ABBREVIATIONS

ACA Alternative Courses of Action

AMD Advanced Micro Devices
ARM Advanced RISC Machines
CEO Chief Executive Officer
CFO Chief Financial Officer
CIO Chief Information Officer
CMO Chief Marketing Officer
COO Chief Operating Officer
CPM Competitive Profile Matrix
CPU Central Processing Unit
CSO Chief Strategy Officer
DRAM Dynamic Random Access Memory
EEE Electrical and Electronic Equipment
GHGs Greenhouse Gases
GPU Graphics Processing Unit
IDC International Data Corporations
IP Intellectual Property
IT Information Technology
MES Minimum Efficient Scale
NER Normalized Emission Rate
ODMs Original Design Manufacturers
OEMs Original Equipment Manufacturers
PC Personal Computers
R&D Research and Development
SIA Semiconductor Industry Association
SRAM Static Random Access Memory
WEEE Waste Electrical and Electronic Equipment
WEF World Economic Forum
WSC World Semiconductor Council

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EXECUTIVE SUMMARY

Intel Corporation is an American multinational semiconductor manufacturer that

started back in 1968. It also makes motherboard chipsets, network interface controllers and
integrated circuits, graphic chips, flash memory, embedded processors and other devices
related to communications and computing. It was founded by Gordon E. Moore and Robert
Noyce, men who are considered semiconductor pioneers in the industry and widely
associated with the executive leadership and vision of Andrew Grove.

In 2012, Intel was the leading manufacturer of microprocessors for personal

computers in the world, a position that it held onto for more than two decades. Over 80% of
all personal computers sold in 2012 used Intel microprocessors. Despite its historic
dominance, the future looked uncertain for Intel. The rise of mobile devices had led to a
strong substitution effect, with sales of PCs falling as consumers switched to smart phones
and tablets for many of their computing needs. The problem for Intel is that most tablets and
smart phones used microprocessors that are based on technology licensed from ARM
Holdings PLC, a British company whose chip designs are valued for their low power
consumption, which extends battery life.

The proponents of the study identify the problem of Intel based on Brian Krzanich’s
point of view which is: How will the Intel Corporation retain and increase its market
dominance in microprocessor market?

The long term objectives that were established are: to be able to saturate 60% of the
mobile computing market for supplying the microprocessor chips in the next 5 years. In the
year 2018, to maintain the status as the leading supplier of microprocessor chips for the PC
Computing market.

Several areas of consideration were considered during the course of this study, first of
which is the SWOT analysis were the strengths, weaknesses, opportunities and threats of

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Intel were identified thoroughly then SWOT matrix has been tabulated to formulate the
strategies that can materialize from the aforementioned.

Porter’s five forces analysis was made by the researchers to be able to identify the
levels of each factor. Rivalry among competing firms is high, potential entry on new
competitors is low as well as the bargaining power of suppliers, then the bargaining power of
consumers and the potential development of substitute products were identified as low.

External forces specifically, social, technological, economic, environmental, political,

legal and ethical forces were identified by the researchers. Some of the highlights for the
aforementioned are Mobile is identified as the most used personal device for almost one in
two consumers (47%), further innovation in the semiconductor equipment industry is
becoming ever more difficult, Smartphone market has crossed another threshold, shipping 1
billion units in a single year and others.

The internal factor evaluation and external factor evaluation analyses was also
constructed by the researchers which was used to evaluate the internal factors which are the
strength and weakness and the external factors which are the threats and opportunities. For
the IFE it garnered a total weighted score of 2.85 and for the EFE total weighted score of
3.15.

The internal – external matrix was used by the researches and based on all the factors
considered, it suggests a strategy of grow and build strategy which is intensive and
integrative. The total weighted scores of EFE garnered 3.09 while the total weighted scores
of IFE resulted to 2.91.

The competitive profile matrix identifies the firm’s competitors and compares them
using the critical success factors. The analysis also reveals organization’s relative strengths
and weaknesses against its competitors, so the organization would know which areas should
improve and which areas to protect. The competitors identified were Advance Micro Devices
(AMD), Advanced RISC Machines (ARM) and Qualcomm. Considering ten critical success

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factors, Intel, AMD, ARM, and Qualcomm garnered total scores of 3.50, 2.70, 3.42 and 3.39
respectively.

To overcome the challenged faced by the entity, the proponents established three (3)
alternative courses of action namely: horizontal integration, market penetration and product
development. Among those courses of action, based on the result of the decision matrix, the
best course of action is the Horizontal Integration. By acquiring ARM Holdings, Intel can
expand its market share and reduce competition, resulting to it retaining its dominance in the
microprocessor market Therefore; it is recommended that the first alternative course of action
shall be taken to resolve the problem of the company.

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BACKGROUND

Intel Corporation is an American multinational semiconductor manufacturer that

started back in 1968. It also makes motherboard chipsets, network interface controllers and
integrated circuits, graphic chips, flash memory, embedded processors and other devices
related to communications and computing. It was founded by Gordon E. Moore and Robert
Noyce, men who are considered semiconductor pioneers in the industry and widely
associated with the executive leadership and vision of Andrew Grove.
In 1968, Robert Noyce and Gordon Moore were two unhappy engineers working for
the Fairchild Semiconductor Company (has been an industry-leading global supplier and
manufacturer of power and mobile semiconductors for over 50 years) who decided to quit
and create their own company at a time when many Fairchild employees were leaving to
create start-up. They had been among the eight founders of Fairchild Semiconductor. Noyce
was the general manager of Fairchild, while Moore was head of R&D. People like them were
nicknamed the “Fairchildren”.
Intel Corporation’s name comes from “integrated electronics”. It is headquartered in
Santa Clara, California and it was incorporated on the 18th of July 1968. Robert Noyce typed
himself a one-page idea of what he wanted to do with his new company, and that was enough
to convince Arthur Rock, an American financier who coined the term venture capitalist, to
back Noyce’s and Moore’s new venture. Rock raised $2.5 million dollars in less than two (2)
days by selling convertible debentures to startup a capital of $5 million.
Intel Corporation made the 3101 bipolar memory chip a few months after its start up.
The 3101 Schottky bipolar 64-bit SRAM chip which became worthy enough to uphold the
company until it produced the 1101 chip (metal oxide semiconductor) in 1969. It was in
1970, a year later, when Intel Corporation produced the DRAM chip, a chip that can handle a
considerable amount of data. DRAMs would ultimately prove to be a key component in the
personal computer.
The company's big break came in 1971 when a Japanese company, Busicom,
requested Intel Corporation to make chips for their series of calculators. It was during this
time that Intel Corporation envisioned the design for a central processing unit (CPU) on a
single chip, and so the first microprocessor in the world was born. Its model was 4004;it was

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able to imprint 2,300 transistors into a 1/6 x 1/8 inch chip and had the capability of the huge
ENIAC computer.
Intel Corporation continued to develop and manufacture new and innovative
microprocessors over the years. The company grew rapidly from a mere twelve (12)
employees upon its start-up to about 105,000 in 2012. Its founders learned their lessons from
their past employment and implemented a less bureaucratic approach in Intel Corporation.
They allowed employees at the lower levels to make decisions and emphasized keeping the
communication lines open.
In 2012, Intel was the leading manufacturer of microprocessors for personal
computers in the world, a position that it held onto for more than two decades. Over 80% of
all personal computers sold in 2012 used Intel microprocessors. The company reported
revenues of $53 billion and net profits of $11 billion.
Despite its historic dominance, the future looked uncertain for Intel. The rise of
mobile devices had led to a strong substitution effect, with sales of PCs falling as consumers
switched to smart phones and tablets for many of their computing needs. In the first quarter
of 2013, global PC sales fell 14% on a year over year basis according to the research firm
IDC. This was the worst yearly decline since IDC started tracking PC sales in 1994, and the
fifth quarter in a row that PC sales had fallen. At the same time, sales of smart phones and
tablets were booming. IDC predicted that sales of tablets would grow almost 60% in 2013,
and that tablet shipments would exceed those of portable PCs.
The problem for Intel is that most tablets and smart phones used microprocessors that
are based on technology licensed from ARM Holdings PLC, a British company whose chip
designs are valued for their low power consumption, which extends battery life. While Intel
has a line of chips aimed at mobile devices – Atom chips – microprocessors incorporating
ARM’s technology were found on 95% of smart phones in 2012 and over 30% of all mobile
computing devices, a category that includes tablets and PC notebooks. Moreover, in 2012
Microsoft issued a version of its Windows 8 operating system that ran on ARM chips, rather
than Intel chips, creating a potential threat to Intel’s core PC business.
More worrying still, PC sales were now in decline as demand switched towards
tablets. That being said, no one expects the PC to disappear. Indeed, there is a belief that
sooner or later the need to replace aging PC inventory will lead to a robust replacement

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cycle. There was some hope that the introduction of Windows 8 in 2012 might stimulate
replacement demand, but many consumers were put off by the new tile based interface
Microsoft utilized on Windows 8, and replacement demand remains muted for the time
being.
That being said, there is a silver lining in the rapid switch towards mobile computing:
Increasingly, these devices are using high-speed wireless links to store data on “the cloud”
and access applications that resided on “the cloud”. At the heart of the cloud are very large
server farms containing hundreds of thousands of PC servers that are networked together.
Most of these servers, as it happens, are based on PC architecture and run on Intel
microprocessors. Thus the growth of mobile device that are connected to the Internet through
the cloud could result in more server farms and more demand for Intel microprocessors going
forward. Nevertheless, the time being Intel is clearly fighting headwinds in the
microprocessor business.
The appointed CEO in 2013 is Brian Krzanich, the former COO. A long time Intel
employee, Krzanich made his mark in the company as head of the manufacturing
organization. His elevation to the CEO position probably speaks volumes about the
importance Intel attaches to the manufacturing aspect of its business. A key task for Krzanich
is to make sure that the company remains relevant in the post PC era.
Intel is not sitting back and letting ARM chips dominate the mobile device market. It
is introducing a new generation of its Atom chips that appear to be far more competitive with
ARM chips, and deliver similar performance per watt. These are 22 nm chips and will be
manufactured using the latest technology. If the new generation of Atom chips are
competitive, it is possible that Microsoft will again focus just on writing Windows to run on
Intel architecture, since producing two versions of Windows is a costly exercise. This could
provide upside for Intel, particularly if Windows 8 and its successors gain traction in the
tablet and smartphone markets – although to date that has yet to happen. Even if the Atom
chip is successful, however, the economic impact for Intel might well be muted by the lower
average selling price of chips for mobile devices, as opposed to PCs.
Another aspect of Intel’s current strategy is to defend the laptop market from
encroachment by ARM chips. In 2013, Intel introduced its Haswell chips that can run PC
software but have longer battery life. Reportedly, laptops running on Haswell chips have a

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battery life of up to 10 hours, which represents a 50% improvement over prior generation
chips and comparable with the battery life for a tablet.
Although Krzanich seems to be following the script laid out by the predecessor CEO,
it is clear that he faces significant challenges going forward. The task for Intel is to remain
relevant in the post PC era, to hold the rise of ARM chips in check, to continue to dominate
its base, to revitalize, if possible, its long-term symbiotic relationship with Microsoft (a
company that is itself facing significant challenges), and to gain meaningful traction in the
rapidly growing mobile device market where Intel so far has been little more than a
bystander.

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VISION
“If it's smart and connected, it's best with Intel.”

Proposed Vision

In the year 2018, Intel envisions to become the leading microprocessor chips
supplier in microprocessor market and be known that if something is smart and
connected, it is best with Intel.

MISSION

Delight our customers, employees, and shareholders by relentlessly delivering the

platform and technology advancements that become essential to the way we work and live”

Proposed Mission Statement

Delight our customers, employees, and shareholders by providing them

the best return in their investments and relentlessly delivering (5) the platform and
technological advancements (4) that become essential to the way we work and
live. To be globally (3) known in building microprocessor chips (2) that has the
ability to operate in multiple operating systems (7) and continuously striving to
lessen the use of natural resources (8) and implementing safety regulations within
our workplace for the welfare of our employees (9). To entrance our clients by
giving the best customer experience (1) and by empowering the technological
industry by surpassing the boundaries to make amazing experiences possible (6).

