Number
19
Intel Corporation
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Some say Intel became the top computer-chip maker in the world simply because it invented the tiny chips that now control everything from computers and cell phones to toys and thermostats. Others contend the firm’s number-one position stems primarily from its manufacturing prowess, which enabled almost flawless production of millions of chips since they were first introduced some three decades ago. Still others insist it comes from the brilliant management team that founded the company long before high-tech was fashionable, and then kept it on the cutting edge of a rapidly growing industry.
In retrospect, though, it actually may have more to do with a revolutionary advertising campaign centered on two basic words—Intel Inside. This little phrase transformed the once obscure corporation into a hot brand well-known in the world. By using traditional marketing techniques to spotlight a nontraditional item, Intel drove consumers to insist that its hidden but critical products were central to the electronic gear they began purchasing by the truckload. Its pioneering position, exceptionally efficient production techniques, and extraordinary corporate administration all played a significant part in the company’s rise. But without an attentiongrabbing ad campaign that began with dancing technicians in colorful bunny suits and ended in the four musical tones that became its audio tagline, Intel may never have achieved such world-changing status.
With it, of course, the company captured more than 80 percent of the marketshare for the driving force behind today’s computers. It also became largely responsible for making these now omnipresent devices affordable yet more powerful than the roomsized units once used to launch rockets into space. And it set the stage for developments that led to other electronic gadgets, ultimately reshaping our world in ways that could never have been imagined when the company first opened for business during the social and political upheaval of the late 1960s.
Like most companies that transfor med the way we live and work, however, Intel has never been able to rest on its laurels. Increasing competition and major changes in the products they offer, have forced it to steadily implement significant shifts in strategy and direction in order to retain its lofty corporate perch.
A microprocessor is a tiny electronic circuit containing thousands (or even millions) of interconnected transistors that work together to store and manipulate data for various purposes. It commonly ser ves today as the brains inside a personal computer, but is also responsible for the mechanism behind a telephone’s speed dial, an alarm clock’s automatic controls, even an automobile’s electronic braking and door-locking systems. Before its invention, the latter functions did not exist and computers filled entire rooms. After Intel co-founders Robert Noyce and Gordon Moore developed the first microprocessor in the mid-1960s, everything changed— although the transformation certainly did not occur overnight.
The breakthrough, which came while Noyce and Moore were working at a company called Fairchild Semiconductor, enabled such integrated circuitry to be so reduced in size that it could be placed onto a single silicon chip. Many of their peers were initially skeptical of its feasibility, but the two envisioned enormous potential at an ever-accelerating pace. Moore, in fact, forecasted in 1965 that the performance of subsequent circuits would rise exponentially but predictably over ensuing years. His speculation, later dubbed Moore’s Law, was that new chips released every 18 to 24 months would be approximately twice as powerful as their immediate predecessors. Over time, his estimation proved remarkably accurate.
Noyce and Moore left Fairchild in the summer of 1968 to start a company that would manufacture these innovative circuits. The new enterprise, initially named NM Electronics, opened in Mountain View, Ca., with a dozen scientists who shared their vision. Among them was Andrew Grove, a native of Budapest, Hungary, who was named director of operations. The group soon changed its corporate moniker to Intel, short for “integrated electronics,” and moved into high gear.
Intel intended from the start to make its designs commercially viable, although at first they were at least 100 times more expensive than prevailing technologies. Noyce, Moore, and Grove, however, felt confident that their circuits’ size, performance and minimal energy requirements would soon draw interest from manufacturers. During their first year they took in less than $2,700. But word spread and interest grew in the company. Their big breakthrough came when a Japanese company asked Intel to design a set of chips for a programmable calculator. Engineer Ted Hoff responded with a new way to place the array of chips necessary on a single platfor m, and the microprocessor was born. Most significantly—for the future of Intel, and the industry it was initiating—his design could also be used unchanged in other applications.
After that, Intel took off. It developed a “dynamic random access memory” or DRAM chip in 1970, which quickly became the world’s best-selling semiconductor device. To keep up with future demand, the company relocated to larger facilities on a 26-acre pear orchard near the town of Santa Clara. Within months, Intel unveiled its 4004 microprocessor. This remarkable device delivered as much computing power as the world’s first electronic computer, ENIAC, which needed 18,000 vacuum tubes spread over 3,000 cubic feet to perform 60,000 instructions per second—an astounding feat at the time. Intel’s offering, on the other hand, could do the same thing with 2,800 transistors packed into a space smaller than a thumbnail and cost just $200. With its introduction, both Intel and the computer revolution were on their way.
