billion marking 8% increase as compared to the previous year. In this similar fiscal year, i.e. in 2011 company’s overall gross margin was recorded to be about $5.3 billion which had also increased by 18% as compared to the previous year (Intel Corporation, “2011 Annual Report”). Figure: Intel Net Revenue Figure: Intel: Cash from Operation Source: (Intel Corporation, “2012 Annual Report”) As on 17th January 2013, Intel reported its operating revenue of 53.3 billion and operating income of $14.6 billion along with its net income amounting to about $11.0 billion. Additionally, the company also generated about $18.9 billion of cash from its operations which was further used to pay a dividend of about $4.4 billion and $4.8 billion to repurchase Intel stocks. Hence, observing its three years performances, i.e. from 2010 to 2013, it can be stated that Intel has been quite successful in maintaining stability in its overall financial health (Intel Corporation, “Intel Reports Full Year Revenue of $53.3 Billion, Net Income of $11.0 Billion”). It has been observed that Advanced Micro Devices (AMD) is one of the leading as well as closest competitors of Intel. AMD is also considered as an American multinational and semiconductor manufacturing organization in the top lists of the industry. As of the fiscal year 2012, AMD earned net revenue of about $5,422 million which was quite less as compared to the year 2011 where company had recorded earnings of $6,586 million (Advanced Micro Devices, Inc., “AMD Corporate Information”; Advanced Micro Devices, Inc., “2012 Annual Report”). Table 1: Change in Financials Intel Current Year (2012) Previous Year (2011) % Change Net Revenue $53.3 billion $54.0 billion (-1.29) Net Income $11.0 billion $12.9 billion (-14.72) Earnings Per Share $2.13 billion $2.39 billion (-10.8%) Balance Sheet $ 84,351 $ 71,119 (18.6%) Table 2: Common Size Statements of Intel & AMD Intel (2012) in billion % AMD (2012) in billion % Net Revenue $53,341 100 $5,422 100 Cost of Sales $20,190 37.86 $4,187 77.23 Gross Margin $33,151 62.14 $1,235 22.77 Balance Sheet (Current Assets) % % Cash & Cash Equivalent 8,478 10.05 549 13.72 Short-term Investment 3,999 4.74 453 11.32 Trading Assets 5,685 6.73 Accounts Receivable 3,833 4.54 630 15.75 Inventories 4,734 5.61 562 14.05 Deferred tax Assets 2,117 2.50 Other Current Assets 2,512 2.98 71 1.77 Total Current Assets 31,358 37.15 $2,265 56.61 Property Plant & Equipment 27,983 33.17 658 16.45 Marketable Equity Securities 4,424 5.24 181 4.52 Other Long term Investment 493 0.59 Goodwill 9,710 11.51 553 13.82 Identified intangible Assets 6,235 7.41 96 2.4 Other Long-term Assets 4,148 4.92 247 6.175 Total Assets $84,351 100 $4000 100 Table 3: Financial Ratio of Intel & AMD Ratio Intel (2012) AMD (2012) Current Ratio 2.43 1.62 Quick Ratio 2.06 1.21 Debt-to-equity Ratio 0.25 2.59 Debt-to-total Assets Ratio 6.53 0.34 Inventory Turnover 4.26 7.45 Total Asset Turnover 0.63 1.04 Gross Profit Margin 0.62 0.22 Net Profit Margin 0.20 0.21 Return on Assets 0.13 0.29 Return on Equity 0.21 2.19 External Analysis of Intel Corporation Stakeholder Analysis The major stakeholders of Intel include customers, stockholders, employees, developer communities and the other participants of the semiconductor industry. Since the past few years, Intel strategically implements Customer Excellence Program (CEP) in order to improve customer satisfaction by effectively satisfying their high level of expectation. CEP is considered as a web based survey program which is controlled by the company’s market research department in order to obtain customer feedback at regular instances regarding product quality and service delivery (Intel Corporation, “2012 Annual Report”). General Assessment of Competitive Environment In order to attain the desired competitive advantages, Intel primarily emphasizes on its strategies aimed at expanding its existing market segments which were beyond its PC and server business. Since the past few years, it has been observed that AMD is one of the leading rivals within the similar market segment, whose businesses also deals with similar activities as compared to Intel. AMD generally competes with Intel in the market of server business, semiconductors and chips along with IBM and Oracle Corporation. In the market of Smartphone and tablets, the company also had to face significant challenges with well-established competitors such as QUALCOMM incorporated, NVIDIA And Texas Instrument Incorporated (Intel Corporation, “Realizing Data Center Savings with an Accelerated Server Refresh Strategy”). It has been observed that the semiconductor industry is quite dynamic in nature. Additionally, in this industry product life cycle is quite short due to frequent introduction of innovative products. Due to this short product life cycle, the company often faces huge negotiation with its OEM customers’ where buyers are quite sophisticated and product sensitive. Irrespective of these obstacles, the company was still observed as competitive enough to attain