Intel Corporation

FOUNDED: 1968

Contact Information:

HEADQUARTERS: 220 Mission College Blvd.
Santa Clara, CA 95052-8119
PHONE: (408)765-8080
FAX: (408)765-6284
EMAIL: support@cs.intel.com
URL: http://www.intel.com

OVERVIEW

Intel Corp. is a manufacturer of microprocessors, chipsets and motherboards, microprocessor peripherals, microcomputers and supercomputers, and semiconductors, including flash memory devices, best known for its "Intel Inside" advertising slogan designed to push its Pentium processors for personal computers. In mid-1997 it was estimated that Intel microprocessors were in more than 80 percent of all personal computers.

COMPANY FINANCES

The first quarter of 1998 showed a 7-percent drop in revenues when compared to the same quarter in 1997, from $6.4 to $6.0 billion. During most of 1997, sales were strong, bringing in a revenue of $25.1 billion, compared to 1996's total of $20.8 billion. At the end of 1997 and beginning of 1998, sales slowed and the company purchased Chips and Technologies, Inc., reducing revenue and Intel's stock value. By mid-1998, stock had risen to the mid-70s, after the company repurchased 22.1 million shares.

Over the years, revenue has consistently risen—from $8.8 billion in 1993, to $11.5 billion in 1994, to $16.2 billion in 1995. In addition, Intel's stock has also risen with earning per share ranging from __BODY__.30 in 1993 to $3.87 in 1997.

ANALYSTS' OPINIONS

In June 1998, shortly after the U.S. Department of Justice accused Microsoft of monopoly, the Federal Trade Commission (FTC) filed a complaint against Intel, charging that it had denied three of its customers access to information they needed to design and build systems using Intel's latest technology. The FTC said that Intel had done this because those companies refused to give Intel licenses to their patents. In a story published by US News Online, reporters William J. Cook and Warren Cohen said the FTC characterized Intel as "a schoolyard bully who illegally takes the ball away from anyone who won't play by his unilaterally imposed rules." A federal appeals court lifted the injunction on Microsoft, an action that is expected to bode well for its partner Intel, as well.

HISTORY

Intel Corporation was the creation of a couple of engineers who had left Fairchild Semiconductor in 1968 in an entrepreneurial desire to develop large scale integration technology for silicon-based chips. Robert Noyce had been the co-inventor of the integrated circuit while Gordon Moore was primarily responsible for the company's planning, and developed what is known as Moore's Law. He held that chip processing technologies tend to double every year-and-a-half.

"So far," stated a Fortune article, "Moore's law has been sustained by a regular cycle: Computer makers and software companies (especially Microsoft) develop new features and programs that require more power. Intel, meanwhile, creates brawny new chips to meet those new demands."

They were aided by a young man who tended to the manufacturing end of the business by the name of Andy Grove. The business was young and no consumer computing devices existed. The calculator was beginning to be introduced in business applications, but computer punch cards were still standard practice.

Marcian "Ted" Hoff, an Intel engineer, invented the microprocessor, and is credited as the man responsible for the personal computer industry. In 1971 he introduced a device known as the 4004—a microprocessor consisting of 2,300 transistors located on a sliver of silicon. It was one-eighth of an inch wide by one-sixth of an inch long. It was seen as an amazing invention, used primarily for calculating.

The 8008 microprocessor, the first chip to be actively marketed, and the one that had been developed with the 4004, first appeared April 1972. This chip moved rudimentary computing from 4- to 8-bit processing. Though this changed the complexion of the industry, it was not until IBM decided in the 1980s to use the Intel 8086 and 8088 microprocessors to create a personal computer. It was about this time that Apple Computer was founded, and began using components from rival Motorola.

"IBM's decision to support the 8086 microprocessor, running an operating system called MS-DOS, resulted in a software company called Microsoft, founded by Bill Gates and Paul Allen." Eventually, these two companies would become the two most powerful firms in a marketplace that is now worth billions of dollars annually," recounted a Computer Weekly article commemorating the twenty-fifth anniversary of Hoff's invention.

"Since Intel's launch of the 4004, faster, smaller, and more complex microprocessor devices have been developed. Intel, Texas Instruments, Advanced Micro Devices (AMD), Digital Equipment, Cyrix, and many others have deluged the industry with tiny black microprocessor chips that have altered the courses of our lives," an article in Computer Weekly stated. "But Intel has dominated the market for microprocessor chips and looks likely to continue this for quite some time, unless companies such as AMD can break its monopolistic grip.

"The Motorola 68000 microprocessor family has been the single most significant threat to the dominance of Intel in the chip business. Apple's all-out adoption of the 68000 for use in its Macintosh computers forged a market with 12 million-plus loyal customers.

"But Intel saw off this competition, and has beaten off the challenge from firms such as AMD and Cyrix, which introduced Intel-compatible processors in an attempt to hijack Intel's market. During the early 1990s, thanks to a huge investment program in chip manufacturing plants, Intel was able to maintain its position as the only firm able to satisfy the burgeoning demand for PC chips."

Industry estimates are that for each personal computer sold, Intel reaps about $300 in profits. The personal computer, however, is not the only consumer electronic device using Intel technology.

Intel has had its problems even in the midst of its success. The company, in an attempt to protect its technology, was tangled in suits with rival chip makers, particularly AMD. In a 1992 arbitration, Intel was ruled against and AMD's claims regarding a technology exchange upheld. The company took a further hit in 1994 when, shortly after the introduction of the Pentium processor, a problem was found in the chip's calculation abilities. Other concerns surfaced, as well, including the chip's tendency to overheat the circuitry in existing computer systems that had been upgraded.

