Magazine article Management Today

The Intelligence of Intel

Magazine article Management Today

The Intelligence of Intel

Article excerpt

Andrew S Grove, president and CEO of Intel Corporation, lays three small, metallic squares on the desk in front of him. For those who like their corporate histories concise, the squares offer a neat three-step guide to Intel's recent fortunes. The first and smallest, Grove explains, is the 386 microprocessor, Intel's cash cow. Since its introduction in 1985, the 386 has proved the highest selling chip in the history of semiconductors. Next, in the middle, is its younger, more powerful relative, the 486, Intel's state-of-the-art offering and current revenue-earner. Lastly, Grove comes to the largest square, a microprocessor simply code-named P5. With the ability to process 100 million instructions per second-five times the speed of the 486 and 20 that of the 386-its revolutionary performance is tipped to change the course of personal computing. All the signs are that, when launched in the first quarter of next year, it will duplicate the success of its predecessors and take Intel effortlessly and lucratively into the silicon future.

If all this seems impossibly neat, then rightly so. Grove, for one, is only too aware of what lies behind and, potentially, what lies ahead. At 56, he has been immersed in semiconductors all his working life. He arrived in the US from his native Hungary in 1956, enrolled in college and emerged several years later with a doctorate in chemical engineering from Berkeley. From there he joined Fairchild Semiconductors, the parent of the modern semiconductor industry. While working in R&D he met Gordon Moore and Robert Noyce, two of Fairchild's founders who had already pioneered a string of innovations in microelectronics. Finding that they were spending less and less time in the laboratory and becoming increasingly absorbed in administrative work, Moore and Noyce left in 1968 to form Intel (short for Integrated Electronics), one of 50 or so such start-ups to emerge from Fairchild. Within a couple of weeks Grove had joined them. From a one-storey building with just 12 employees and first year revenues of $2,672 Intel has become the world's fastest growing and most consistently profitable manufacturer of semiconductors.

As recently as the mid-'80s, Grove notes, things were rather different - 'Just six years ago I was going round the company giving speeches to our engineers, asking them to stay and reassuring them that we were going to survive'. The cause for the sermonizing was the sharp slump in morale following an unprecedented round of salary cuts, lay-offs and plant closures. Intel, it seems, had hit bottom. The trouble started in 1985 when the dynamic random access memory (DRAM), Intel's proud invention and main product line, began to lose money in the face of slumping domestic demand and predatory pricing from Japanese competitors. That year's profits tumbled from $198 million to $2 million, to be followed the next year by a $203 million loss - the first and only in Intel's history. Austerity inevitably came in its wake.

More critically, such losses forced Intel to change direction abruptly and abandon DRAM production altogether. The decision was all the more dramatic given that this was a technology that Intel had so conspicuosuly pioneered 15 years earlier. Accordingly, the resulting structural changes were severe. 'We really had to tear the company apart and then put it back together again,' recalls Grove. The switch away from memory chips to an all-out focus on logic processors required both a strong nerve and, in the long term, high levels of capital investment. The gamble paid off.

After low initial orders, the 386 was embraced by the majority of computer manufacturers, lead by IBM, and installed as the motor for their growing lines of PCs. Apart from the 10% of the market claimed by Apple, who opted for Motorola chips, Intel was left to clean up. Since the dark days of 1986, revenues have climbed steadily to last year's $4.8 billion high. …

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