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 1. Customers - To entrance our clients by giving the best customer
2. Products or Services - microprocessor chips
3. Markets - globally
4. Technology - the platform and technology advancements
5. Concern for Survival, Growth and Profitability – Delight our customers,
employees, and shareholders by providing them the best return in their investments
and relentlessly delivering
6. Philosophy – by giving the best customer experience and by empowering the
technological industry by surpassing the boundaries to make amazing experiences
possible
7. Self-Concept - ability to operate in multiple operating system
8. Image – continuously striving to lessen the use of natural resources
9. Concern for Employees – implementing safety regulations within our workplace for
the welfare of our employees.

VALUES
Intel Corporation’s organizational values indicate their traditions that influence
employees and their decisions. It is applied as a way of ensuring the company’s
competencies despite competition and other challenges in the industry.

Customer Orientation
We strive to:
 Listen and respond to our customers, suppliers and stakeholders.
 Clearly communicate mutual intentions and expectations.
 Deliver innovative and competitive products and services.
 Make it easy to work with us.
 Excel at customer satisfaction.
Risk taking
We strive to:
 Foster innovation and creative thinking.
 Embrace change and challenge the status quo.

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  Listen to all ideas and viewpoints.
 Learn from our successes and mistakes.
 Encourage and reward informed risk taking.
Discipline
We strive to:
 Conduct business with uncompromising integrity and professionalism.
 Ensure a safe, clean and injury-free workplace.
 Make and meet commitments.
 Properly plan, fund and staff projects.
 Pay attention to detail.

Great Place to Work

We strive to:
 Be open and direct.
 Promote a challenging work environment that develops our diverse workforce.
 Work as a team with respect and trust for each other.
 Win and have fun
 Recognize and reward accomplishments.
 Manage performance fairly and firmly.
 Be an asset to our communities worldwide.

Quality
We strive to:
 Achieve the highest standards of excellence.
 Do the right things right.
 Continuously learn, develop and improve.
 Take pride in our work.

Results Orientation
We strive to:

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  Set challenging and competitive goals.
 Focus an output.
 Assume responsibility.
 Constructively confront and solve problems.
 Execute flawlessly.

CUSTOMER

Intel Corporation has these industry customers:

Industrial Machinery and Components Industry

The industrial machinery and components industry consists of companies engaged in
the manufacturing of basic power and hand tools, hardware, small-scale machinery and
other industrial components. Companies on these industries are facing a demand for high
levels of automation and coping with the capacity to manufacture high end products within
less time.

Appliance and Tool Industry

The appliances, tools & housewares industry consists of companies engaged in the
manufacturing of kitchen appliances, hand and light power tools, gardening tools, cookware,
silverware and other household goods. These companies also need automation for their
products such as vacuum cleaners, refrigerators, printers, and the likes.

Computer Hardware Industry

Computer hardware industry consists of companies engaged in assembling and
manufacturing computers, computer hardware and computer peripherals. The industry
includes storage devices, keyboards, printers, monitors, mouse and other pointing devices,
webcams and pc cameras, as well as ATM machines.

Technology Retail Industry

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 These companies are resellers who buy products from supplying firms or
manufacture the products themselves, and then sell these directly to consumers. They
usually buy components and manufacture the products to resell it to their customers.

Automotive Industry
The automotive industry is a wide range of companies and organizations involved in
the design, development, manufacturing, marketing, and selling of motor vehicles. Auto
manufacturers are learning that automation has the potential for becoming a more cost
efficient way of producing automobiles.

Software and Programming Industry

This industry consists of companies engaged in developing and marketing system and
application software. The industry includes developers of operating systems, word
processors, spreadsheet applications, and CAD and database engines. These companies often
pioneered solutions to needs by businesses to analyze data, store and organize data, or
provide programs to run machinery.

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14
Summarization of Intel Organizational chart

Intel doesn’t have a formal organizational chart. However, they use matrix
management because of their complex and broad organization and operations. We did not
improve their organizational chart by providing and proposing a hierarchical chart instead we
adapted their matrix management and made a formal organization chart as for the reason that
hierarchical chart is not suitable for Intel’s nature of operation and to its recent and prior
years of acquisition of small businesses and other competitors in the semi-conductor
industry.

Brian Krzanich is the CEO and under him are the functional groups: there are 3 group
presidents for Data Center Group, Manufacturing and Operations Group, and the Clients and
Internet of Things; and 6 functional officers: CMO, CFO, CIO, CSO, HR and Managing
Director of Intel Lab Corporate Research. Under the 3 group presidents there are several
hundreds of functional groups.

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I. TIME CONTEXT

The problem takes place in the year 2013 under the management of Brian Krzanich,
CEO of Intel Corporation.

II. VIEW POINT

The researcher’s analysis is solely based upon the point of view of Brian Krzanich,
Intel’s Corporation CEO.

III. STATEMENT OF THE PROBLEM

A. MAJOR PROBLEM

How will the Intel Corporation retain and increase its market dominance in
microprocessor market?

B. MINOR PROBLEM

The company also experiences the following problems as they fulfill their goals.
1. How will it embrace the shifting of consumers demand from PC to mobile
computing?
2. How will its microprocessor product gain market share in mobile computing?
3. How will it keep pace with the rapid technological advancement to sustain
competitive advantage in microprocessor market?

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IV. STATEMENT OF OBJECTIVES

To be the top supplier of microprocessor chips for the mobile computing market in the
next 5 years.

 Continuous exploration of feasible acquisition for expansion of operations to be acted

upon when proven beneficial.
 Innovate and develop the features of the microprocessor chips to increase market
share by 18% every year.
 Provide a compelling customers experience through designing of the products based
on customers’ needs.

In the year 2018, to maintain the status as the leading supplier of microprocessor chips
for the PC Computing market.

 Continuous exploration of feasible flexible acquisition for expansion of operations to

be implemented when proven beneficial.

 Innovate and develop the features of the microprocessor chips to increase market
share by 6% every year.
 Integrate economies of scale each year to diminish marginal cost with each additional
units produced.

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V. AREAS OF CONSIDERATION

A. SWOT ANALYSIS

1. Strong acquisition capability

2. Strong Financial position
3. Engaging brand value
4. Leading manufacturer of
microprocessor in personal
computers in the world for more
than two decades. 1. Low market share of chips for
5. Incomparable manufacturing mobile devices
capabilities. 2. Missed the moved towards
6. Product development mobile computing
competitiveness. 3. Conflict in the symbiotic
7. Globally recognized brand name. relationship with Microsoft
8. Customer oriented product 4. Struggling in maintaining a
9. Strategic investment in research dominant position as a
and development microprocessor supplier in
10. Good relationship with equipment mobile market
suppliers 5. Overproduction of
11. Holds hundreds of patents for semiconductor products
semiconductor equipment’s
12. Manufacturing cost reduction by
25-30% a year
13. Customer Loyalty

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 1. Increased competition in market
1. Rise of smart phones
share
2. Sales of tablet predicted to
2. Decline in PC Sales
grow 60 % by 2013.
3. Most tablets and smart phones
3. Continuous technology
used microprocessors that are
advancement
based on technology licensed
4. Growth in more server farms
from ARM Holdings PLC.
5. WSC will strengthen
4. 2012 Microsoft issued a version
semiconductor industry through
of its Windows 8 operating
internal audit.
system that ran on ARM chips
6. Increased globalization
rather than Intel chips.
7. Strengthen of IP rights and
5. PC manufacturers start building
protection
machines that ran on none Intel
8. Increasing Corporate and
chips.
Social Responsibility
6. ARM chips had become the de
facto standard for mobile devices
in 2012.
7. Difficult further innovation as
industry approaches physical
limit

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B. SWOT MATRIX
SWOT MATRIX STRENGTHS
OPPORTUNITIES SO
 Merge or acquire ARM
holdings that develop ARM
chips that become the
standard microprocessor for
mobile devices.
(S1,S2,S12,O1,O4,O5)
 Form partnership with smart
phone companies like apple
and android phone
manufacturers
(S1,S2,S9,O1,O2,O5)
 Development multi-core
microprocessors enabling
improved multitasking and
energy efficiency
(S3,S4,S7,S8,O3)
 Increasing marketing effort
through "Intel Look Inside"
campaign (S3,S6,S13,O3)
 Continuous registration of
patent rights to mitigate
unauthorized usage
(S11,O3,O7)
WEAKNESSES
WO
 Form partnership with other
software provider companies
like Oracle and Google.
(W3,W4,O3,O4,O5,O6)
 Product development for
tablet and mobile market.
(W1,W2,O1,O2,O3)
 Continuous improvement in
Atom chips or 22nm
microprocessors that deliver
superior performance than
ARM chips. (W1,O1,O2,O3)
 Start manufacturing own PC
parts and related devices
(W4,W5,O3,O7)
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SWOT MATRIX STRENGTHS
THREATS ST
 Capitalize on horizontal
integration with ARM
Holdings
(T3,T4,T5,T6,S1,S2)
 Develop microprocessors that
are compatible to tablets and
smart phones
(T1,T3,S3,S4,S5,S6)
 Adopt to current
technological advancement
through market forecast
(T6,T7,S5,S8)
Table 1
WEAKNESSES
WT
 Launch of Atom chip
microprocessor
(W1,W2,W4,T3,T6)
 Upgrade of microprocessors
leading to the consequent
improvement of Personal
Computers.
(W4,W5,T2,T5,T7)
 Innovation of advanced
microprocessor to satisfy the
emerging needs of consumers
who manufactures smart
phones and tablets - high
performing, low power
consumption
microprocessors.
(W2,W4,T6,T7)
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 C. PORTER’S FIVE FORCES ANALYSIS

PORTER’S FIVE FORCES HIGH MODERATE LOW

Rivalry Among Competing

Firms

Potential Entry of New
Competitors

Bargaining Power of
Suppliers

Bargaining Power of
Consumer

Potential Development of
Substitute Products

Table 2

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RIVALRY AMONG COMPETING FIRMS - MODERATE

Aggressiveness of firms (High)

In the time where there is rapid advancement of technology, there is an increasing
array of consumer products which employ microprocessors and function as partial substitutes
for laptops and desktops. Smart phones, mobile internet devices, netbooks, tablets and even
cars offer part of the function of personal computers. These new alternatives all have in
common their greater mobility and their dependency on battery life. Consequently, there is a
greater focus on decreasing size and lowering energy usage in processors for these devices.
As a result of this, microprocessor companies have seen the significance of this shift
and have been diversifying their strategy. The ability of the companies to adapt to emerging
markets, as well as the degree to which they are able to enter these new product sectors will
determine their future growth. Hence, semiconductor companies put in time, effort, and
resources to have continuous innovation and improvement of their products to maintain their
market share.

Market Share (Low)

Competitors which have equal market share will result to increase in intensity in
rivalry. However, in the semiconductor industry, competitors have unequal market share due
to brand image and diversity of products offered.

Switching Cost (High)

Manufacturers of personal computers, laptops, tablets, smartphones and other
equipment’s that need microprocessors to function do not easily change their supplier of
microprocessors. This is because of high switching cost. It would be difficult for the
consumers to switch their supplier of microprocessors because doing so requires significant
costs in design change.

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Exit Barrier (High)
Semiconductor companies invest a large amount on fixed costs to create facilities for
production as well as devote large amount of Research and Development on production of
new chips.

POTENTIAL ENTRY OF NEW COMPETITORS - LOW

Barriers to Entry (High)

The level of barriers to entry is very high for the reason that there is a large capital
requirement, strong brand preferences and strong customer loyalty. This made it difficult for
new competitors to emerge. Aside from the budget needed for the research and development
department, human resource capital of a company in a semiconductor industry also demands
high cost for it consists of high end professionals such as engineers and designers.
Semiconductor firms should manufacture at the most cost efficient level of
production, termed as Minimum Efficient Scale. The existence of such an economy of scale
creates a barrier to entry. Hence, industries with high MES deter entry of small, start-up
businesses.
In addition, Intel has already built its name in the industry and has been trusted by its
customers for decades. It would be hard for a new competitor to steal market from a well-
known company like Intel who in the long run had proven its product quality.

Product Differentiation (High)

The product differentiation for semiconductor industry is high as the semiconductor
companies continuously thrive to innovate their products due to undiminished demand and
emerging market for microprocessors.

BARGAINING POWER OF SUPPLIERS - LOW

For the large semiconductor companies, suppliers have little power - many
semiconductor companies have hundreds of suppliers. Moreover, there are several supplier
groups present to the semiconductor industry. A few of those groups are; capital equipment

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makers, suppliers of silicon, chemicals, gases, water, energy, metals and other materials are
used in manufacturing semiconductor products (PPRC, 2008).
Relatively, suppliers being concentrated in the industry with only few purchasers
including Intel, indicates a low power of suppliers’ bargaining power. In addition, it
designates low switching cost. Intel also has the control over suppliers because they are
purchasing in a large amount of supplies, so suppliers are the ones who are after them.
Furthermore, suppliers’ power is also limited because of the low degree of their forward
integration, which corresponds to the high degree of Intel’s backward integration.

BARGAINING POWER OF CONSUMERS - MODERATE

Quality of Product (High)

Due to rapid advancement of technology, consumers of microprocessors seek to have
improved high performing microprocessors that will enhance their products. This pressures
the semiconductor companies to lower prices, improve product quality, and offer more and
better services.
In the booming era of smartphones and tablets, consumers who manufacture these
types of technologies prefer to acquire microprocessors designed with low power
consumption, which extends battery life.

Percentage of Sales (High)

Consumers of microprocessors, OEMs and ODMs, deal in large volumes and
microprocessors are sold only from business to business. Hence, they have significant
leverage on price as they are typically high volume purchasers.

Switching Cost (High)

The high switching costs make it difficult for customers to move forthwith to other
microprocessors. This external factor weakens the bargaining power of customers.

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POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCTS – LOW

Availability of Substitute Products (Low)

There is no readily available substitute product for microprocessors. Microprocessors
are specifically made and embedded into a product to make it smart. It can do things that are
too difficult or expensive using conventional technologies such as logic, or time switches,
and so on (Wiki, n.d.). Embedded microprocessors enable firms to compete on product and
service innovation by adding product and service features that customer’s value; but which
would be largely impossible without this technology.

Switching Cost (High)

Consumers can’t easily switch their suppliers of microprocessor due to high
switching cost. Hence, regardless of the fact that there is no readily available substitute
product for the microprocessors, consumers would have a difficulty replacing their supplier.

D. STEEPLE FRAMEWORK

 Mobile is identified as the most used personal device for

almost one in two consumers (47%).

 Institute of Mobile Media Research, believes that student tablet

ownership will rise to somewhere from 40-50% by next year.

 The rise of smart phones means that more and more people are
going online from a mobile device.

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 Growth of mobile devices connected to the Internet through
could result in more server farms and more demand for
microprocessors going forward.

 Further innovation in the semiconductor equipment industry is

becoming ever more difficult.

 The problem is not that they cannot squeeze more transistors onto
the chips – but instead, transistors could require too much power to
run economically.

 Microprocessor has significance influence in today’s modern

computers as users day to day task is ease with this small and
powerful silicon chip.

 The semiconductor industry is changing as communication

and automotive gain share of the market
 First quarter of 2013, global PC sales fell 14% on a year over year
basis
 Smartphone market has crossed another threshold, shipping 1
billion units in a single year
 Tablet takeover is likely to continue with Gartner forecasting a
10% decline in traditional PC sales. While combined tabled, PC
and smart phone sales are forecast to rise 5.9% in 2013
 The PC boom is over, and the business will never regain the peaks

27
 Newer facilities that produce eight-inch and twelve-inch wafers
consume even more, with some estimates going as high as five
million gallons of water daily.
 Demand for water is expected to increase, and analysis suggests that
the world will face a 40% global shortfall.
 Number of electrical devices will continue to increase on global
scale, and microprocessors will be used in ever-increasing numbers in
daily objects
 Industry is continuously working to further reduce the contribution to
emissions of GHGs

 Significant step toward enacting sound policies that will open

markets, increase consumers’ ability to benefit from
semiconductor technology.
 WSC (2013) will continue the meetings of its export/import
regulatory restrictions task force.
 Emerging-market companies are becoming equally important global
players.

 Very few countries have regulations on the import and use of

encryption.
 One of the WSC’s significant progress is strengthening IP rights and
protections.
 As environmental problems have grown in importance,
environmental law has evolved to meet these needs and given rise to
Global Environmental Law.

28
  Growing perception among enterprises that sustainable
business success and shareholder value cannot be achieved
solely through maximizing short-term profits but instead
through market-oriented yet responsible behavior.
 Companies today are being called upon by their shareholders and
other stakeholders to not only boost the bottom line, but also to help
address some of the country’s most challenging problems.

SOCIAL FACTORS

 The importance of mobile devices to consumers is reflected in the Upstream Systems

(2013) where mobile is identified as the most used personal device for almost one in
two consumers (47%). Mobile use surpassed the time spent on laptops (29%), tablets
(7%) or desktops PCs (17%).
 In an annual survey at Ball State University in Muncie, Ind., 73% of students in USA
reported using a smart phone in 2012 as compared with 27% in 2009. About 30% of
the university’s students reported owning a tablet. Moreover, Michael Hanley,
director of Ball State’s Institute of Mobile Media Research, believes that student
tablet ownership will rise to somewhere from 40-50% by next year (Duis, 2013).
 According to Nielsen Report (Nielsen Company, 2014), 89% of their time spent on
media is through mobile apps and 11% is through the mobile web. The monthly
usage of mobile apps for men and women are: Men – 29 hours and 32 minutes;
Women – 30 hours and 58 minutes. While the monthly usage of mobile web for men
and women are: Men – 3 hours and 45 minutes; Women – 3 hours and 46 minutes.
 The rise of smart phones means that more and more people are going online from a
mobile device. According to Pew Internet, 55% of Americans said they’d use a
mobile device to access the internet in 2012. A surprisingly large number – 31% - of

29
 these mobile internet users say that is the primary way they access the web. This is a
large and growing audience whose needs aren’t being met by traditional desktop
experiences. These numbers are already large enough to require attention. With sales
of PCs at an all-time low, more and more people will rely on their smartphones and
tablets to go online (McGrane, 2013).

TECHNOLOGICAL FACTORS

 Mobile computing devices are using high-speed wireless links to store data on “the
cloud” and access application that resided on “the cloud”. At the heart of the cloud
are very large server farms containing hundreds of thousands of PC servers that are
networked together. Most of these servers run on microprocessors. Thus the growth
of mobile devices that are connected to the Internet through the cloud could result in
more server farms and more demand for microprocessors going forward.
 Further innovation in the semiconductor equipment industry is becoming ever more
difficult as the industry approaches the physical limit to reducing the size of the
transistor. If innovations in the semiconductor equipment industry slow down, then it
will accentuate the existing difficulties in maintaining the rate of technological
progress in the microprocessor industry (Pillai, 2013).
 For decades, the power of computers has grown at a staggering rate as designers have
managed to squeeze ever more and ever tinier transistors onto a silicon chip –
doubling the number every two years, on average, and leading the way to increasingly
powerful and inexpensive personal computers, laptops and smart phones. However,
researchers fear that this extraordinary acceleration is about to meet its limits. The
problem is not that they cannot squeeze more transistors onto the chips – but instead,
that all those transistors could require too much power to run economically. They
could overheat, too (Markoff, 2011).
 Microprocessor has significance influence in today’s modern computers as users day
to day task is ease with this small and powerful silicon chip. Many microprocessors
are created for difference purpose of system and by doing this newer systems would
get to perform additional tasks which helps ease the user’s job for instance, future

30
 embedded system could increase their capability such as emphasizing on the cache
design and bus architecture alike with the desktop by increasing the performance of
the system by developing new embedded microprocessor design to work towards this
goals (Oxbridge Writers cited by Uni Assignment Centre, 2013).

ECONOMIC FACTORS

 According to the semiconductor market report, in 2012, the semiconductor market

reached a value of $292 Billion after a record high of $300 Billion in 2011. The
semiconductor industry is changing as communication and automotive gain share of
the market, whereas computer and consumer are losing and the industrial segment is
more or less unchanged (World Semiconductor Council, 2013).
 In the first quarter of 2013, global PC sales fell 14% on a year over year basis
according to the research firm IDC.
 IDC predicted that sales of tablets would grow almost 60% in 2013.
 The smart phone market has crossed another threshold, shipping 1 billion units in a
single year for the first time in history. That’s according to market research firm
IDC’s Quarterly Mobile Phone Tracker (Arthur, 2013)
 The tablet takeover is likely to continue with Gartner forecasting a 10% decline in
traditional PC sales. While combined tabled, PC and smart phone sales are forecast to
rise 5.9% in 2013, the respected analysts claim that traditional PC shipments will
decline 10.6% while tablets will gain 67.9%. This will take worldwide device sales to
a projected 2.35 billion units in 2013, driven by sales in tablets, smart phones, and
also according to Gartner, to lesser extent ultra mobiles, as PC shipments are on the
decline. The desk-based and notebook computer is likely to sell just 305 million units
in 2013, while tablet shipments reach 202 million units and the mobile phone market
grows 4.3%, with volume of more than 1.8 billion units. Gartner said that the decline
in PC shipments was due both to changing consumer preferences but also
manufacturers shifting their own focus.
 The PC boom is over, and the business will never regain the peaks that it saw in 2011
when more than 359 million were shipped worldwide (Arthur, 2013). In a downward

31
 revision of its forecast for this year’s PC business, it says that total shipments will fall
by 9.7% compared to 2012, and will continue to drift down at least until 2017. This is
because of the smart phones, especially in emerging markets, and tablets, together
with economic woes both in the west and some emerging markets.
 For PC makers such as Dell and HP, which have not been able to break in to the
mobile markets at any substantial level, the fall in shipments is having a dramatic
effect on their business. The effect is more marked in the consumer market, which is
down 20% year-on-year in some areas, than the business market, where companies
have begun to install Windows 7 on a large scale ahead of the end of support for
Windows XP – first released in 2001 – next April. The drop-off could have long-term
implication for Microsoft’s Windows business, formerly one of its most valuable
monopolies.

ENVIRONMENTAL FACTORS

 A typical facility producing semiconductors on six-inch wafers reportedly uses not

only 240,000 kilowatt hours of electricity but also over 2 million gallons of water
every day (Dunn, 2000). Newer facilities that produce eight-inch and twelve-inch
wafers consume even more, with some estimates going as high as five million gallons
of water daily. While recycling and reusing of water does occur, extensive chemical
treatment is required for remediation. On average, the manufacturing of just 1/8 inch
of a silicon wafer requires about 3,787 gallons of wastewater, not to mention 27
pounds of chemicals and 29 cubic feet of hazardous gases (Hayhurst, 1997).
 The world’s water problems and the looming water-security crisis were ranked high
by the WEF 2013 Global Risk Survey. WEF calls water one of the most tangible and
fastest-growing social, political and economic challenges faced today. “In every
sector, the demand for water is expected to increase, and analysis suggests that the
world will face a 40% global shortfall between forecast demand and available supply
by 2030,” WEF concluded (Ernst & Young, 2013).
 Over the past two decades, the global market of EEE continues to grow
exponentially, while the lifespan of those products becomes shorter and shorter.

32
 Therefore, businesses, as well as waste management officials, are facing a new
challenge, and e-Waste or WEEE is receiving considerable amount of attention from
policy makers. Predictably, the number of electrical devices will continue to increase
on global scale, and microprocessors will be used in ever-increasing numbers in daily
objects (Bhutta, Omar, & Yang, 2011).
 The global semiconductor industry is a very minor contributor to overall emissions of
greenhouse gases, and the industry is continuously working to further reduce the
contribution to emissions of GHGs. The industry expects that the implementation of
best practices will result in a NER in 2020 of 0.22 kgCO2e/cm2, which is equivalent
to a 30% NER reduction from 2010 aggregated baseline (World Semiconductor
Council, 2013).
 The WSC members are continuing to focus on resource conservation activities in the
production process. The normalized reduction of electricity from 2001-2012 was
32%, water used in manufacturing was 47%, and waste generated was 37%,
compared to 2001. The WSC continues to pursue environmental conservation
programs in these areas and will continue to share examples of best practices. The
energy consumed in the semiconductor manufacturing process continues to be a key
focus of the industry’s environmental and sustainability practices worldwide (World
Semiconductor Council, 2013).

POLITICAL FACTORS

 The SIA, representing US leadership in semiconductor manufacturing and design,

announced that global semiconductor industry leaders reached an agreement at the
WSC on a set of policy initiatives to strengthen the industry through international
cooperation. The consensus reached in 2013 represents a significant step toward
enacting sound policies that will open markets, increase consumers’ ability to benefit
from semiconductor technology advances, maintain market-based competition, and
protect the environment. The WSC’s recommendations include elimination of tariffs,
harmonization of regulations, and simplification of custom procedures. These enable
the world’s consumers to enjoy the latest semiconductor technology at the lowest cost

33
 (Rosso, Semiconductor Industry Association - Global Semiconductor Leaders Reach
Agreement on Plan to Strengthen Industry Through International Cooperation, 2013).
 World Semiconductor Council (2013) will continue the meetings of its export/import
regulatory restrictions task force, and encourages cooperation with other relevant
trade associations including attending relevant seminars, and continue to facilitate to
resolve industry’s concerns on export/import issues such as administrative licensing
requirements and procedures, and improving administrative efficiency.
 Emerging-market companies are becoming equally important global players. Most
importantly, emerging markets are linking up to each other in ways never witnessed
before. In the past, global traded tended to flow between poor and rich countries, but
that has changed dramatically. Similarly, culture is becoming increasingly globalized
as well. All of these trends are set to continue. Globalization is deepening, becoming
more inclusive and more balanced between different parts of the planet. And it is
introducing us all to new ideas, products and arts (Schuman, 2013).

LEGAL FACTORS

 World Semiconductor Council (2013) notes that very few countries have regulations
on the import and use of encryption. The global trend is toward further de-regulation
for mass marketed or widely available IT items in recognition of their widespread use
and of the fact that there is very limited value in regulating the commercial market.
 One of the WSC’s significant progresses is strengthening IP rights and protections via
work and analysis of issues related to utility model patents, patent quality, non-
practicing entities and trade secrets (Rosso, Semiconductor Industry Association -
Global Semiconductor Leaders Reach Agreement on Plan to Strengthen Industry
Through International Cooperation, 2013).
 As international and global environmental problems have grown in importance over
the last couple of decades, environmental law has evolved to meet these needs and
given rise to Global Environmental Law. Such law and governance institutions are
critical not only to engage national governments but also to allow for effective

34
 intervention into the role of the private sector and individuals in environmental
degradation (Yang, 2013).

ETHICAL FACTORS

 There is today a growing perception among enterprises that sustainable business

success and shareholder value cannot be achieved solely through maximizing short-
term profits but instead through market-oriented yet responsible behavior (Mahajan,
2011). Companies are aware that they can contribute to sustainable development by
managing their operations in such a way to enhance economic growth and increase
competitiveness whilst ensuring environment protection and promoting social
responsibility, including consumer interest.
 Companies today are being called upon by their shareholders and other stakeholders
to not only boost the bottom line, but also to help address some of the country’s most
challenging problems, including those concerning economic development and the
environment. While opinions differ on how responsibility should be allocated across
the public and private sectors, corporate stakeholders are demanding that companies
recognize a broader scope of responsibility in addressing those problems. As a result,
companies are increasingly working with stakeholders to understand their views and
concerns on various environmental, social, corporate governance and economic
issues, the CSR issues, and to incorporate and address those views and concerns in
the company’s strategic decision making process (Noked, 2013).

35
E. INTERNAL FACTOR EVALUATION (IFE) ANALYSIS

WEIGHTED
KEY INTERNAL FACTORS WEIGHT RATING SCORE

STRENGTHS

1. Strong acquisition capability .11 4 0.44

2. Strong financial position .09 4 0.36

3. Engaging brand value .08 3 0.24

4. Leading manufacturer of microprocessor in personal

.07 4 0.28
computers in the world for more than two decades
5. Incomparable manufacturing capabilities .06 4 0.24

6. Product development competitiveness .05 3 0.15

7. Globally recognized brand value .05 4 0.20

8. Customer oriented product .04 3 0.12

9. Strategic investment in research and development. .04 3 0.12

10. Good relationship with equipment suppliers .04 3 0.12

11. Holds hundreds of patents for semiconductor
.04 3 0.12
equipment's Suppliers
12. Manufacturing cost reduction by 25-30% .03 3 0.09

13. Customer loyalty .03 3 0.09

WEAKNESSES

1. Low market share of chips for mobile devices .10 1 0.10

2. Missed the moved towards mobile computing .06 1 0.06

3. Conflict in the symbiotic relationship with Microsoft .05 2 0.06

4. Struggling in maintaining a dominant position as a

.03 2 0.06
microprocessor supplier in mobile market
5. Overproduction of semiconductor products .03 2 0.06

Total 1 2.91

36
 Table 3
F. EXTERNAL FACTOR EVALUATION (EFE) ANALYSIS

WEIGHTED
KEY INTERNAL FACTORS WEIGHT RATING SCORE

OPPORTUNITIES
1. Rise of smart phones 0.11 2 0.22

2. Continuous technology advancement. 0.10 4 0.40

3. Sales of tablets predicted to grow 60% in 2013 0.09 3 0.27

4.Growth in more server farms 0.05 4 0.20

5. Increased globalization 0.05 4 0.20

6. WSC will strengthen semiconductor industry through
0.04 4 0.16
international cooperation
7. Strengthening of IP rights and protection 0.04 3 0.12

8, Increasing Corporate Social Responsibility 0.03 4 0.12

THREATS

1. Decline PC Sales .10 3 0.30

2. Increased competition in market share. .08 4 0.32

3. Most tablets and smartphones used microprocessors that
are based on technology licensed from ARM Holdings .08 2 0.16
PLC
4. 2012 Microsoft issued a version of its Windows 8
operating system that ran on ARM chips rather than Intel .07 2 0.14
chips.
5. PC manufacturers start building machines that ran on
.07 3 0.21
none Intel chips.
6. ARM chips had become the de facto standard for
.05 3 0.15
mobile devices in 2012.
7. Difficulty in further innovation as industry approaches
.04 3 0.12
physical limit.
Total 1 3.09

37
 Table 4
G. INTERNAL-EXTERNAL (IE) MATRIX

Figure 2

Grow and Build Strategy Grow and Build Strategy

 Intensive Strategies
 Integrative Strategies Harvest and Divest Strategy

EFE Hold and Maintain Strategy

4 = the response is superior
3 = the response is above average
2 = the response is average,
1 = the response is poor

IFE
4 = major strength
3 = major strength
2 = a minor strength
1 = a minor weakness

Note that strengths must receive a 3 or 4 rating and weaknesses must receive a 1 or 2 rating.

38
H. BOSTON CONSULTING GROUP (BCG) MATRIX

Figure 3

Based on the figure above it shows an average increase in sales for the last five years
by 7.8%. Out of the total market share of 100% Intel was able to capture 62% of it for the
year 2013.

39
I. GRAND STRATEGY MATRIX

Figure 4

Based on Figure 4, it shows that having a strategy of horizontal integration

would be suggested because the score was plotted on quadrant 1 which represents strong
competitive position and belongs to rapid growth market which in turn proves that the
aforementioned strategy may be applied.

40
 J. COMPETITIVE PROFILE MATRIX

INTEL AMD ARM QUALCOMM

Success Factors Weight Rate Score Rate Score Rate Score Rate Score
Research and
0.15 4 0.60 2 0.30 3 0.45 4 0.60
Development
Financial Position 0.13 3 0.39 2 0.26 3 0.39 4 0.52

Product Quality 0.13 3 0.39 3 0.39 4 0.52 2 0.26

Market Share 0.11 4 0.44 3 0.33 4 0.44 3 0.33

Market Forecast 0.11 3 0.33 3 0.33 4 0.44 4 0.44

Management 0.09 3 0.27 3 0.27 4 0.36 4 0.36

Global Presence 0.08 4 0.32 3 0.24 3 0.24 3 0.24

Diversification of
0.07 4 0.28 4 0.28 3 0.21 4 0.28
Products
Manufacturing
0.06 4 0.24 2 0.12 1 0.06 3 0.18
Efficiency
Brand Image 0.06 4 0.24 3 0.18 3 0.18 3 0.18

Total 1.00 3.50 2.70 3.29 3.39

Table 5

To better understand the external environment and the competition in a particular

industry, organization often use CPM. The matrix identifies the firm’s competitors and
compares them using the critical success factors. The analysis also reveals organization’s
relative strengths and weaknesses against its competitors, so the organization would know
which areas should improve and which areas to protect.

41
RESEARCH AND DEVELOPMENT

Intel (Rating: 4)

The Santa Clara, Calif.-based chip manufacturer invests in R&D to keep pace with
Moore’s Law, an observation by company co-founder Gordon Moore in 1965 that computing
power doubles every two years. As the company works to cram more transistors onto its
circuits, development eats most of the company’s R&D spending. “It’s getting more
expensive to do the development piece of it because wafers get more expensive over time as
more steps get added to the process,” says Michael Mayberry, vice president and director of
components research at Intel. “Complexity drives cost.” One recent example of the
company’s R&D efforts includes the 14nm Intel Core M processor, which is half the size of
the previous generation of chips with 20% longer battery life and 60% less energy
expenditure. (Casey & Hackett, 2014)

AMD (Rating: 2)

Research and development spending is the lifeblood of any technology company.

Investments in R&D are critical in order to not fall behind competitors, but AMD has been
slashing R&D spending over the last few years. In fact, for the first time, Nvidia overtook
AMD in R&D spending toward the end of 2013.

The growing gap between AMD's R&D spending and its competitors has some
serious long-term implications for the company. (Kampman, 2017)

ARM (Rating: 3)

Due to Arm’s unique business model, the path from idea to end product is a long one
– often 10 years in the making. This means we work on the most advanced technology in our
field, many years ahead of deployment.

Arm Research looks beyond today’s products to identify problems and opportunities
in order to generate better experiences for people in the future. Through a combination of in-
house research and collaboration with academic and industrial partners, we explore the latest

42
sand greatest technology developments affecting our industry. We develop and validate the
most promising ideas into technology that is transferred into Arm’s product engineering
teams or released to the wider Arm ecosystem.(ARM Limited, 2017 )

QUALCOMM (Rating: 4)

Intel's R&D spending was over three times more than the second-place Qualcomm's
spending, which constituted a very strong 28 per cent increase in 2013. This solidified the
company's position as the second largest R&D spender, a rank it first achieved in 2012.
Samsung placed third, whose annual R&D budget had remained relatively flat at $2.8 billion
since 2011.

With the growing popularity of smart phones, tablets and other mobile devices using
high-bandwidth video and gaming applications, wireless network operators and service
providers are looking to small cells to cost-effectively meet the rapidly expanding demand
for mobile data capacity and network coverage. By working together, Alcatel-Lucent and
Qualcomm Technologies intend to accelerate the adoption of small cells and alleviate the
impact of mobile data on wireless networks.(Alcatel-Lucent and Qualcomm Technologies
plan to develop next-generation of small cells for ultra-broadband wireless access, 2013)

FINANCIAL POSITION

Intel (Rating: 3)

Intel has a current ratio of 2.36, higher than the industry average which is 1.72. This
indicates that Intel can meet its current liabilities. Moreover, its quick ratio is 2.06 giving the
Intel a capability to meet its current liabilities with its highly liquid assets.