In 1972 the company introduced its 8008 microprocessor, which was twice as powerful as the previous model. Novel applications quickly appeared, and the 8008 was soon a part of grocery store scales, restaurant inventory control devices, and stop lights. Two years later, it was used in the first personal computer, the Altair. The idea took off, and Intel rose with it. Within a few years, Fortune magazine named the company one of the “Business Triumphs of the Seventies.”
By 1981, Intel’s microprocessor selection had grown to include the 8086 and 8088. These grabbed the attention of IBM, which was secretly planning its own personal computer. At the time, Intel was happy with accounts yielding 10,000 orders a year. The IBM-PC, which ultimately employed the 8088, eventually generated more than 1,000 times that number of microprocessor sales. And, with it, Intel hit the big time.
The company didn’t stop there, of course. In 1982 it introduced the 286 chip with about three times the performance of other microprocessors. Its 386, which appeared in 1985, was capable of handling more than 5 million instructions every second. The 486 followed in 1989, and was not only 50 times faster than the original 4004 but could equal the performance of most mainframe computers. And then in 1993 Intel introduced the Pentium, which utilized 3.1 million transistors to perform up to 90 million instructions per second—or about 1,500 times more than its original model. Grove, by then president and CEO, knew he had a landmark product and wanted to tell the world about it. He earmarked $100 million for a unique marketing campaign and began extensively advertising Intel’s products on TV and in print. Most observers thought he was crazy. After all, consumers couldn’t go out and buy an Intel processor even if they wanted to.
Andy Grove was responsible for the Intel Inside campaign, which was an effort to aggressively market their chips. Intel was the top manufacturer of microprocessors at the time, but clone makers were starting to cut into the market with lowpriced knockoffs. The ads were designed to make consumers demand their namebrand chips, and it also indirectly rewarded computer manufacturers who touted their association with Intel. (They’re noted for a co-op ad program that gives a 6 percent rebate to PC manufacturers who use Intel chips, and then pays them a substantial additional amount to help them advertise that fact.) When Grove became CEO in 1987, there was no promotional budget for the consumer market; by the late 1990s it exceeded $100 million annually. Its operation continues, as evidenced by the way they rolled out the Pentium III chip in 1999. The global ad campaign was estimated to cost as much as $150 million. It was designed to position Intel as a hip dotcom company and simultaneously tie the new chip to more full enjoyment of the Internet experience.
The effort did generate tremendous name recognition, though, and suddenly everyone wanted a computer with “Intel Inside.” Soon, in conjunction with the domination Microsoft was attaining with its Windows operating system, the public began referring to the duopoly driving the vast majority of all personal computers as “Win-tel.”
Grove became corporate chairman in 1997, a few months before being named Time Magazine’s “Man of the Year.” Grove eventually turned over the other top spots to Craig Barrett. Intel unveiled new technology designed to enhance a PC’s multimedia performance, and reinforced its brand image by further deploying the colorful characters made famous in its commercials. The company also split into three divisions—Enthusiast/Professional, Performance, and Basic PC—to match the market segments developing throughout the industry.
Nonetheless, momentum stalled after a decade of continuous growth. Attempts to enter new areas such as video conferencing failed, while consumers began demanding less complex devices to simply access the World Wide Web. Even more ominously, the Federal Trade Commission initiated an antitrust suit charging Intel with suppressing competition. (Unlike similar action against Microsoft, however, Intel settled with the FTC.) The combination did result in new competition from upstarts, such as Cyrix and Advanced Micro Devices, though, and in 1998 earnings declined for the first time in more than a decade.
Barrett responded by breaking up Intel’s centralized management and freeing up cash for a series of acquisitions. The days of solely concentrating on PC microprocessors ended as Barrett began reshaping the company as a supplier of semiconductors for networking equipment and information appliances as well as computers. He also explored new areas including e-commerce and consumer electronics.
When the new century began, Barrett reinforced those moves with additional acquisitions and expansions—although PC components still accounted for 90 percent of Intel’s revenues and all of its profits. It accordingly kept releasing faster and even more powerful chips to continue building upon the impressive developments that helped it change the world. As co-founder (and now chairman emeritus) Gordon Moore has noted: “If the auto industry advanced as rapidly as the semiconductor industry, a Rolls Royce would get a half a million miles per gallon, and it would be cheaper to throw it away than to park it.” If Intel had been in charge, he implied, that just might be the case.