a superior competitive position by instantly improving its product quality, service delivery and operational procedures as compared to its rivals. It is worth mentioning in this context that the company’s products primarily compete on the basis of its performance, price, quality, energy efficiency, reliability and brand recognition (Intel Corporation, “2012 Annual Report”). Porter’s Five Forces In this industry, customer demands regarding new product can be observed as continuously increasing where Intel executes CEP strategies in order to satisfy this market needs. In order to compete against its major rivals, the company further emphasized towards expanding its market segment into Smartphone and tablets, simultaneously investing on its R&D activities to offer innovative products at affordable prices (Advanced Micro Devices, Inc., “2012 Annual Report”). In relation to the bargaining power of suppliers, it has been observed that suppliers of Intel always demanded for high prices owing to the scarcity of raw materials. It has been also observed that the company bases its marketing prospects on a huge number of suppliers who provide necessary materials and services to the company. In order to obtain timely materials, the company also aims at frequently assessing supplier activities and performances and likewise, offering recognition for the potential suppliers (Intel Corporation, “Realizing Data Center Savings with an Accelerated Server Refresh Strategy”). The bargaining power of buyers is also quite high owing to the availability of ample quantity substitute products in this market. In this market, players always tend to emphasize on innovative products and attempts to deliver those at competitive prices than its rivals due to which, buyers bargaining power have been continuously rising in this market (Intel Corporation, “Realizing Data Center Savings with an Accelerated Server Refresh Strategy”). It has been observed that Intel does not face any threat from the new entrants, but have to face steep competition from the existing players such as AMD and NVIDIA among others. Additionally, in this industry, it is quite difficult to enter for the new players as only trusted and well-renowned brands are preferred by the customers. Additionally, it is also quite difficult for the new players to enter in this market owing to the fact that the products as well as the services which are offered by the existing players are quite exceptional as well as competitive in nature (Intel Corporation, “Realizing Data Center Savings with an Accelerated Server Refresh Strategy”). It has been further been observed that threat of substitute products is quite high in this market owing to the fact that existing players tend to offer almost identical kinds of products and services. Therefore, in order to survive in this market, it is necessary for Intel to emphasize upon the innovative products design so that its rivals cannot imitate similar kinds of products (Intel Corporation, “Realizing Data Center Savings with an Accelerated Server Refresh Strategy”; Advanced Micro Devices, Inc., “2012 Annual Report”). Internal Analysis of Intel Value Chain Analysis Presently, Intel’s IT department plays an important role in order to transfer information between the company and its suppliers. With the help of its IT department, the company was able to track its suppliers’ activities regarding material deliveries from various parts of the world. In this way, the company was able to control its inventories and also reduce manufacturing lead times. Moreover, Intel also scrutinized its internal operational activities, on the basis of which the company could interact with its suppliers regarding its material requirements (Intel Corporation, “Intel Facts”). Intel aims to strategically utilize its web based e-business system by to obtain detailed information regarding customers’ tastes, preferences, their orders and product specifications from its clients as well as other manufacturing industries. Additionally, the company turns its raw materials, especially the silicon wafer into advanced and complex Integrated Circuits (IC) and deliver to the customers as finished goods. The operations of Intel generally depends on its business network of manufacturing as well as test facilities by which the company is able to obtain a direct control over its operational procedures, quality control initiatives, manufacturing costs and production timings that further facilitates the company to attain competitive advantages (Intel Corporation, “Intel Facts”). Intel primarily focuses on its web-based system to monitor its product distribution network so that customers can obtain their ordered products as per their convenience. Intel utilizes third party sales representative in order to distribute its products. With the help of its efficient sales representatives, the company has been able to obtain direct information regarding customers’ orders. It has also been observed in this regard that Intel aims towards establishing