:; .
1; '
TEL INSIDE OUT
k n t e l is one of the dost fahius business-to-business
nd names in the world, with a value 'of over $35
.With sales of wer $34 billion, profits of $7.5 billion
profit margins of 55 per cent, it is also one of the most
cessfuLThe foundation for its success was the develop-
and marketing of microprocessors for PCs and
n. By investing billions in ever faster processors lntel
come the dominant force in this industry, with effi-
nt plants that can produce more prbcessors in a day
some rivals can in a year.The combination of low-cost
uction and ever faster chips was a powerful concoction
t none of its rivals could match.
Much of the credit for Intel's success goes to Andy
its former chief executive, who took the decision to
he unprofitable memory chip business to focus on
-growing personal computer market, a move that
led lntel to bury the competition. Intel's products were
rted by powerhrl branding using the Pentium brand
and 'lntel Inside' strapline, bringingconsumer aware-
of a product hidden from sight in the heart of a
er. Intel's strategy was to work with Microsoft t o
to PC industry giants such as Dell, HP, iBM and
q to be the first choice for microprocessors.
nder Grove, engineers dominated and the culture at
was summarized by his motto: 'Only the paranoid
iw.' Managers often engaged in 'constmctlve confron-
', othewise known as shouting at each other. Under
's successor, Chig R Bartett, the company continued
uccessful path t6 ever greater sales and profits.
ings they am a' changin'
5 the market for microprocessors was changing.
In PC demand was slowingas markets became satu-
No longer could lntel rely on double-digit market
h to fuel its sales and profit trajectory. Another
Managing products P Ac E 4 I 5
change was occurring within lntel itse1f.A new chief execu-
tive. Paul Otellini, was at the helm. A non-engineer, Otellini
joined lntel in 1974 straight out of business school at the
University of California at Berkeley. A close working
associate of Grove, who continued as chairman until 2005
after his departure as CEO in 1998, Otellini has a marketing
background. Among his successes is the Centrino brand.
When Otellini was head of product planning, he decided,
against the wishes of lntel engineers, that rather than
launch yet another fast processor, he would bundle it with
a relatively new wireless Internet technology called WiFi.
The combination enabled consumers to connect from their
laptop to the Internet from such places as airport lounges
and coffee shops. Supported by a $300 million marketing
campaign, Centrino laptops caught on, revitalizing the PC
market while encouraging consumers to purchase higher-
margin products. Since launch, over $5 billion worth of
Centrino chips have been sold.
lntel was also faced with an energetic competitor,
Advanced Micro Devices, which had slowly been gaining
ground in the battle of the microchip. A major competitive
weapon of AMD was price, which prompted lntel to develop
the low-priced Celeron microprocessor. AMD stole a march
on lntel by being the first to launch a W b i t chip, which
held the competitive advantages of have greater power and
lower power consumption. By 2 0 5 AMD had increased its .
market share to 15 per cent of the PC microprocessor
market and held 26 per cent of the market for the micro-
processors that drive sewers. Even more impressive was its
48 per cent share of the growing multi-core processor
market, where two or more chips are put on to a single
sliver of silicon. Such products consume less power,
enabling laptops to run longer ' before recharge, and
enhance performance without generating more heat, which
was a problem with single chips. Using less power is
especially important for business-to-business customers.
For example, Google claimed that it tost more to run its
computers than to buy them. A landmark came in 2005
when Dell, hitherto an lntel strorighold, moved to AMD
chips for its servers. Its decision was influenced by the com-
petitive advantage its rivals HP, Toshiba and Gateway were
getting by using the more powerfulAMD chips in their con-
sumer and business systems, particularly servers.
A change of strategy
The promotion of Otellini to chief executive has
heralded a Ehange in strategic direction for Intel The
. - P A ' GF 4 16 Marketing Mix Decisions
changing technological, competitive and market landscape
is reflected in his desire to move the company away from
its dependence on single microprocessor chips for the PC
market. First, lntel has developed new dual-core chips for
laptops (using the Core brand name), which place two
microprocessors on one sliver of silicon. This allows laptops
to run for five to ten hours rather than three to four, which
was typical before. They also power the new Apple iMacs,
allowing them to run at over twice the speed of the models
(based on an IBM chip) they replaced without generating
additional heat.
Second, lntel is focusing on 'complete technology
platforms' rather than individual microprocessors.
Platformization, as Intel calls it, means bundling a range of
chips and the software needed to tie them all together,
offeringdifferent features such as security, video, audio and
wireless capabilities in a combination to suit a particular
, target market. This is recognition of the fact that computer
J
manufacturers value the opportunity to buy a complete