The debt-to-equity ratio is 59%. The ratio that the debt Intel is using to finance its
assets relative to the amount of value represented in shareholder’s equity is higher than the
industry average which is 29%. This indicates that much of the business’ assets have been
acquired through debt and there are half as many liabilities that there is equity. In other
words, the assets of the company are funded 2-to-1 by investors to creditors.

43
 The return on assets of Intel is 10.89%, higher than the industry average which is
7.79%. It signifies that Intel has a creditable asset performance implying that it has well-
managed assets.

AMD (Rating: 2)

AMD has a current ratio of 1.14, lower than the industry average. Moreover, its quick
ratio is 0.91. This makes the business more vulnerable to its short-term creditor demands.
This may mean that AMD is not very efficient in terms of the company’s operating cycle or
its ability to turn its product into cash.

AMD has a debt-to-equity ratio of 697%. This signifies that the company has been
aggressive in financing its growth with debt, and there may be a greater potential for
financial distress if earnings do not exceed the cost of borrowed funds.

The return on assets is -1.9%. AMD incurred losses from its operations thus the
negative return on assets. When a company has negative return on assets, it means that the
company is investing a high amount of capital into its production while simultaneously
receiving little income. In addition, if a negative ROA is accompanied by high levels of debt,
the effect of the negative ROA is magnified.

ARM (Rating: 4)

ARM has a current ratio of 2.78, higher than the industry average of 1.72. Its quick
ratio doesn’t have much difference as it is 2.77 and this is because that ARM does not
manufacture the product it sells.

The debt-to-equity ratio is 24.94%. This is slightly lower than the industry average.
This denotes that ARM Holdings can generate earnings without outside financing.

The return on assets of ARM Holdings is 6.75%, lower than the industry average.
Being said that ARM does not manufacture their products, the difference between a highly
capitalized business and one running largely on intellectual property or creative assets is that,
in the case of failure, the capital-intensive company will still have major assets that can be

44
turned into real money whereas a concept-based enterprise will fail when its art is no longer
favored; it will leave a few computers and furniture behind.

QUALCOMM (Rating: 4)

Qualcomm has a current ratio of 3.75 and a quick ratio of 3.5. The ratios are
substantially high than industry averages. It signifies the strength of Qualcomm’s financial
position. Qualcomm has a wise strategy of investing their excess cash to short-term
investments to earn higher interest than what would be earned from a normal savings
account; subsequently, further strengthening their financial position.

The debt-to-equity ratio of Qualcomm is 26.13%, just about the same with the
industry average.

Qualcomm return on assets is 15.06%, way higher than the industry average. This
implies that the company can efficiently generate profit from its assets. High ROA is a sign
of solid financial and operational performance.

PRODUCT QUALITY

Intel (Rating: 3)

The semiconductor industry is a tough proving ground for a company’s commitment

to quality. Intel’s status as a global leader in semiconductor manufacturing relies upon a
relentless pursuit of defect reduction, and a tremendous investment in innovation to deliver
ever-increasing value to our customers. (Intel Quality System Handbook, 2013)

AMD (Rating: 3)

During an everyday workload, a top-end AMD chip and a top-end Intel chip won’t
produce radically different outcomes. There are clear distinctions in specific scenarios and
benchmarks, but the CPU isn’t the keystone of PC performance that it once was.

That said, AMD’s CPUs, especially at the mid-range and lower-end of the spectrum,
do tend to offer slightly better value than Intel’s. Conversely, Intel chips have stronger single
core and gaming performance than even AMD’s best Threadripper CPUs. In return, those

45
looking to use applications with a heavier multi-threaded focus, should derive more benefit
from a modern AMD CPU.(Smith & Lacoma, 2017)

ARM (Rating: 4)

ARM Holdings has an enviable market position in mobile. ARM powers 90% of the
smart phone processing market, has 31% market share in mobile computing. ARM
architecture is entrenched as the foundation for Qualcomm, Nvidia, Texas Instruments and
Broadcom, for which it earns licensing royalties. Some suggest that Intel may have an inroad
with new and highly-anticipated Windows phones. However, like Intel, ARM is compatible
with the new Windows phones. (Travlos, 2013)

QUALCOMM (Rating: 2)

With the rapid expansion of the wireless market, companies are under increased
pressure to meet delivery deadlines and quality standards. Qualcomm collaborates with
KEMA-Registered Quality, Inc., a third-party ANSI-ASQ National Accreditation Board
accredited registrar, to ensure Qualcomm's ability to produce the high-quality products and
services its customers expect. “Being the first to achieve this status amongst other high-
performance, quality-driven, international companies is a benchmark achievement and an
outstanding recognition for Qualcomm,” said Pierre Sallé, president of KEMA-Registered
Quality, Inc.(Qualcomm First U.S. Company to Achieve Advanced Quality Management
System Registration to ISO 9001:2000, 2007)

MARKET SHARE

The basis for the market share is split into two for the PC market and the tablet &
mobile market. The total market share for the microprocessors in PC market amounted to
69% of the whole microprocessors sales while the remaining 31% belongs to the tablet and
mobile market.

INTEL (Rating: 4)

Intel continues to be the leading supplier in microprocessor industry. Intel garnered

62% of the total microprocessors sale in the PC market.

46
AMD (Rating:3)

The total market share for the sales of microprocessors in the PC Market of AMD for
the year 2013 amounted to 4.8%.

ARM (Rating:4)

ARM dominates the total market share for the sale of microprocessors in the mobile
market. ARM shares amounted to 90% of the total sales for the mobile microprocessors.

QUALCOMM (Rating: 3)

Qualcomm occupied the 11.7% of the total microprocessors sale in the PC market.

MARKET FORECAST

Intel (Rating: 3)

Intel failed to gain traction in the mobile market not because its Atom’s performance
and power consumption didn’t compete with ARM but because it didn’t make the changes
that would have allowed it to compete with ARM (Hruska, 2016). Intel forecasted the mobile
chip market not profitable enough to be worth the trouble, a market where there is only a
small opportunity. Intel had built a business around the PC chip that has big difference with
mobile chip. Its employees were experts at building, selling, distributing, and supporting PC
chips, missing the analysis that mobile market would eventually become vastly larger than
the PC market. (Lee, 2016)

AMD (Rating: 3)

AMD depend the success of our business is dependent upon their ability to introduce
products on a timely basis with features and performance levels that provide value to their
customers while supporting and coinciding with significant industry transitions (AMD
Annual Report, 2013). In the year 2013, AMD and Intel were placed to answer the needs of
users as the sales of mobile devices exploded while the PC market was in steady decline,
however, both companies failed to anticipate consumer’s preference for mobile devices

47
(Dilger, 2015). AMD and Intel slowness to switch focus to mobile computing has allowed
other chip manufacturer to dominate the huge market. (Stevenson, 2017)

ARM (Rating: 4)

ARM-based chipmakers are experts at building low-power chips which was important
for smart phones. This expertise of ARM chips gave them an early advantage which helps
them to totally dominate the mobile device business (Lee, 2016). ARM’s adaptability is
considered as their bread and butter. The low-power nature of ARM-based chips feeds into
their ability to be adopted in a variety of devices and markets. (Bent, 2012)

QUALCOMM (Rating: 4)

In the year 2013 Qualcomm and ARM are the two companies that provide foundation
for most mobile products. Qualcomm serves to benefit from overall growth in the mobile
devices markets, regardless which mobile device manufacturer achieves top market share
billing (Travlos, 2013). Qualcomm’s technologies and chips are at the heart of the mobile
revolution. And as the overall market for smart phones and tablets increased in 2013, so did
Qualcomm’s earnings. (Tonner, 2013)

MANAGEMENT

Intel (Rating: 3)

When the PC era was about to end, Apple was already working on the iPhone, which
would usher in the modern smart phone era. However, Intel turned down an opportunity to
provide the processor for the iPhone, believing that Apple was unlikely to sell enough of
them to justify the development costs. With this, Intel made a mistake by missing out on the
iPhone business. They’re now so far behind that it’s going to be a struggle to gain a foothold
in the new market making Intel’s leaders recognized that they have made a mistake.(Lee,
2016)

48
AMD (Rating: 3)

Similar with Intel, AMD failed to anticipate the big opportunity in the mobile market.
In order to strengthen the company’s competitiveness, AMD implemented a restructuring
plan that affects the net income in 2013 resulting to net loss (AMD Annual Report, 2013).

ARM (Rating: 4)

ARM has a leadership program which is comprehensive and structured program

designed to develop leaders within ARM including those in specific disciplines such as
technical leadership, project management and functional management. The program
combines self- development, and on-the-job reflection and learning to ensure that their
leaders and managers truly embody the ARM values and create and engaging environment in
which their people can flourish (ARM CR Report, 2013).

In the year 2013, ARM’s revenue increases due to successful delivery of new
products licensed in the previous year. ARM has achieved more than 95% penetration of
mobile handsets. As other end markets require smarter processors the company expects ARM
technology to increase market share in other application areas (ARM Strategic Report, 2013).
With ARM technology increasingly deployed by more companies into more applications,
ARM needs to ensure that their product is organized to meet those challenges of higher
expectations. Because of this ARM will be implementing a restructuring plan at the
beginning of 2014. There will be no longer separated divisions, but instead a single product
development team consisting of seven product groups.

QUALCOMM (Rating: 4)

Qualcomm provides training that enables Qualcomm employees to operated at the

leading edge of technology and help them to meet Qualcomm future business needs.
Qualcomm developed the Qualcomm Employee App store, which is filled with many
informational and educational apps, both Qualcomm-created and licensed from external
vendors. App topics include engineering, management, leadership, Qualcomm history and
many more(Qualcomm, 2013)

49
 Qualcomm financial data shows that from 2010 to 2013 net income is continuously
increasing because of this Qualcomm is considered to offer great returns to investors who
like mobile sectors. Qualcomm have consistent track record of exceeding consensus
earnings estimates over the past twelve quarters which will provide investors with confidence
regarding expected earnings. (Travlos, 2013)

GLOBAL PRESENCE

Intel (Rating: 4)

Intel has worldwide operations. It’s headquartered in Santa Clara, California and
incorporated in the state of Delaware. Intel has over 300 facilities located in more than 60
countries. In the U.S., Intel’s five largest sites are: Oregon (17,571 employees); Arizona
(11,751 employees); Folsom, California (6,247 employees); Santa Clara, California (6,227
employees); and Albuquerque, New Mexico (2,879 employees) (Intel, 2013)

AMD (Rating: 3)

AMD Headquarters is located in Sunnyvale, California and its employees are more than
10,000 worldwide. AMD Facilities are more than 50 locations worldwide.

ARM (Rating: 3)

ARM has 2,833 employees working across 15 countries and ARM technology now
reaches around 75% of people in the worlds. ARM has 31 offices around the world (ARM
Holdings plc, 2013).

QUALCOMM (Rating: 3)

Qualcomm headquarters is located in San Diego, California. At September 29, 2013,

Qualcomm has employed approximately 31,000 full time, part time and temporary
employees. Qualcomm has 198 facilities located in United States, Taiwan, India, China,
Israel, South Korea, Canada, Singapore, England, Germany and other countries (Qualcomm,
2013).

50
DIVERSIFICATION OF PRODUCTS

Intel (Rating: 4)

Intel makes possible the most amazing experiences of the future. Many may know
Intel as the world's largest manufacturer of semiconductors, but Intel® does so much more.
Intel invents at the boundaries of technology to make amazing experiences possible for
business and society, and for every person on Earth.

Harnessing the capability of the cloud, the ubiquity of the Internet of Things, the
latest advances in memory and programmable solutions, and the promise of always-on 5G
connectivity, Intel is disrupting industries and solving global challenges. If it's smart and
connected, it's best with Intel. (Intel, 2017)

AMD (Rating: 4)

Currently, the two largest manufacturers of CPUs in the world are Intel and AMD.
The current performance and market leader at the time of this writing is Intel, which is the
only processor available in all current Apple computers. Intel’s most current drop of CPUS
are the Core i3, Core i5, and Core i7 while AMD’s top offering is the Phenom II. Though
AMD is not the market leader, many of their products are found in high performance, budget
oriented notebook and custom desktop builds as well as low-cost enthusiast-oriented
desktops. AMD’s highest performance processors however, have not yet been available for
mobile platforms as Intel’s Core iX series.