contracts with various preferred logistics carriers making huge investment towards its transportation. These carriers are trusted and authorized by the company and function as an agent for delivering shipments in a time-efficient and competitive manner (Intel Corporation, “Transforming Intel’s Supply Chain to Meet Market Challenges”). Intel distributes its products through its sales offices which are located in various parts of the world. Contextually, it can be affirmed that the marketing objective of Intel has been concentrated towards building a strong and renowned brand that connects business with potential customers. The company further promotes its brand to generate awareness through its direct marketing channels and by conducting co-marketing programs. Company’s direct marketing activities comprise internet advertising, print, television, trade events and industry as well as customers communication (Intel Corporation, “Transforming Intel’s Supply Chain to Meet Market Challenges”; Intel Corporation, “Intel Facts”). Strengths of Intel Intel possesses a strong market position along with an established brand image within the global semiconductor industry. Additionally, the company has also established a strong brand loyalty throughout the globe. Intel has been quite successful to position itself as world’s one of the most competitive innovative computing technology companies. It can be observed in this regard that the company aims to offer wide variety of products such as semiconductors, chips, motherboard wireless connectivity and also other innovative applications in order to enhance the performance of these components which are quite unique as compared to its rivals (Intel Corporation, “2012 Annual Report”). Weaknesses of Intel When assessing its weaknesses, it has been observed that company’s product prices are quite high as compares to its rivals where consumers might chose alternative products which are more affordable. Furthermore, the company was also criticized on the grounds to maintain a good relationship with its employees after the dismissal of a significant proportion of employees during its restructuring in year 2006. The company’s primary focus on the computing technologies, where its rivalries offer graphics card and video card in order to enhance the video gaming technologies, which can further be identified as a major drawback for Intel (Intel Corporation, “2012 Annual Report”). VRIO Analysis Valuable: In this context it can be argued that Intel developed unique internal resources which are not available to its rivalries. Company’s competitive advantages primarily depend on its resources which are quite inimitable and also non-substitutable in nature. The company further possesses huge amount of financial resources which comprises operating capitals, common stock repurchases and potential dividends which are quite valuable in nature. Apart from these, the company also have certain valuable resources including its operating segments i.e. PCCG, DCG and other architectural operating segments that altogether help the company by manufacturing innovative products and applications (Intel Corporation, “Intel IT: The Business Value of IT Sustainability”). Rare: Intel offers software as well as hardware computing technology products in order to provide optimized solutions. Additionally, the company also offers NAND flash memory card which is a unique component and is primarily utilized for portable memory storage, soli-state drivers and various other portable devices. Moreover, company also offers software products which leads to increase in the performance of the operating systems; thus assisting the user organizations to gain efficiency in their respective businesses (Intel Corporation, “Intel IT: The Business Value of IT Sustainability”). Inimitable: When assessing its performance, in has been observed that Intel possesses unique operational network facilities which assists the company to exclusively manufacture and test facilities by which the company is able to control its product quality, manufacturing costs, operational time and various other business activities leading the company towards the attainment of a competitive position (Intel Corporation, “Intel IT: The Business Value of IT Sustainability”). Organizational: Intel possesses exclusive IT department which plays a strategic role of advantage in every aspect of its business activities. IT helps the company to bring in efficiency within its operation, delivering scale, agility and productivity. The company has thus incorporated its IT strategic planning cycle aligned with its corporate business planning which indicates an approachable strategic direction for the company’s future growth (Intel Corporation, “Intel IT: The Business Value of IT Sustainability”). Identification of Firm’s Strategy and Competitors’ Strategy Intel’s Strategy Intel’s IT strategic planning procedures provide strategic investment roadmap as per the requirement of the company. Intel’s IT strategy planning can be