I have written about my concept for understanding businesses, which I call Oyster for Opportunity, Strategy, Execution, and Reward.  

Recently, I have been discussing with someone from a company I advise. I was asked to see if I had any materials from the past, for instance, from my time at Intel, that dealt with strategy. Sadly, I do not. I did not keep any of the materials I had from Intel when I left. I honored my confidentiality agreement. But the request made me think back on the strategy that Intel brilliantly executed to be one of the dominant players in the PC business during the 90s, and I thought I would relate that here.

I joined Intel in 1984, and while I was not directly initially involved in the PC business, I was senior enough in the company’s management. I participated in the overall strategy discussions of the company.  

Intel was slow to recognize that the development of the PC business that resulted from the launch of the IBM PC in 1981 would transform the computer industry. Personal computing had not even made the list of the top applications for the 386 processor. But that changed as the sales of personal computers climbed. In my book, The Flight of a Wild Duck, I give Compaq Computer credit for that. Later, as Vice President of Business Development and especially after co-founding Intel Capital, I got very involved with the personal computer market.

Opportunity: Become the dominant supplier of microprocessors for the PC industry

Intel eventually recognized the opportunity to become the dominant supplier of microprocessors to the emerging PC market. Before that, Intel sold microprocessors into various markets, like military, telecommunications, etc. The market microprocessors were not used in general computing, with few exceptions like terminal devices. Andy Grove, the CEO, came to recognize the strategic opportunity that the PC presented. I was fortunate to witness his growing awareness.  

To take advantage of an opportunity, you must first recognize and embrace it. Then, you must develop a strategy that you must execute almost flawlessly. That is what Intel did.

Strategy for dominating

Become the sole source provider of high-end microprocessors for the PC market.

Semiconductor Companies had little market power. Vendors were unwilling to have sole source parts, so they required companies to license their products to other manufacturers. For instance, Intel licensed AMD, thus creating their competitor. Not only did second and third-source suppliers give additional confidence to customs, but it kept the prices down. Intel had to stop this practice. They were only in a position to do this because the dominant operating system, PC DOS from Microsoft, only ran on Intel and compatible processors. Microsoft had little incentive to spend money porting their OS to a different architecture. IBM eventually tried to make an end run but failed (another very long story).  

Move customers to 32 bits

Intel had to get customers to move to 32-bit processors as it had widely licensed the 286 to other companies, including IBM. IBM also had a license for the 386, but they gave this up in return for Intel agreeing that they could manufacture more 286s for their own use. Although iIntel was the dominant supplier of the 16-bit 286 processor, they ran an advertising campaign against it. IBM, the leading supplier of PCs, would not move to the 386 because they were concerned that the additional processing power would allow PCs to compete with their other and more costly computers. So Intel provided Compaq Computer with incentives.

Get control of the brand

Intel processors had numbers as their brand, such as 286, 386, and 486. The court had ruled that these numbers could not be copyrighted. So, Intel developed a brand name they could control, Pentium. 

Take over the R&D for PC development.

PC manufacturers each had a lot of competitors and little product engineering capabilities. In order to keep the PC’s increasing capabilities, Intel set up the Intel Architecture Labs and did the engineering for the industry. They would provide reference designs, which created even more PC manufacturers, especially Asian manufacturers. More and more of the value of the PC became associated with Intel and Microsoft.  

Push consumers to want high performance.

Intel used its relationship with software companies and the Intel Architecture Labs to develop capabilities that required higher-performance processors. An excellent example of that was multi-media.

Create an ingredient brand, Intel Inside

intel decided to become an ingredient brand (kind of like Dolby or NutraSweet) and launched the Intel Inside program. Intel provided marketing dollars to PC companies that used this program, which, in effect, lowered their price and made it not competitive to offer PCs without the Intel Inside logo.  

Utilize massive volume to support the most advanced manufacturing

The intel architecture had a lot of baggage. Newer processes using RISC architecture could improve performance for the same transistors. However, Intel’s advanced manufacturing allowed Intel to be a generation ahead.  

What went wrong

Two things impacted Intel’s ability to continue with these strategies. The first was the internet, which pushed much of the computing to the cloud. The second was the advent of smartphones and other non-pc devices. People wanted the freedom of mobile computing. In a tremendous strategic error past on having a vital role in the smartphone market, Intel turned down Apple’s request that they manufacture the chips for its phone. Eventually, Intel failed to stay ahead in semiconductor manufacturing.