ARM (Rating: 3)

Arm-based chips and device architectures are widely used in different mobile
computing devices especially in smartphones and tablets. Their processors include Cortex-A,
Cortex-R and Cortex-M. Cortex-A powers intelligent solutions from edge to cloud and suits
the needs of mobile devices, networking infrastructure, home and consumer device and the
likes. Cortex-R are real-time processors which offers high-performance in computing
solutions for embedded systems and electronic systems. Cortex M processors on the other
hand are optimized by the company to provide deterministic real-time embedded processing

51
and microcontroller applications. In addition, Arm also orchestrates technological designs for
graphics and multimedia and various IPs such as physical IP, wireless IP and system
IP.(ARM Limited, 2017)

QUALCOMM (Rating: 4)

A Qualcomm-TDK joint venture, offers a comprehensive portfolio of filters and filter

technologies, including surface acoustic wave (SAW), temperature-compensated surface
acoustic wave (TC-SAW) and bulk acoustic wave (BAW) solutions to support the wide
range of frequency bands being deployed in networks across the globe, for applications
including wireless, automotive and industrial.

MANUFACTURING EFFICIENCY

Intel (Rating: 4)

Intel has been leading the pursuit of Moore’s Law for its entire existence. We have
continuously advanced silicon technology and moved the capabilities of the industry forward.
Today, the unmatched scope and scale of our investments in R&D and manufacturing ensure
Intel continues to maintain industry leadership and drive innovation to provide our customers
and consumers with leading-edge products in high volume.

Intel manufacturing processes advance according to Moore’s Law, delivering ever

more functionality and performance, improved energy efficiency and lower cost per
transistor with each generation. By continually advancing silicon technology and moving the
industry forward, we empower people to do more, to enhance their knowledge, to strengthen
their connections, to build the future, and to create and live in a smart and connected
world.(Leading at the Edge: Intel Technology and Manufacturing, 2017)

AMD (Rating: 2)

AMD produced its chips at company owned semiconductor foundries. AMD pursued a
strategy of collaboration with other semiconductor manufacturers IBM and Motorola to co-
develop production technologies. AMD's founder Jerry Sanders termed this the "Virtual

52
Gorilla" strategy to compete with Intel's significantly greater investments in
fabrication.(Advanced Micro Devices, 2013)

ARM (Rating: 1)

Intel and ARM couldn't be more different commercially, but their respective
architectures are gradually converging technologically. After all, computer scientists have
been studying and simulating the best ways to design a processor for decades, and those same
findings apply to everyone. ARM has grown more CISC-ified over the years, while Intel's
x86 has become streamlined in other areas.

As it stands, Intel's manufacturing prowess very neatly offsets ARM's architectural

advantages, at least in terms of energy efficiency. In the performance race, Intel is the
undisputed leader, but that may be because ARM doesn't want to design ultrafast processors,
not because it can't.(Turley, 2014)

QUALCOMM (Rating: 3)

Qualcomm’s business model is best described as horizontal. Instead of making

products based on their extensive research and development efforts, as is typical with a
vertically integrated manufacturer, Qualcomm licenses its technology to companies that use
such technology to commercialize products to meet the needs of their customers.

Qualcomm is a multinational semiconductor and telecommunication

equipment company that designs and markets wireless telecommunications products and
services. It derives most of its revenue from chip making and the bulk of its profit from
patent licensing businesses.(Mobile Platforms and Processors, 2017)

BRAND IMAGE

Intel (Rating: 4)

Intel’s brand name stands for technology and safety worldwide. Intel pursues
innovation and improvement in all of our business processes, systems, and methods. Rather
than simply detect and correct defects in the later stages of production, Intel strives to build
quality and reliability into every step of our design, development, and manufacturing

53
processes. The Intel Quality Management System provides the framework to meet the
challenges of this competitive and innovative environment. (Intel Quality System Handbook,
2013)

AMD (Rating: 3)

AMD is not only a semiconductor company that develops computer processors and
related technologies for business and consumer markets. Their aim is to empower people to
push the limits through designing and integrating technology for intelligent devices including
personal computers, game consoles and cloud servers. For them, it is about pioneering
innovation that allows people to go beyond the status quo that would unlock limitless
potential for a better future. (AMD Brand Guidelines, 2014)(AMD - Advanced Micro
Devices Inc. Company Profile, 2017)

ARM (Rating: 3)

ARM empowers the most successful business and consumer brands in the world with
its foundation of a global ecosystem of technology innovators. With the help of its partners,
Arm-based chips are being embed in different products that connect people, enhance the
human experience, and make anything possible. Through extensible, scalable, and ever
evolving designing, they do not just serve people at present but they also anticipate
tomorrow.

Furthermore, ARM empowers its engineers by maximizing their creative potential

and enabling everyone in the company to be their brilliant selves through being innovative,
driving Arm-based technology into all areas where computing happens.(ARM Limited, 2017)

QUALCOMM (Rating: 3)

Qualcomm is consisting of engineers, scientists and business strategists from around

the world with the same goal which is to invent mobile technology breakthroughs. The
people in the company are fascinated by technology, always working to push it forward.
They dream big, invent bigger and often do what many thought was impossible. Their
inventions include image stabilization for mobile cameras, location services which enables

54
the device to receive signals from multiple satellites and other technologies that make mobile
commuting even better. (About | Qualcomm, 2017)

K. FINANCIAL ANALYSIS

Ratio 2009 2010 2011 2012 2013

Current Ratio 2.79 3.39 2.15 2.43 2.36
Acid Test Ratio 2.40 2.99 1.81 2.06 1.98
Debt-to-Equity Ratio 0.27 0.28 0.55 0.65 0.59
Gross Profit Ratio 55.69 65.31 62.51 62.15 59.80
Net Profit Ratio 12.44 26.28 23.97 20.63 18.25

Industry Averages 2009 2010 2011 2012 2013

Acid Test Ratio 1.62 1.84 1.81 1.67 1.72
Debt-to-Equity Ratio 0.19 0.14 0.14 0.23 0.29
Gross Profit Ratio 27.60 39.40 40.00 39.70 39.80
Net Profit Ratio 5.60 14.20 10.50 7.60 7.40

Table 6

Current Ratio

Current ratio reflects the number of times short-term assets cover short-term liabilities
and is a fairly accurate indication of a company’s ability to service its current obligations. A
higher number is preferred because it indicates a strong ability to service short-term
obligations.
Based on the data above, we can see that there is inconsistency in Intel’s current ratio.
Fluctuations are very noticeable especially on year 2009 wherein current ratio escalated from
2.79 to 3.39 on the next year, and a rapid decrease on 2011. Despite of this, we can see that
they remained capable of covering short term obligations for the company was able to
recover every time they experience sudden decline.

Acid Test Ratio

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 This ratio, also known as the quick ratio, measures immediate liquidity – the number
of times cash, accounts receivable, and marketable securities cover short-term obligations. A
higher number is preferred because it suggests a company has a strong ability to service
short-term obligations.
We can conclude on the results that Intel’s cash and cash equivalents, short-term
investments, accounts receivable and other quick assets can cover its short-term obligations.
Intel had exceeded the industry average on acid test ratio in majority of the covered years
(2009, 2010, 2012 and 2013) except in 2011 wherein they just met the average. Therefore,
they have greater ability to meet their short-term liabilities than the other firms in the
industry. In fact, the results show that their quick assets could pay off almost twice or more
of its total current liabilities in the said four years.

Debt to Equity Ratio

This ratio measures the financial leverage of a company by indicating what

proportion of debt and equity a company is using to finance its assets. A lower number
suggests there is both a lower risk involved for creditors and strong, long-term, financial
security for a company.
A lower debt to equity ratio usually implies a more financially stable business. As
shown in the table above, there is a very high increase in the percentage of debt per dollar of
owners’ investment from year 2010 to 2011. It revealed that it is 41% higher than the
average. In relation to this, we can see in figure 1 those capital additions to property plant
and equipment increased by 5.6 billion dollars while there is also an increase of 1.8 in
research and development.
Furthermore, net revenue as well increased by more than 10 billion dollars in 2011
(see figure y). Thus, we conclude that Intel was able to allocate investments from their
creditors well despite of the high risk in increasing percentage in debt financing.

Gross Margin Ratio

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 Gross margin ratio is a profitability ratio that measures how profitable a company can
sell its inventory. It only makes sense that higher ratios are more favorable. Higher ratios
mean the company is selling their inventory at a higher profit percentage.
The table shows that there is a declining trend in Intel’s gross margin ratio from 2010
to 2013. On the contrary, it also shows that the company’s profitability from selling its
inventories during the said five years is above industry average. But Intel still needs work on
the declining trend if they want higher amount to cover its operating costs.

Net Profit Ratio

The net profit margin is a more accurate measure of a company’s profitability, as it

reveals the percentage of revenue that actually reflects a company’s profit per dollar of sales.
Net profitability is an important distinction, since increases in revenue do not necessarily
translate into actual increased profitability. Net profit is the gross profit (revenue minus cost
of goods) minus operating expenses and all other expenses, such as taxes and interest paid on
debt.
During year 2013, Intel is earning 11 cents higher on every dollar of its sales
compared to an average firm although it is lower compared to previous years. In conclusion,
although there is a consistent decline in the succeeding years, Intel remains to have greater
ability in terms of setting prices, controlling production costs (cost of goods sold) and
managing operating expenses. However, they should still work on how they will manage the
said factors to increase its net profit ratio in the coming years.

57
 Figure 5

Net Revenue of Intel Corp.

60
53,999 53,341 52,708
50
Dollars in Billions

43,623
40
35,127
30

20

10

0
2009 2010 2011 2012 2013
Year

Figure 6

The net revenue for 2013 was decreased by one percent (1%) for the reason that Intel
has experienced lower unit sales for PC on the first half of the year, but Intel immediately
caught up on the second half with the sales of PC market being stabilized. In addition to that,
Intel also incurred higher factory start up cost due to the development of their next-
generation 14 nm process technology which resulted to a decrease in the net revenue of Intel.

58
 Based on the Net Revenue development of Intel, it is starting to be on the declining
phase. Although there is a depiction of increase of Sales on 2011 from 2009 and 2010, the
2012 and 2013 values have a decreasing trend.

L. INDUSTRY ANALYSIS

1. What is the product or services?

Intel is a company that manufactures semiconductor chips. They offers various
different product which mainly consist of microprocessors, chipsets, motherboards, flash
memory, and communications infrastructure components (including network and embedded
processors), wired and wireless connectivity products, products for networked storage,
application processors, and cellular baseband chipsets.

2. What function does it serve?

The main product of Intel is the microprocessor which is also known as the Central
Processing Unit (CPU), which acts as the brain of all computers and electronic devices. The
microprocessor contains the program logic and serves the memory storage function of a
computer.
PRODUCT FUNCTIONS
Intel microprocessors are made for program
Microprocessors
logic and for computer memory.
Intel’s chipsets are set of electronic
components in an integrated circuit that
Chipsets
manages the data flow between the processor,
memory and peripherals.
It holds together many of the crucial
Motherboards
components of a computer.
It’s a memory that retains data in the absence
Flash memory
of a power supply.

Table 7

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3. What are the channels of distribution?
Intel distributes their product in different ways. It distributes its product directly and
indirectly. It can be directly through sales force, sending mail, telemarketing, and internet
catalog and by their established physical company store. And also, Intel indirectly distributes
their product through external distributors such as department stores and other internet
catalogs.