considered as a corporate level strategy which emphasizes upon its individual operational segment and also helps the company to compete for innovation and also bring coordination within its business portfolio at the industry level. With the help of this corporate strategy, Intel efficiently manages its business activities which further helps it to maintain a strong corporate relationship with its business partners and assist it to bring efficiency within its management practices (Intel Corporation, “Achieving Intel’s Strategic Goals with IT”). Apart from this strategy, Intel also implements a unique business level strategy where the company possesses distinctive manufacturing and test facilities through which it can efficiently control its manufacturing costs, production timings, volume and operational procedures. This imitable strategy helps the company to attain a competitive position through which the company has positioned itself to compete against its rivals. Additionally, this strategy also helped the company to bring differentiation in terms of product attributes, quality, price and performances as compared to its rivals (Intel Corporation, “Achieving Intel’s Strategic Goals with IT”). Figure: Intel’s Strategic Planning Cycle Source: (Intel Corporation, “Achieving Intel’s Strategic Goals with IT”) AMD’s Strategy in Comparison to Intel AMD operates its business under three core beliefs by which company create values for its employees, customers and shareholders. These beliefs are ownership & commitment, innovation leadership and customer focus business. Additionally, the company also operates by considering four action plan components, i.e. achievement, accountability, alignment and agility. Primarily, the company implements its strategies by focusing on specific businesses which is further observed to be beyond the PC market, faster growing and ultra-portable product markets. The objective of company’s strategies has been thus focused towards enhancing 40% to 50% of business portfolio in order to obtain faster growth with the market (Advanced Micro Devices, Inc, “2012 Annual Report”). Contextually, it has been observed that AMD faces significant challenges to execute its strategy in an appropriate manner owing to its incompetency to identify its potential market opportunities. In order to respond towards macroeconomic issues and the continuously changing environment, AMD also made strategic investments in the year 2012 for aligning its business along with changing computing landscapes and also attain competitive advantages by identifying new opportunities (Advanced Micro Devices, Inc, “2012 Annual Report”). Discuss Strategy Rationale The rationality behind Intel’s strategy is that the company was able to identify its external business on the basis of which the company is today able to deliver suitable products as per the market requirements. Through its strategies, the company was also successful to gain better operational understanding and instant response from its business partners. With the help of these strategies, the company also indentified its rivals’ strategies and implement tactical plans which could help the company to attain a competitive position within the industry. Advantages & Disadvantages The major advantage of Intel’s strategies was that it facilitated the company to understand its future business perspectives and implement strategies to operate in the current business efficiently. This strategy also provided Intel with a strategic roadmap by which the company could make profitable investments and analyze its performances as compared to its competitors. Contradictorily, the company lacks in focusing on its products’ costs through its strategies, which limits its effectiveness to deliver its product at competitive prices. Intel’s strategies are primarily focused upon long-term financial investments and facilitate the evaluation of external business environment where the company lacks in appropriately determining its product pricing. Additionally, other limitations of Intel’s strategies results in the inappropriateness when determining its effective leadership strategy as observed in terms of the dispute among its employees and staff members. Recommendations In order to maintain a strong internal work culture, Intel should provide first priority on its employees and execute unique strategies that can assist it to develop fairness, openness and encouragement within the company. In this way, Intel can influence its employees and attain strong productivity at the time of competitive business situations. It is also necessary for Intel to concentrate upon the niche marketing towards its product categories by implementing market leadership strategies which shall help the company to indentify the precise needs and demands of its targeted customers. Semiconductor industry comprises growing challenges where promotional strategy plays a significant role. In order to attain a competitive position, Intel should emphasize on certain channels by investing