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Intel Wins By Staying “Inside” the Box

Posted on Thursday, Mar 13th 2008

By Michael Kanazawa, Guest Author

We all hear that you need to think outside of the box to develop breakthrough strategies. In Intel’s case, the winning strategy is more likely to stay “Inside” the box and to stay focused.

In the late 1990s and early 2000s Intel was looking to fuel new growth and it shifted away from chips and providing “Intel Inside” solutions. It began creating finished products, web services, and even web/data hosting services. All of those new business had nothing to do with the strengths that Intel had as a unique competitor. They were de-focusing, too dispersed, leading to corporate A.D.D. types of behaviors in launching those initiatives. While they were distracted, AMD came in and attacked the core business.

Today, under the leadership of Paul Otellini, the company is taking a much more focused approach and betting bigger on fewer areas. This is a perfect example of the formula for success highlighted in our new book, BIG Ideas to BIG Results. The Intel of today is looking to build on its expertise in chip manufacturing and avoiding the dispersed activities across too many new markets. And they are clearly looking at the long-term customer trends in the market as the guide on where to extend their market reach.

If the world shifts away from PCs over time to an environment where customers use light, mobile devices to access powerful applications and data over the Internet, then clearly Intel needs to expand beyond PC chips. Based on regaining leadership in high end microprocessors and the announcement of the new Silverthorne chip that will take Intel in the device markets, they are well positioned for this new world. Powerful chips, like their plans for a six-core chip on the server side and processors and flash memory for mobile devices will position them to be “Inside” all of those boxes. The flash memory pricing fell away faster then expected, but that problem will likely be solved and won’t stop Intel from pushing forward on the other fronts.

Otellini said that entering new markets could increase the total available market for Intel by 3 times. As the next market and technology cycles play out, Intel should be a winner if it can remain focused and execute well by staying inside the box. Some companies are always looking how to escape the markets that they are in by developing out of the box strategies, but those aren’t always the best or most successful. Sometimes it is better to map where the market is going, pick a narrow few adjacent markets, and place bigger bets with more focus and alignment of resources. That’s the bet that Intel is making and it looks like a good one … certainly better than going into new unrelated businesses.

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Good article .. Prahalad and Hamel with their core competency theory will be pleased with this…

But what does Intel do with about $7 billion in cash ? Apart from giving their treasury a big clout, there should be some potential use of the money. Some new strategy.

Balaji Ganesan Friday, March 14, 2008 at 4:51 PM PT

Thanks for the comment Balaji. If a company has great investment opportunities it can use the cash to accelerate the core bets it has placed. If there are no great opportunities the company should either pay a dividend, or if the stock price is undervalued, buy back shares. The thing a company should not do with extra cash is wildly invest in broad and unrelated businesses hoping to stumble on something big.

Mike Kanazawa Friday, March 14, 2008 at 11:07 PM PT