4. What is the industry size in unit and dollars?

On the year 2013, the global semiconductor sales for 2013 reached $305.6 billion,
the industry’s highest-ever annual total sales. Among these, the total sales for microprocessor
products amounted to $58.6billion which makes the microprocessor market the largest single
semiconductor product category in 2013. The total sales in units for semiconductor industry
amounted to 231.70 Billion which 44.44 Billion units belong to the microprocessor products.
The PC market sales in units amounted to 27.11 Billion units while the remaining 6.22 and
11.11 Billion units belong to the tablet market and mobile market respectively. (Mick,
2014)(Bowers, Ranking of the 2013 top-10 microprocessor suppliers, 2014)

Industry Size in Dollars

19%
Sale of other Semiconductor
Product
81% Sale of Microprocessor

Figure 7

60
 Industry size in units

14%
Sale of Microprocessors - PC
Market
25%
61% Sale of Microprocessors -Mobile
Market
Sale of Microprocessors -Tablet
Market

5. How fast is it growing?

The sale for semiconductor has a total of $305.6 billion which has shown an increase
of 4.8 percent compared to the 2012 total of $291.6 billion. Also, there is a continuous
growth in the sale of tablet which garnered 6% of worldwide microprocessor unit sales and in
the mobile microprocessors which accounted for 25% of the worldwide microprocessor unit
sales. Both tablet microprocessor and mobile microprocessors have shown an increase of 2%
and 3% respectively while the PC’s market share occupied the remaining 69% which had
shown a decrease of 5% on their total market share for the microprocessor sales in 2013. On
the other hand, the growth of the smart phones, tablets, and laptops becomes a hindrance to
the growth of Intel considering they are not the main supplier of the microprocessor chips of
these devices to the manufacturers.

6. Are products differentiated?

Products in the semiconductor industry are highly differentiated due to the different
attributes integrated in each model of the microprocessors. And also, because of the fast
changing demand in technology which resulted to continuous development of product. Intel
makes their product unique through integration of differentiation strategy where they
emphasizes the extra-added features they are offering such as their product speed, continuous
innovation, and manufacturing techniques they apply which helps in building up Intel’s
competitive advantage and be their distinguishing factor.

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7. Are there high exit barriers?
There’s a high exit barriers in the semiconductor industry for the reason that
semiconductor companies can’t easily sell their equipment and machineries in which they
have invested a large amount of capital and they can’t just easily abandon their investment in
the research and development in which they’ve incurred a ton of money.

8. Are there high fixed cost?

Since Intel manufactures its own chips, they incur a high fixed cost due to the
increasingly complex manufacturing equipment that is needed to produce it. For this reason,
Intel had been producing high volume units of chips so it can spread the total fixed cost over
a larger number of units which often result to overproducing of supplies by Intel.

9. Who are the major competitors?

10. What are their market shares?

On the year 2013, the market share of Intel for producing microprocessors amounted
to 62% of the total market share for the sales of microprocessors. On the other hand,
Qualcomm and AMD’s market share amounted to 11.7 and 4.8% of the total market share for
the sales of microprocessors. In terms of share for the mobile market, ARM Holdings
saturates 90% of the market share.(Bowers, 2014)

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 Sale of Microprocessors in PC Market

Intel
21%
5%
Qualcomm
12% 62%
AMD

Other Manufacturer of
Microprocessors

Figure 8

Sale of Microprocessors in Mobile Market

0% 0%

10%

ARM
Other

90%

Figure 9
11. Is the industry consolidated or fragmented?
Intel belongs to the consolidated industry where a few number of companies
control a rather large market share of the overall sales on microprocessors. Since the
producing of microprocessors cost highly, only few companies are able to enter and provide
this product.

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12. Who are the major customers of the industry?
Intel Corporation has industry customers which are the industrial machinery and
components industry, appliance and tool Industry, computer hardware industry, technology
retail industry, automotive industry, and software and programming industry.

13. Are they powerful?

Bargaining power of costumers is moderate. This is because the customers have a
significant influence in the requirement for the quality of the product that the semiconductor
industries must produce and they can also make an impact on the price of the product when
they purchase in a high volume. But the high switching cost which is an external factor
weakens their power.

14. What gives them power?

Customers are moderately powerful for the reason that the customers changing
demand due to the rapidly changing technology, affects the semiconductor companies to
innovate their products continuously in order to offer the customers lower prices, improve
product quality. And also, customers buy in bulk which gives them a significant leverage on
price.

15. Who are the major suppliers of the industry?

The major suppliers of Intel for the year 2013, are Applied materials, Amkor
technology inc, ASML, Daifuku co. ltd., Dainippon screen mfg. co. ltd., Fujifilm electronic
materials, Hitachi Kokusai Electric Inc., KLA-Tencor Corporation, Mitsubishi Gas Chemical
company inc., Nikon corporation, Shin etsu handotai co. ltd., Siliconware precision industries
co. ltd., Siltronic AG, Taiyo yuden co. ltd., Tokyo electron limited, Tosoh quartz Inc., Tosoh
SMD Inc., Veolia environment and ModusLink global solutions Inc.

16. Are they powerful?

A supplier having low degree of their forward integration which corresponds to the
high degree of Intel’s backward integration reduces their power to bargain. In addition,

64
concentrated suppliers over its purchasers designate low switching cost. These lead suppliers
to have only limited bargaining power over its market.

17. What gives them power?

Although suppliers only have little bargaining power because of the fact that there
are hundreds of providers for different groups of supplies needed for the semiconductor
industry, their specific expertise or technology needed to manufacture the semiconductors
will most likely give them power in terms of acquiring purchasers.

18. Do significant entry barriers exist?

Yes. In fact, a high level of significant entry barriers exists in the semiconductor
industry.

19. What are they?

Significant barriers to entry includes large amount of capital is needed for employing
quality professionals, buying costly equipment, and for research and development. Other
factors such as brand reputation and customer loyalty make it difficult for new companies to
penetrate this industry.

20. Are they effective in protecting existing competitors, thus enhancing profit?
The said significant barriers to entry play an important part in protecting existing
competitors. With difficulty in entering the industry, probability of emergence of new
companies is reduced. This results to moderate competition which means higher return on
investment for the few companies offering semiconductors. Thus, it provides protection to
existing firms’ revenues and enhances profit.

21. Is there any close substitute for industry products or services?

Microprocessors has no readily substitute product. Its function is to serve as the
product’s brain, making it work smart. It can also do things that are too difficult and
expensive using conventional technologies such as logic, or time switches and so on.

65
22. Do they pressure on prices changed in the industry?
Since there are no substitute products, pressure on prices are most likely based on
determination if value of the products being offered by the few semiconductor companies
exceeds the price.

23. What are the basic strategies of the competitors?

Product Differentiation through thriving to innovate their products in a continuous
way is one of the basic strategies of the competitors. Market segmentation is another strategy
used specifically in ARM processors for being highly valued in low power consumption
suitable for tablets and smart phones.

24. How successful are they to being involved in more than one nation?
Qualcomm has been one of the leading technology companies in the world while
AMD's share of the global GPU market started to rise as they launch its new Radeon R9 and
Radeon R7 lines of discrete GPUs, and is expected to reach 40 percent over the next six
months, according to sources associated with graphics card manufacturers based in Taiwan.

25. To what extent the industry is global?

The semiconductor industry is internationally spread out. Major manufactures can be
found in the United States, China, Japan, South Korea, and Europe. Semiconductors are
being used in computers, electronics, telecommunication, industrial machines, transportation,
wireless systems, medical, and military, meeting almost every aspect of people’s lives.

26. Are there any apparent advantages to being involved in more than one nation?
The involvement of Intel in more than one nation gives an apparent advantage of
having more potential customers and helps in widening of Intel's market coverage and also
gives an advantage in terms of Intel being pressured and challenged to innovate their product
and to produce microchips that has improved performance at a lower cost against its many
competitors.

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27. Is the industry regulated?
Global semiconductor industry leaders reached an agreement at the WSC on a set of
policy initiatives to strengthen the industry through international cooperation, as announced
by SIA, representative of US leadership in semiconductor manufacturing and design.
Moreover, strengthening IP rights and protections is one of WSC’s significant progresses.
They do this through work and analysis of issues related to utility model patents, patent
quality, non-practicing entities and trade secrets (Rosso, Semiconductor Industry Association
- Global Semiconductor Leaders Reach Agreement on Plan to Strengthen Industry Through
International Cooperation, 2013).

28. What influence do regulations have on industry competitiveness?

Industry regulations highly influence the industry competitiveness. In fact, the WSC
which is an organization composed of industry leaders that aims to address issues regarding
global concern for semiconductor industry recommended the elimination of tariffs,
harmonization of regulations in the semiconductor industry, and simplification of customs
procedures. The aim of world semiconductor council is to lower the cost of semiconductor
technology to enable more consumers to afford it and increase the total sales of the
semiconductor industry. (Rosso, 2013)

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VI. ALTERNATIVE COURSES OF ACTION

ALTERNATIVE COURSE OF ACTION #1: HORIZONTAL INTEGRATION

Horizontal integration occurs when a company decides to merge, acquire or take over
another company in the same industry and at the same stage of production. Intel has a
previous history of acquiring related technology businesses. Some of its previous major
acquisition is:

1. McAfee (2010): $7.68 billion

2. Infineon Technologies (2010): $1.4 billion
3. Giga (2000): $1.25 billion

(For more reference of Intel’s acquisitions refer to the Appendix)

Intel plans to conduct the strategy of Horizontal Integration and acquire the ARM
Holdings Plc., one of Intel’s competitors in the microprocessor market as its first step in this
strategy. By 2012, ARM chips had become the de facto standard for mobile devices such as
smart phones and tablets. It would be a smart move for Intel to use the Horizontal strategy,
having net assets of 58 Billion and incurs 10 Billion dollars for its Research and
Development costs per annum and ARM’s net assets amounts only to 1 Billion pounds. Part
of this course of action is presenting an enticing deal with ARM stating the benefits it can get
as Intel’s subsidiary. One benefit is the brand image of Intel which will be the one to
manufacture the design of the microchips of ARM. On the other hand, Intel would increase
its dominance and market share in the mobile market. Further acquisitions that are necessary
for the succeeding years will be done to advance its dominance in the microprocessor market.

ADVANTAGES
1. Reduce Competition –A Horizontal Integration reduces the competition by
reducing the number of companies which are there in the industry

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 2. Higher Efficiency - Since the companies work together, they yield more services
or products.

DISADVANTAGES
1. Different Culture - Difficult to integrate the culture, employee behavior and other
such things of two companies which are merged.
2. Monopoly Powers - increases the chances of merged company having monopoly
powers due to sheer big size of merged company and we all know that a company
having monopoly powers will tend to exploit customers by charging higher price
than normal from its customers and hence in the end it is the customer who has to
suffer.

ALTERNATIVE COURSE OF ACTION #2: MARKET PENETRATION

Intel Corporation plans to intensify its presence in the market by performing

marketing strategies
a. Discounts for Bulk Buying– Through integrating Economies of Scale, Intel can offer
a discount for bulk buying of its products.
b. Customer Based Design - Provide a compelling customer experience through
designing of the products based on customers’ needs

c. Reduce environmental footprint- The Company reduces environmental footprint to

make an impact in the market.

ADVANTAGES
1. Augmented promotions such as discounts and special agreements would possibly
increase market penetration.
2. Increase customer loyalty

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DISADVANTAGES
1. Missed Opportunities - A company that produces a luxury product miss opportunity if
it markets the item as a cheap product.
2. Lower Industry Prices - Market penetration strategy can cause prices to lower
throughout the entire industry. Competitors often try to match prices, particularly if
their products are similar

ALTERNATIVE COURSE OF ACTION #3: PRODUCT DEVELOPMENT

Product development supports business growth through new products that increase
revenues. Intel supports its continued growth and global market dominance through the
product development by innovating and developing the features of its microprocessor chips.
This intensive strategy makes the company’s new products attractive and profitable, thereby
ensuring business growth. Intel Corporation will perform product development in the
following:

a. 450 mm Silicon Wafer - Through the continuous advancement of technology, the

company will be working on developing the commercialization of 450 mm Silicon
Wafer, which would give Intel an advantage in manufacturing efficiencies, a larger
wafer diameter enables producing more semiconductor devices from a single wafer,
enhancing productivity and efficiency.
b. New generation of Atom Chips- These chips will be introduced and will appear to be
more competitive than the previous chip. These are 22 mm chips and will be
manufactured using the latest technology. These chips are multipurpose, meaning it
can be used in PCs, laptops, smart phones, tablets.
c. Haswell Chips – These are chips that can run PC software but have longer battery
life. Laptops running on Haswell chips have a battery life of up to 10 hours, which
represents a 50% improvement over prior generation chips and comparable with a
battery life of a tablet.

