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Intel Corporation

FOUNDED: 1968

Contact Information:

HEADQUARTERS: 2200 Mission College Blvd.
Santa Clara, CA 95052-8119
PHONE: (408)765-8080
FAX: (408)765-9904
EMAIL: support@cs.intel.com
URL: http://www.intel.com

OVERVIEW

Intel Corp. is a manufacturer of microprocessors, chipsets and motherboards, microprocessor peripherals, microcomputers and supercomputers, and semiconductors, including flash memory devices, best known for its "Intel Inside" advertising slogan designed to push its Pentium processors for personal computers. In June of 2002, Financial Times noted that good economic times for Intel, as the world's dominant power in chip production for PCs, communications equipment and mobile telephones, are crucial if the technology sector likewise is to prosper in coming years.

COMPANY FINANCES

Like all other giant chip makers, Intel, in early 2002, reported that the previous year's financial picture was the bleakest on record. To try to stop stock prices from sliding further, Intel curbed its production of chips. The good news was that Intel managed to check its downward slide by April 2002. Thanks to recovery shown by its microprocessor business, Intel reported a profit of $936 million for the first quarter of 2002. More good news for the quarter was that sales were up slightly for Intel, the posted $6.8 billion sales figure the highest in four quarters. The postings shored up confidence on Wall Street, and raised hopes that semiconductor sales would continue to show strong gains. However, at this writing in June of 2002, Intel shareholders were sorely disappointed when Merrill Lynch downgraded Intel stock, saying that the early hopes for semiconductor recovery earlier in the year were far too optimistic. By June, it was clear that Intel's sixth straight quarter of disappointing revenues was a reality. However, rather than stew, Intel's management turned to its technology sector to help bail out the company, spending $7.3 billion on new plants capable of turning out far more chips at lower costs than its rival chip powers.

ANALYSTS' OPINIONS

Just as miners once looked to canaries in cages to warn them when gases had turned mines dangerous, so too do modern financial analysts study Intel's bottom line each quarter to anticipate if corporate spending is at safe or troubling levels. Analysts and investors alike are all too aware that as Intel goes, so goes all indications for the general health of corporate spending in other business sectors for the immediate future. Tom Foremski of the Financial Times noted how Wall Street keeps an anxious eye on Intel's global microchip sales revenues to see if information technology as a while might ascend from below-ground levels to higher altitudes. "As the leading supplier of chips for PCs, communications equipment and mobile telephones, Intel sits at the center of a complex global web of technology products," "It can quickly detect any movement in the myriad supply chains and pick up the faintest signs of a turnaround," writes Foremski.

HISTORY

Intel Corporation was the creation of a couple of engineers who had left Fairchild Semiconductor in 1968 in an entrepreneurial desire to develop large scale integration technology for silicon-based chips. Robert Noyce had been the co-inventor of the integrated circuit while Gordon Moore was primarily responsible for the company's planning, and developed what is known as Moore's Law. He held that chip processing technologies tend to double every year-and-a-half.

"So far," stated a Fortune article, "Moore's law has been sustained by a regular cycle: Computer makers and software companies (especially Microsoft) develop new features and programs that require more power. Intel, meanwhile, creates brawny new chips to meet those new demands."

The founders were aided by Andy Grove who tended to the manufacturing end of the young business. Back then the calculator was beginning to be introduced in business applications, but computer punch cards were still standard practice in the computer technology industry.

Marcian "Ted" Hoff, an Intel engineer, invented the microprocessor, and is credited as the person responsible for the personal computer industry. In 1971 he introduced a device known as the 4004—a microprocessor consisting of 2,300 transistors located on a sliver of silicon. It was one-eighth of an inch wide by one-sixth of an inch long. It was seen as a breakthrough invention, used primarily for calculating.

The 8008 microprocessor, the first chip to be actively marketed, and the one that had been developed with the 4004, first appeared April 1972. This chip moved rudimentary computing from 4- to 8-bit processing. Though this changed the complexion of the industry, it was not until IBM decided in the 1980s to use the Intel 8086 and 8088 microprocessors to create a personal computer. It was about this time that Apple Computer was founded, and began using components from rival Motorola.

"IBM's decision to support the 8086 microprocessor, running an operating system called MS-DOS, resulted in a software company called Microsoft, founded by Bill Gates and Paul Allen." Eventually, these two companies would become the two most powerful firms in a marketplace that is now worth billions of dollars annually," recounted a Computer Weekly article commemorating the twenty-fifth anniversary of Hoff's invention.

"Since Intel's launch of the 4004, faster, smaller, and more complex microprocessor devices have been developed. Intel, Texas Instruments, Advanced Micro Devices (AMD), Digital Equipment, Cyrix, and many others have deluged the industry with tiny black microprocessor chips that have altered the courses of our lives," an article in Computer Weekly stated. "But Intel has dominated the market for microprocessor chips and looks likely to continue this for quite some time, unless companies such as AMD can break its monopolistic grip.

"The Motorola 68000 microprocessor family has been the single most significant threat to the dominance of Intel in the chip business. Apple's all-out adoption of the 68000 for use in its Macintosh computers forged a market with 12 million-plus loyal customers.

"But Intel saw off this competition, and has beaten off the challenge from firms such as AMD and Cyrix, which introduced Intel-compatible processors in an attempt to hijack Intel's market. During the early 1990s, thanks to a huge investment program in chip manufacturing plants, Intel was able to maintain its position as the only firm able to satisfy the burgeoning demand for PC chips."