package of chips from one manufacturer rather than
assemble components from several suppliers. It also means
that lntel sells more components, and so takes a larger slice
of the selling price of each PC.Whereas lntel can handle the
process in-house, AMD requires partners to develop plat-
forms.
Otellini has also announced plans to broaden Intel's
target markets. Rather than focus only on PC manufac-
turers, lntel intends to be a major technological player in
home entertainment,wireless communicationsand health-
care. In home entettainment, Otellini's vision is for the PC
to be the central connection to individual entertainment
devices. The company has developed the Viiv multicore
chip, which allows P G to connect to DVD players, N s ,
stereo systems, and so on, so that consumers can move
digital content around the home.This means that Viiv com-
puters can act as an a!-in-one DVD player, games console,
CD player and television, and enable downloads of movies,
music and games, which can then be moved around the
home. Already Viiv has been chosen as the chip to power
Windows Media Centre PG.
In targeting wireless communications, lntel is hoping to
make a breakthrough in an area where it has traditionally
been weak. Hitherto, Intel's focus on PC microprocessors
meant that investment in chips for mobile communica-
tions was considered secondary. lntel has yet to prove itself
in the mobile handset market because of its poor record in
producing radio chips. lntel is supporting WiMax, a new
wireless broadband technology, and hopes to enter new
markets such as smartphones and wireless broadband. Intel
intends to manufacture chips to power mobile handsets
and devices such as the BlackBeny and the Apple iPod.
Otellini is also hoping for breakthrough innovatio
healthcare. His vision is for digital technology to h
healthcare professionals. Ethnographers are empl
understand the problems of the elderly and peo
specific diseases such as Alzheimer's. Currently, Int
developing sensors that can communicate with comp
networks, enabling care givers to monitor the health of
elderly remotely. One benefit of this would be to all
elderly people to remain in their own homes.
In line with his strategy, Otellini has reorganized I
into platform-specific divisions: digital home (for consu
P G and home entertainment), corporate (business P G
servers), mobility (laptops and mobile devices) and hea
care, and scattered the processor engineers among th
New product development has abo been reorganized
the past engineers worked on ever faster chips and m
keters were asked to sell them. Now new products
developed by teams of people: chip engineers, so
developers and marketers all work together to de
attractive new products. The type of person lntel hires
changed too. They include ethnographers, sociologists
software developers. Ethnographers, for example,
researchinghow people in emerging markets like China
India use technology.
Also-in a move that symbolizes Intel's break with*
past-the Pentium brand name is being phased out
the 'lntel inside' strap-line dropped in favour of 'lntel 1
ahead.'The chan'ge in branding strategy is being led by
Kim, chief marketing officer, recruited from Sarnsung
widely credited with raising its brand awareness an
as a leading consumer electronics company. Kim
directly to Otellini. The company has spent $2 billion
global marketing communications campaign to pro
the new strapline and logo. lntel has abo become
porate technological partner with BMW, which see
chips powering operations across BMW dealerships,
company and its cars. The partnership also makes In
major sponsor of BMW's Sauber Formula One motor
team. The male-dominated F1 audience, with its
interest in technology, is a core target market for lnte
Not everyone at lntel is happy about the reorganizat
and the increased emphasis on marketing, however. B
Otellini's elevation to CEO anyone not working for the
PC business was considered a second-class citizen,
many high-level engineers working on PC products
they have lost their star status. Some regard marketin
little more than gloss and glitz, and others have left to
rivals such as AMD.The competition is also critical of In
practice of offering volume-based rebates to cornp
manufacturers, which they claim acts as a barrier to en
This view was supported by Japan's Fair Trade Commiss
i

found lntel guilty of using rebates to shut out its
Managing products P A cE 4 i7
Economist, 14 May, 67-9; Nuttall, C. (2005) Intel
ventures Beyond P G , Financial Times, 12 November, 3;
Kilby, N. (2006) Intel's Power Drive, Marketing Week, 5
January, 21; Durrnan, P. (2005) lntel Attacked for
Stifling Competition, Sunday Times, 20 March, 10; ,

on: Edwards, C. (2006) Inside Intel,, Business Week, Edwards, C. (2006) AMD: Chipping Away at Intel's
9 January; Anonymous (2005) Intel's ~i'~ht-hand Turn. Lead, Business Week, 12 June, 72-3.

Interpret Intel's move from its reliance on microprocessors for PG into home entertainment, healthcare and mobile . '.

Locate each of lnteb moves (products and markets) since Otellini became CEO in the Ansoff product growth matrix.

How has the COQorate culture changed since Otellini became CEO? Support your answer with examples.

What challenges does lntel face as it moves into home entertainment, healthcare and mobile communications?

\
. This case was prepared by David Jobber, Professor of Marketing, University of Bradford.