Intel in the DRAM business Intel’s first two products were introduced in 1969: two semiconductors, but neither product was a commercial success. These two semiconductors were called SRAM – the 3101 (a 64-bit bipolar static random access memory, or SRAM and the 1101 (a 256-bit MOS – metal oxide semiconductor – SRAM In 1971 Intel introduced a new semiconcuctor, (the 1103, a 1-kilobite DRAM (dynamic random access memory) chip which became in the following year the world’s best sellig semiconductor product, accounting for over 90% of the company’s sales revenues.
From the beginning, Intel had followed a product leadership strategy in the DRAM market by developing new technology designs that allowed it to charge higher prices by being first to market. Because basic DRAM technology was widely diffused, patents were generally not considered effective at blocking entry. Until 1979, Intel’s strategy appeared to work well. Across four generations of DRAMS, Intel succeeded in introducing devices and process technologies that were ahead of the competition and in commanding significant price premiums.
But then Japanese competitors began to introduce new products more rapidly: Intel experienced this when it introduced a single power supply 16K DRAM but lost share to Fujitsu’s higher capacity 64K DRAM. This scenario repeated itself in 1982 when Intel introduced an improved 64K DRAM but lost share to a 256K- DRAM product from Fujitsu and Hitachi. Intel was also at a cost disadvantage to Japanese manufacturers who spent 40% of revenues on manufacturing as compared to 22% for US companies.
This allowed the Japanese to gain a technology advantage in the photolithography process and develop superior equipment that was not available to US companies until later. Japanese DRAM producers were able to generate higher yields of 70-80% as compared to 50-60% for US firms. In 1984, DRAMS generated only 5% of Intel’s revenues while accounting for 33% of R&D expenditure. Intel and the microprocessor Since none of the desktop computer companies were able to produce microprocessors, it was left to Intel and Motorola to compete for this emerging market.
Initially, Intel did not offer much added value in the microprocessor market. Intel had technology with no significant advantages over its competitor, Motorola. Apple Computer chose Motorola’s chip as its standard. However, Intel realized the importance of IBM in defining the newly emerging personal computer (PC) market. Intel aggressively invested its sales and marketing efforts to catch up with IBM and Intel successfully became an important component of the IBM-compatible PC.
Besides middle management in Intel had already shifted focus to a process technology that favored microprocessors over advances in memory technology. Seeing that it could no longer leverage its traditional advantages in this industry, Intel decided to exit the DRAM market. and focused then on resources on microprocessors The 3 lessons Reassuming what has been said before, we can define three lessons that Intel has learned of its experience in the Dram market.
Intel learned from this experiece in the Dram market and continued to invest in tecnology in order to avoid gaps in its product leadership position Intel used the lessons learned from the DRAM market to continue its dominance of the processor market – Another lession learnd from the DRAM experiece was, that Intel implemented patent protection to restirct other competitors of cloning their products and to defend its intellectual property.
This was another lesson learned from the DRAM experience where Intel found it difficult to differentiate its offering as well as restrict entry in the absence of strong patent protection. The 386 In 1986 Intel had a new product, the 386 microprocessor, but IBM decided not to sell any 386-based computers For Intel this meant that their biggest customer would not commit buying its newest product. Fortunately, for Intel a young form named Compaq rushed in to fill the gap. Intel decided to work with Compaq. And their product, the Desktop 386 became an immediate hit with consumers.
In the long run, the 386 diminuised the previous dominance tof IBM on the desktop market. That was also the time when IBM began to lose. From horizontal alignment to vertical alignment At that time, in the 1980s, the computer industry was transformed form a vertical alignment, based on the exlusive use of proprietary technologies, to a horizontal alignment with open standards. a vertical computer company has to produce computer platforms and operating systems and sofware a horizontal computer company supplies just one product And that was also Intel`s strategy:
Intel changed the market definition by position itself as a horizontal player in the PC market (supplies just one product)and committing itself to dominating the microprocessor segment Intel restricted the number of licensed manufacturers to IBM, thus creating for itself the power of being the sole source for this certain chip (386) for all PC makers other than IBM. Intel also committed to supplying the entire needs of the industry. This allowed Intel to have manufacturing production ramps and exploit the benefits of learning curve effects.