on social networking sites such as FaceBook, Twitter, and Youtube among others expanding its business network throughout the world. Apart from these, Intel should also emphasize upon its pricing strategies which are relatively high as compare to the other players within the same industry. For instance, the time period of product life cycle is quite short where the company can reduce the price of its older products while introducing new products in the market. It shall further help the company to boost the sales of its older products increasing the period of product life cycle. Furthermore, Intel can also implement unique leadership strategies that can help the company to maintain sustainable working environment within the organization. Through these strategies, the company can identify the needs and demands of its employees by comprehending job satisfaction of its workers. In this way, the company can influence its potential employees towards its organizational goals which shall further lead towards effective productivity for the company. Additionally, Intel can also provide effective training session to its employees, either on a monthly or yearly basis through which the company can determine the needs of its employees and thus continuously enhance the performance of its workers. Strategic Implementation Plan Performance Area Strategic Implementation Target Time Frame Financial Performance Intel should implement cash flow management system by which it can appropriately manage its overall operational costs Through this way the company can attain its financial objectives In every fiscal year Customer and Market Performance Intel should execute unique promotional, advertising and pricing strategies and also make investments on various marketing channels through social networking sites The company can identify its potential customers and also understand the market demands by attaining competitive advantages In every year May to November Internal Efficiency and Effectiveness The company should implement entrepreneurial strategies, unique leadership strategies and training sessions for its employees It will help the company to bring efficiency within the workplace by inflecting potential employees In every month of fiscal year Long Term Development and Innovation Intel should focus on its internal activities through its leadership strategies and indentify the performances of its rivals through effective competitive strategy. It will help the company to deliver innovative products as per the market requirements and obtain competitive advantages Constant implementation throughout the entire financial year Discuss constraints the firm may encounter while pursuing your recommendations In order to implement the above suggested promotional strategies, Intel might require a substantial amount of finance that may affect its operational costs by a large extent. The suggested leadership strategy and training sessions may also take huge amount of time which might impose significant impacts upon its operational activities. Alternative recommendations The company can implement certain promotional strategies through hoardings, road shows and also make product promotions on various shopping malls. Additionally, the company can also promote its products by organizing campaigns in various educational and business institutes. Conclusion Intel is one of the globally leading corporations in the industry of manufacturing of chips and semiconductors. It has been viewed that the company implements a set of unique strategies in order to survive in its targeted market. Through its strategies, Intel has been able to identify its external market environment with the virtues of which the company can successfully deliver highly competitive and substitute free products as per the market demands. Moreover, Intel was also successful in establishing a unique business network through which the company was able to take control over its entire operational activities. In relation to AMD businesses, Intel attained a strong market growth by executing exclusive strategies in every aspect of its business activities. References Advanced Micro Devices, Inc. AMD Corporate Information, 2013. Web. 10 April. 2013. Advanced Micro Devices, Inc. 2012 Annual Report, 2012. Web. 10 April. 2013. Intel Corporation. Achieving Intel’s Strategic Goals with IT, 2012. Web. 10 April. 2013. Intel Corporation. Intel IT: The Business Value of IT Sustainability, 2011. Web. 10 April. 2013. Intel Corporation. 2012 Annual Report, 2013. Web. 10 April. 2013. Intel Corporation. 2011 Annual Report, 2013. Web. 10 April. 2013. Intel Corporation. Transforming Intel’s Supply Chain to Meet Market Challenges, 2012. Web. 10 April. 2013. Intel Corporation. Realizing Data Center Savings with an Accelerated Server Refresh Strategy, 2009. Web. 10 April. 2013. Intel Corporation. Intel Reports Full Year Revenue of $53.3 Billion, Net Income of $11.0 Billion, 2013. Web. 10 April. 2013. Intel Corporation. Intel Facts, 2013. Web. 10 April. 2013. Read More