Intel was integral in the industry celebration of the microprocessor's "birthday" at Comdex, the international computer trade show. This included a museum containing artifacts that showed the microprocessor's history from the Intel 4004 and Busicom calculator to consumer products, such as the TRS-80 and Commodore PET, in addition to modern devices such as smoke detectors—microprocessors are embedded into these.

Grove took over as chief executive officer in January 1987. Since that time Intel's average annual return to investors has been 44 percent. Grove was named chairman May 21, 1997, replacing Moore. The move was seen as being symbolic, since Grove had effectively been running the company since his appointment as chief executive officer.

According to Fortune, "Even though he was one of the handful of employees who got the company up and running in 1968, Grove has never been considered a founder—a status reserved for Moore and Noyce. They have been celebrated as legends and visionaries, aided in their success by Andy Grove, the efficient manager. Now he must be considered their equal."

Time Magazine named Grove its "Man of the Year" in the last issue of 1997, featuring his accomplishments and vision in a cover story. Shortly afterward, Grove stepped down as president, allowing Craig Barrett to take over the role of CEO.

STRATEGY

Intel has been in the business of introducing cutting-edge technology and getting consumers to pay for the research and development (R&D) of the gee-whiz speeds of its new chips. It is a cyclical process, which also necessitates more R&D of even faster, smaller products. The company does this to constantly renew the need and to keep its margins high. Intel spent $5 billion on capital projects and R&D in 1996, and had record earnings that year—$5.2 billion in earnings on sales of $20.8 billion.

This business model has been compared to the automotive industry's "planned obsolescence." A new model means the old model is not good, or new, anymore, therefore the consumer feels compelled to purchase the newest, latest, greatest product.

According to a 1997 article in Fortune, "To ensure Intel's success over the coming five years, he has been maneuvering to make the PC the central appliance in our lives. In Grove's vision, we will use PCs to watch TV, to play complex games on the Internet, to store and edit family photos, to manage the appliances in our homes, and to stay in regular video contact with family, friends, and co-workers. If Grove's vision comes to pass, Intel will thrive. If it doesn't, Intel's strategy falls apart."

"'Intel is on a treadmill of new-product introductions fed by increasing demand for microprocessors," says Scott Randall, a security analyst at SoundView Financial in Stamford, Connecticut. "The day that tread-mill slows down is the day their business plan has to be rethought." That's why Grove has boosted the budget for projects that contribute to market development but have nothing directly to do with microprocessors. Such spending has gone from zero in 1990 to more than $500 million in 1996. Intel is the only company in the computer hardware business that can afford that kind of money: Its earnings exceed the aggregate profits of the top ten PC manufacturers combined."

In February 1998, Intel and Polaroid Corporation announced plans to produce an inexpensive digital camera using Intel technology, which would allow a consumer to take still pictures or video images, with use of the Intel 971 PC Camera Kit. This was one of several alliances Intel has made to include its technology in consumer items not normally associated with microprocessors.

CURRENT TRENDS

The trends are pushed by more powerful applications, which in turn necessitate new microprocessors and other new generations of computer products. Intel has been making this an integral part of its business plan. Slowing of computer sales in the United States has made an impact on the market, but again, new technologies and overseas sales keep Intel profits up. Most (71 percent) of Intel's products are sold in North America and Europe, protecting it, to some extent, from exposure to the 1998 Asian financial woes. However, almost one third of its revenues depend on Asian markets, which has entered a turbulent period.

PRODUCTS

Intel makes a wide range of computing products. These include video conferencing products, networking products, and a wide array of embedded devices. The mainstay of Intel's business is its microprocessors or chips. The most current of these is the Pentium line of microprocessors. In 1998 Intel introduced the 333-MHZ Pentium II processor, the first built on Intel's 0.25 micron process technology. Later in that year, it shipped higher MHZ versions designed to support high-volume workstations and servers.

CORPORATE CITIZENSHIP

In 1997, Intel contributed more than $96 million to colleges and universities, K-12 education, and community organizations located where Intel has a major facility. It awarded $2 million in scholarships and prizes at the 1998 Intel International Science and Engineering Fair for high school students held in Fort Worth, Texas. Paleontologist Dr. Richard Leakey presented the Glenn T. Seaborg Notel Trip Awards to two winners, 16-year-old Karen Mendelson of Worcester, Massachusetts and 17-year-old Geoffrey Schmidt of Little Rock, Arkansas which will allow them to attend the 1998 Nobel Prize ceremonies in Sweden.

GLOBAL PRESENCE

Intel Corporation owns 102 buildings and leases another 57. Intel has numerous manufacturing plants abroad, including facilities in Ireland, Israel, Malaysia, and the Philippines. In terms of its global sales, the majority come from Europe, with the next largest amount from the Asia/Pacific region.

SOURCES OF INFORMATION

Bibliography

Dailey Paulson, Linda. "Microprocessor Enshrined at Comdex Museum." Newsbytes, 19 November 1996.

Fawcett, Neil. "Happy Birthday, Micro!" Computer Weekly, 17 October 1996.

Kirpatrick, David. "Intel's Amazing Profit Machine." Fortune, 17 February 1997.

For an annual report:

on the Internet at: http://www.intel.com/intel/annual97/s_index.htm or telephone: (800)298-0146

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Intel Corporation's primary SICs are:

3571 Electronic Computers

3577 Computer Peripheral Equipment, NEC

3674 Semiconductors and Related Devices