Intel has had its problems even in the midst of its success. The company, in an attempt to protect its technology, was tangled in suits with rival chip makers, particularly AMD. In a 1992 arbitration, Intel was ruled against and AMD's claims regarding a technology exchange upheld. The company took a further hit in 1994 when, shortly after the introduction of the Pentium processor, a serious problem was found in the chip's calculation abilities, and the company's public relations suffered a direct hit. Other concerns surfaced, as well, including the chip's tendency to overheat the circuitry in existing computer systems that had been upgraded.

Intel was integral in the industry celebration of the microprocessor's "birthday" at Comdex, the international computer trade show. This included a museum containing artifacts that showed the microprocessor's history from the Intel 4004 and Busicom calculator to consumer products, such as the TRS-80 and Commodore PET, in addition to modern devices such as smoke detectors—microprocessors are embedded into these.

Grove took over as chief executive officer in January 1987. Since that time Intel's average annual return to investors has been 44 percent. Grove was named chairman May 21, 1997, replacing Moore. The move was seen as being symbolic, since Grove had effectively been running the company since his appointment as chief executive officer.

According to Fortune, "Even though he was one of the handful of employees who got the company up and running in 1968, Grove has never been considered a founder—a status reserved for Moore and Noyce. They have been celebrated as legends and visionaries, aided in their success by Andy Grove, the efficient manager. Now he must be considered their equal."

Time Magazine named Grove its "Man of the Year" in the last issue of 1997, featuring his accomplishments and vision in a cover story. Shortly afterward, Grove stepped down as president, allowing Craig Barrett to take over the role of CEO.

In 2002, Barrett continued to function as CEO, charged with the difficult job of revitalizing Intel in a time of economic lethargy—the worst year for Intel in its corporate history. In June 2002, Barrett addressed the need for the industry to pursue new growth opportunities while lowering operating costs. "The focus during these difficult times should be the return the industry generates on its capital investments," Barrett said at the communications industry's Supercomm 2002 conference, reprinted on the Intel Internet home page. "To improve on this return, innovation must pervade all aspects of the industry from value-added services and software to the underlying communications infrastructure."

STRATEGY

Intel has been in the business of introducing cutting-edge technology and getting consumers to pay for the research and development (R&D) of the impressive speeds of its new chips. It is a cyclical process, which also necessitates more R&D of even faster, smaller products. The company does this to constantly renew the need and to keep its margins high. Perhaps Intel's best year profitwise was 1996, when it spent $5 billion on capital projects and R&D, and had record earnings that year—$5.2 billion in earnings on sales of $20.8 billion. This business model of Intel's has been compared to the automotive industry's "planned obsolescence." A new model means the old model is not good, or new, anymore, therefore the consumer feels compelled to purchase the newest, latest, greatest product. This strategy backfired in 2001 and 2002 as business corporations saw the global economy stagnate and limited spending for upgrades of technology, seriously affecting Intel revenues.

CURRENT TRENDS

The trends are pushed by more powerful applications, which in turn necessitate new microprocessors and other new generations of computer products. However, when corporate spending on technology drops drastically, as occurred in 2001 and 2002, Intel not only stops recording immense profits but also has to rethink its research budget and marketing strategy. Slowing of computer sales in the United States has made an impact on the market, and by 2001, not even new technologies and overseas sales keep Intel profits up at a point that makes shareholders and analysts happy.

PRODUCTS

Intel makes a wide range of computing products. These include video conferencing products, networking products, and a wide array of embedded devices. The mainstay of Intel's business is its microprocessors or chips. The most current of these is the Pentium line of microprocessors.

CORPORATE CITIZENSHIP

Intel donates generously to education in hopes of training students to be computer literate, critical thinkers, and skilled at interpreting and assimilating information. According to Intel, the Intel(r) Innovation in Education Program is a global program aimed at turning out superior students, particularly in science, math, engineering, and technology education.

GLOBAL PRESENCE

Intel Corporation in 2002 expressly targeted key Asian nations as critical to the overall technology indus-try's efforts to restore prosperity in slack economic times and to stretch the capabilities of the world to conduct commerce and exchange information. In June of 2002, on the Intel home page, CEO Craig Barrett called for a better-planned marriage of computing and communications to achieve global cooperation to get "computing devices [that] communicate" and "communications devices [that] compute. "Growth will depend on accelerated broadband development and finding better ways to manage digital media over the Internet," Barrett said in remarks captured at a technology conference. He said that countries such as Korea and Japan need to put broadband as their first priority to achieve as much as 100 megabits per second.

SOURCES OF INFORMATION

Bibliography

Detar, James. "Itanium Chip Could Put Sun On The Run Intel Rivalry Intensifies." Investor's Business Daily, 20 June 2002.

Dieterich, Robert. "Intel Plunge Shows No Tech Stock Is Safe." Bloomberg News, 10 June 2002.

Foremski, Tom. "Investors Look to Intel for Hint of Uplift." Financial Times, 6 June 2002.

Gaither, Chris. "Intel Meets Expectations For Earnings." The New York Times, 17 April 2002.

"Shares Tank on Intel Downgrade." United Press International, 6 June 2002.

For an annual report:

on the Internet at: http://www.intel.com or telephone: (800)298-0146

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Intel Corporation's primary SICs are:

3571 Electronic Computers

3577 Computer Peripheral Equipment, NEC

3674 Semiconductors and Related Devices

Also investigate companies by their North American Industry Classification System codes, also known as NAICS codes. Intel Corporation's primary NAICS codes are:

334111 Electronic Computer Manufacturing

334119 Other Computer Peripheral Equipment Manufacturing

334413 Semiconductor and Related Device Manufacturing

421430 Computer and Computer Peripheral Equipment and Software