Harvard Case - Intel Corp. (A): The DRAM Decision
"Intel Corp. (A): The DRAM Decision" Harvard business case study is written by Robert A. Burgelman, George W. Cogan. It deals with the challenges in the field of Strategy. The case study is 31 page(s) long and it was first published on : Jan 1, 1989
At Fern Fort University, we recommend that Intel abandon the DRAM business and focus on its core competencies in microprocessors and other semiconductor technologies. This decision, while difficult, aligns with Intel's long-term strategic goals and allows for the allocation of resources towards areas with greater potential for growth and sustainable competitive advantage.
2. Background
The case study 'Intel Corp. (A): The DRAM Decision' focuses on Intel's dilemma in 1985 regarding the future of its DRAM business. Intel, a dominant force in the microprocessor market, had also entered the DRAM market, but faced intense competition from Japanese manufacturers who had achieved cost leadership through economies of scale and government support. As the DRAM market became increasingly competitive and unprofitable, Intel was forced to make a strategic decision: stay in the DRAM business and risk further losses or exit the market and focus on its core competencies.
The main protagonists of the case are Gordon Moore, Intel's co-founder and chairman, and Andy Grove, Intel's CEO. They are tasked with navigating the complex strategic landscape and deciding the best course of action for the company's future.
3. Analysis of the Case Study
This case study can be analyzed through multiple strategic frameworks:
1. Porter's Five Forces:
- Threat of new entrants: High due to the low barriers to entry in the DRAM market and the availability of advanced manufacturing technologies.
- Bargaining power of buyers: High due to the standardized nature of DRAM products and the availability of multiple suppliers.
- Bargaining power of suppliers: Low due to the availability of multiple suppliers of raw materials and manufacturing equipment.
- Threat of substitute products: High due to the existence of alternative memory technologies such as flash memory.
- Rivalry among existing competitors: Extremely high due to the intense competition from Japanese manufacturers and the price wars that characterized the market.
2. SWOT Analysis:
Strengths:
- Strong brand recognition and reputation in the microprocessor market.
- Strong research and development capabilities.
- Strong manufacturing capabilities.
Weaknesses:
- Lack of cost leadership in the DRAM market.
- Dependence on a single product line (DRAM).
- Limited experience in the competitive Japanese market.
Opportunities:
- Growth in the microprocessor market.
- Development of new semiconductor technologies.
- Expansion into new markets.
Threats:
- Intense competition from Japanese manufacturers.
- Price wars and declining profitability in the DRAM market.
- Technological advancements in alternative memory technologies.
3. Resource-Based View:
Intel's core competencies lie in its microprocessor design and manufacturing capabilities, which are difficult to imitate and provide a sustainable competitive advantage. The DRAM market, however, did not leverage these core competencies and instead required a different set of skills and resources, leading to a strategic mismatch.
4. Industry Lifecycle:
The DRAM market was in the maturity stage characterized by intense competition, price wars, and declining profitability. This stage was unfavorable for Intel, which lacked the cost leadership necessary to compete effectively.
5. Business Model Innovation:
Intel's business model in the DRAM market was based on cost leadership, which was not sustainable against Japanese competitors. The company failed to innovate its business model to differentiate itself and create a unique value proposition.
4. Recommendations
Based on the analysis, Intel should:
- Exit the DRAM business: This allows Intel to focus its resources on its core competencies in microprocessors and other semiconductor technologies, where it enjoys a stronger competitive position.
- Invest in research and development: This will allow Intel to maintain its technological leadership and develop new products and technologies that can drive future growth.
- Expand into new markets: This will help Intel diversify its revenue streams and reduce its dependence on the microprocessor market.
- Develop strategic alliances: This can help Intel access new technologies, markets, and resources.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Intel's core competencies lie in microprocessor design and manufacturing. Focusing on these areas aligns with the company's mission to be a leading innovator in the semiconductor industry.
- External customers and internal clients: Intel's customers value its microprocessor products and technologies. By focusing on its core competencies, Intel can better serve these customers and meet their needs.
- Competitors: Intel's competitors in the DRAM market are highly competitive and have a cost advantage. By exiting the DRAM market, Intel can avoid direct competition and focus on areas where it has a stronger competitive position.
- Attractiveness ' quantitative measures: Exiting the DRAM business will free up resources that can be invested in more profitable areas. This will improve Intel's overall financial performance and create long-term value for shareholders.
6. Conclusion
Intel's decision to exit the DRAM market was a strategic necessity to ensure its long-term survival and growth. By focusing on its core competencies and investing in research and development, Intel could maintain its leadership position in the semiconductor industry and create sustainable value for its stakeholders.
7. Discussion
Other alternatives not selected include:
- Investing heavily in the DRAM business: This would require significant capital investment and might not be successful against the competitive Japanese manufacturers.
- Merging with a DRAM manufacturer: This could help Intel gain access to manufacturing capabilities and economies of scale, but it would require significant integration efforts and may not be strategically aligned with Intel's core competencies.
Risks and key assumptions:
- Risk of losing market share in the microprocessor market: This could be mitigated by investing in research and development and developing new products and technologies.
- Risk of missing out on future growth in the DRAM market: This is a valid concern, but the intense competition and declining profitability in the DRAM market make this a risky proposition.
- Assumption that Intel can successfully focus on its core competencies: This is a reasonable assumption given Intel's strong track record in microprocessor design and manufacturing.
8. Next Steps
- Develop a detailed plan for exiting the DRAM business: This should include a timeline for divesting assets and transferring employees.
- Invest in research and development: This should focus on developing new microprocessor technologies and expanding into new markets.
- Develop a strategic alliance strategy: This should focus on identifying potential partners that can provide access to new technologies, markets, and resources.
By taking these steps, Intel can successfully navigate the challenging landscape of the semiconductor industry and ensure its long-term success.
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Case Description
Focuses on the decision Intel's top management faces at the end of 1984 of whether to exit the DRAM (dynamic random access memory) business. Discusses the evolution of Intel's distinctive technological competencies and of the critical linkages between its corporate, technology, marketing, and manufacturing strategies. Examines the effect of apparent industry structural changes on the relative importance of different technological competencies and the linkages between corporate, technology, marketing, and manufacturing strategies. Intel was the first successful mover with DRAM products, yet it finds itself with an inconsequential market share at the end of 1984. While the organization still believes that DRAMs are critical both from market and technology viewpoints, DRAMs have actually played a minor role in Intel's product mix in the past five years. Logic products based on microprocessor technology have replaced memory products as Intel's core business. Leads to discussions about the implications of organizational beliefs on technology and manufacturing strategy and top management's role in evaluating those beliefs during changing times.
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