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ADVANTAGES
1. Innovated and developed products can be offered to the market which can be used in
different devices.
2. If 450 mm can be achieved, it will be the first in the world to do so. This may give
Intel an advantage in manufacturing efficiencies that will be very hard for other
chipmakers to match

DISADVANTAGES
1. The company has to spent long and tedious processes to come up with new product
idea.
2. R&D cost for new product development will increase.

M. DECISION MATRIX

CRITERIA 1 3 5
Impact to
Microprocessor Low Impact to Average Impact to High Impact to
Microprocessor Microprocessor Microprocessor
Market(PC &
Market Market Market
Mobile)
Level of Cost High Cost Average level of Cost Less Cost

Can generate low Can generate average Can generate high

Profitability
profit profit profit

Time Spent More time Needed Average time Needed Less Time Needed

Easiest to
Manageability Easy to Implement Easier to Implement
Implement
Table 8

71
 ACA # 1
ACA # 3
HORIZONTAL ACA # 2 MARKET
PRODUCT
INTEGRATION PENETRATION
DEVELOPMENT
(ACQUISITION)
FACTORS WEIGHT RATING SCORE RATING SCORE RATING SCORE
Impact to
Microprocessor
30% 5 1.50 3 0.90 5 1.50
Market (PC &
Mobile)
Level Of Cost 25% 3 0.75 5 1.25 3 0.75

Profitability 20% 5 1.00 3 0.60 5 1.00

Time Spent 15% 3 0.45 5 0.75 1 0.15

Manageability 10% 5 0.50 3 0.30 3 0.30

TOTAL 100% 4.20 3.80 3.70

Table 9

The table above shows that among the three ACAs, the first ACA which is the
Horizontal Integration that gets 4.20, most desirable, can help the company in solving their
problem. Intel will implement the strategy of Horizontal Integration in which it will acquire
ARM Holdings Plc.

It would be a smart move for Intel to use the Horizontal strategy, having net assets of
58 Billion and incurs 10 Billion dollars for its Research and Development costs per annum
and ARM’s net assets amounts only to 1 Billion pounds.

VII. RECOMMENDATION

After analyzing the problems and looking for possible solutions, based on the
decision matrix, alternative course of action no. 1 as the highest score among the three (3)
with an average score of 4.20. The researchers recommend the Intel to use the Horizontal
Integration to enable Intel to retain and increase its market dominance in microprocessor
market.

72
 By acquiring ARM Holdings, Intel can expand its market share and reduce
competition, resulting to it retaining its dominance in the microprocessor market. Through
this strategy it can also advance its dominance each year in the microprocessor market.

VIII. CONCLUSION

Intel has been the leading manufacturer of microprocessors for personal computers
in the world, a position that it held for more than two decades. Despite of its historic
dominance, the future looked uncertain for Intel as the emergence of mobile devices led to a
strong substitution effect, with sales of PCs falling as consumers switched to smart phones
and tablets for many of their computing needs. The crux of the problem for Intel is that most
tablets and smart phones used microprocessors that are based on technology license from
ARM Holdings PLC, a British company whose chip designs are valued for their low power
consumption, which extends battery life. While Intel has a line of chips aimed at mobile
devices – the Atom chips – microprocessors incorporating ARM’s technology were found
on 95% of smart phones in 2012 and over 30% of all mobile computing devices, a category
that includes tablets and PC notebooks.
Although Intel’s manufacturing capabilities remained unmatched in the industry, Intel
had largely missed the move towards mobile computing, despite the introduction of the
Atom chip; and the company was struggling to gain share against ARM chips. A key task
for Intel is to make sure that the company remains relevant in the post PC era, to hold the
rise of ARM chips in check, and to gain meaningful traction in the rapidly growing mobile
device market where Intel so far has been little more than a bystander.
It is important for an entity to keep up with the industry trends. This is a necessity if
an organization anticipates long term stability and growth. The ability of the companies to
adapt to emerging markets, as well as the degree to which they are able to enter these new
product sectors will determine their future growth. Intel must keep with up with the
emerging trend of rise of smart phones and tablets in order to stay relevant or else Intel will
surely be left in the dust by one of its competitors.
Consumers of microprocessors seek to have improved high performing
microprocessors that will enhance their products. This pressures the semiconductor

73
companies to lower prices, improve product quality and offer more and better services. In
the booming era of smart phones and tablets, consumers who manufacture these types of
technologies prefer to acquire microprocessors designed with lower power consumption,
which extends the battery life. However, manufacturers of personal computers, laptops,
tablets, smart phones and other equipments that need microprocessors to function do not
easily change their supplier of microprocessors. This is because of high switching costs. It
would be difficult for the consumers to switch their supplier of microprocessors because
doing so requires significant costs in design change.
Intel is an acquisitive company evidenced by its history of acquisitions of many
companies. In fact, from 1997-2002, Intel had acquired 40 companies; and did some
divestitures, shedding the pieces that didn’t fit in the years following that period. The causes
of predatory behaviour of Intel are: to innovate and bolster their product portfolio; to
increase their workload and help Intel justify the billions it spends on advancing its
manufacturing technologies; to eliminate competitors or deter potential rivals from pursuing
attack strategies for fear of suffering the consequences; to expand their market segment; and
to help Intel maintain its dominance on the market.
In consideration of the foregoing, it is a strategic move for Intel to acquire ARM
Holdings PLC. As a matter of fact, Intel, in 1998, Intel reached an agreement with ARM,
Cambridge, UK to produce, sell and enhance the Strong ARM microprocessor family under
license. The agreement includes a technology cross license between companies and signals
Intel’s plans to continue support for the Strong ARM family of high-performance, low-
power microprocessors, as well as future plans for future enhancements to the product.
However, Intel sold its ARM business to Marvell in the summer of 2006 after any hope of a
deal with Apple was lost.
Intel has the capability to acquire ARM Holdings considering the strength of its
financial position. Intel’s net asset is $58 Billion and has current assets of $32.084 Billion
while ARM has net assets of $2 Billion. Moreover, acquiring ARM with net assets of $2
Billion would be a prudent decision as Intel spends up to $10 Billion for Research and
Development in a year.
Consolidation of Intel and ARM Holdings would provide advantage for both
companies. ARM Holdings designs and licenses its technology but does not manufacture

74
whereas Intel has incomparable manufacturing facilities. Consolidation of the two could
improve the effectiveness and efficiency of their operations.
Through acquisition of ARM Holdings, Intel can have a competitive advantage in
the microprocessor market and be able to maintain its market dominance.

IX. DETAILED ACTION PLAN

TIME PERSON/DIVISION
ACTIVITIES BUDGET
FRAME RESPONSIBLE

Conduct a meeting and

identify existing problems
Managers and
3 weeks that endanger the N/A
Employees
company in the post PC
era

Plan Alternative Courses

1 month Top Managers N/A
of Actions
Evaluate alternative
courses of actions

-Horizontal Integration
-Market Penetration Top Managers N/A
3 weeks
-Product development

including the budget

needed
After conducting the
Decision Matrix and
Summary of Strategies of
the 3 Alternative courses
of Actions which resulted Top Managers and
2 weeks N/A
to the Horizontal Board of Directors
Integration(Acquisition),
this will be proposed and
presented to the Board of
Directors
Board meeting if the
1 week proposed project will be Board of Directors N/A
approved or rejected

75
 Implementation of the
Plan – Horizontal
Integration – Acquire
ARM

Meeting with the Board of

1-5 months Directors of ARM Board of
Holdings (this includes Directors/Co-Owners
$3,500,000,000
discussion of the benefits
ARM can get being Intel’s
subsidiary, agreement of
acquisition price.)
Acquisition of ARM
Holdings
Monitoring of the
Horizontal Integration
strategy implementation
3-6 months to ARM Holdings, and Top Managers $1,000,000
assess the market for other
potential acquisitions in
the later years.
Table 10

76
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84
APPENDICES

85
 INTEL ACQUISITIONS

DATE ACQUISITION AMOUNT

Nov 20, 2013 Hacker League Unknown

Nov 8, 2013 Kno Unknown

Sep 30, 2013 Sensory Networks $20M (terms undisclosed)

Sep 13, 2013 Indisys $26M (terms undisclosed)

Jul 22, 2013 Xtreme Insights Unknown

Jul 16, 2013 Omek Interactive $40M (terms undisclosed)

Apr 28, 2013 Aepona £80M (terms undisclosed)

Apr 17, 2013 Mashery Unknown

Nov 20, 2012 ZiiLabs $50M in Cash

Jul 13, 2012 Whamcloud Unknown

Jul 2, 2012 IDesia Unknown

Apr 17, 2012 Olaworks $31M in Cash

Sep 29, 2011 Telmap Unknown

Sep 13, 2011 CoFluent Design Unknown

Jul 19, 2011 Fulcrum Microsystems Unknown

May 25, 2011 SiPort Unknown

Apr 14, 2011 Nordic Edge Unknown

Mar 17, 2011 Silicon Hive Unknown

Mar 14, 2011 SySDSoft Unknown

Nov 15, 2010 CognoVision $25M in Cash

Aug 19, 2010 McAfee $7.68B in Cash

Feb 1, 2010 Infineon Technologies $1.4B (terms undisclosed)

86
Aug 19, 2009 RapidMind Cash

Aug, 2009 Cilk Unknown

Jul 1, 2009 Cilk Arts Unknown

Jun 4, 2009 Wind River $884M in Cash

Feb, 2009 Swiftfoot Graphics AB Unknown

Oct 15, 2008 NetEffect $8M in Cash

Aug 28, 2008 Opened Hand Unknown

Sep 14, 2007 Havok Unknown

Feb 8, 2006 Conformative Systems Unknown

Aug 17, 2005 Sarvega Unknown

Feb 25, 2005 Oplus Technologies $100M (terms undisclosed)

Mar 25, 2004 Envara $40M (terms undisclosed)

Nov 13, 2003 Mobilian Corp Unknown

Aug 29, 2003 Acirro Unknown

Jul 8, 2003 West Bay Semiconductor Unknown

Jun 1, 2003 Scale Eight Unknown

Mar, 2003 Iospan Wireless Unknown

Sep 17, 2002 Sparkolor Corporation Unknown

Apr 24, 2001 Cognet Unknown

Apr 24, 2001 LightLogic Unknown

Mar 20, 2001 ICP vortex Computersysteme Unknown

Mar 12, 2001 CAD-UL Unknown

Feb 26, 2001 VxTel $550M in Cash

Jan 15, 2001 Xircom $748M (terms undisclosed)

87
Aug 15, 2000 Ziatech $240M (terms undisclosed)

Aug 11, 2000 DataKinetics Unknown

Jul 4, 2000 Ford Microelectronics Cash

Apr 10, 2000 Picazo Communications Unknown

Apr 6, 2000 Kuck & Associates Cash

Mar 21, 2000 Basis Communications $450M in Cash & Stock

Mar 15, 2000 GIGA $1.25B (terms undisclosed)

Feb 24, 2000 Voice Technologies Unknown

Feb 4, 2000 Thinkit Technologies Unknown

Feb 4, 2000 Ambient Technologies Unknown

Nov 15, 1999 Parity Software Development Unknown

Oct 5, 1999 iPivot $500M in Cash

Sep 27, 1999 XLNT Unknown

Sep 1, 1999 NetBoost Unknown

Jul 7, 1999 Softcom Microsystems Unknown

Mar 4, 1999 Level One Communications Unknown

Dec 3, 1998 iCat Unknown

Oct 26, 1998 Shiva Corporation Unknown

Sep 30, 1997 Corollary Unknown

Sep 25, 1997 Dayna Communications Unknown

Jul 27, 1997 Chips and Technologies $420M in Cash

Table 11

88