Intel has long been the model of Innovation. In particular, its famous tick-tock product development strategy has been hailed as a case study for learning how to balance the current product profitability with the pipeline of future products. For example, when I was researching an appropriate public domain case study for my book The 5-STAR Business Network I could not find a better example of Advanaced Product Phasing (APP) than Intel. At that time I wrote in the book:
Gordon Moore, Intel’s founder, predicted that the number of transistors on a chip would double every two years. Moore’s law was put in practice for many years and it ultimately led to Intel’s tick tock strategy. Intel’s ‘Tick Tock’ strategy was developed in 2007 and refers to the change in their processor technology. Each year, the ticks and tocks alternate, ticks refer to downsizing of the previous microarchitecture and tocks refers to new microarchitecture. During a tick cycle, new process technology is developed, which enhances the performance of previously produced microprocessors. A tock cycle consists of an entirely new processor or product. Many say that this rhythm of development sets Intel apart from other companies, as having a fixed timeline allows the business to produce products at pre determined intervals, and yet manage the product profitability carefully. ‘Intel has successfully alternated and delivered the next generation of silicon technology as well as new processor microarchitecture year after year’ (podtech.net). —
— Overall, Intel appears to be doing the impossible: investing in new technology while simultaneously maintaining and investing in their existing product line-up developments. This system creates a pipeline of continuously flowing products, which are both innovative and sold in large volume, making Intel one of the most successful Fortune 500 companies while producing the largest amount of microprocessors in the world.
Intel managed its transition from a manufacturer of memory to micro-processors admirably. During the transition from memory to microprocessors, Intel’s number one concern was becoming the best microprocessor company. Former CEO Andy Grove created a system called Strategic Long Range Planning. Essentially, this strategic framework allowed Grove to do things his way. ‘I became very distinctive in prescribing the strategic direction from the top down. This defined the strategy for all of the groups, and it provided a strategic framework for different groups at different levels of management.’ (Grove as quoted on aomonline.org)
However, the next transition – to mobile processors is proving to be far more challenging. To start with, Apple is not as easy a customer as IBM was for PCs. Samsung produces its own processors. Other players in smartphone market are too small to give any economies of scale in large scale manufacturing.
While quaterly profits do not tell a full story, Intel has just annouced the second quarter in a row where its profit fell more than 25% – this report in Wall Street Journal carries the full story. In its press release Intel said:
“Amidst market softness, Intel performed well in the first quarter and I’m excited about what lies ahead for the company,” said Paul Otellini, Intel president and CEO. “We shipped our next generation PC microprocessors, introduced a new family of products for micro-servers and will ship our new tablet and smartphone microprocessors this quarter. We are working with our customers to introduce innovative new products across multiple operating systems. The transition to 14nm technology this year will significantly increase the value provided by Intel architecture and process technology for our customers and in the marketplace.”
No doubt, the continued softening of the PC market is not only hurting HP and Dell, but also partly responsible for what is happening at Intel. The key question is that while Intel is extremely good at Advanced Product Phasing (APP), is it capable of proving itself adept at Fire-Aim-Ready (FAR) Innovation? Without innovation, and creation of new product for where the market is moving too – cloud based mobile gadgets, Intel is likely to continue to lose ground.
What should Intel do in this scenario? Make a deal with Apple at any cost? Invent its own mobile gadgets? Help create an equivalent of Dell for the mobile market? What else? You comments are welcome below: