Intel Corporation Has Progressed From Thesis

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Typically ne entrants are formed from mergers and acquisitions of existing competitors and their continued attempts to dominate the higher-volume, lower price segments of the market.

Competitive Rivalry

The entire industry is characterized by its very high level of competitive rivalry, between not only global competitors who compete on semiconductors and microprocessors, but also on entire board-level products including motherboards and networking equipment circuitry. This translates into a heavy emphasis on time-to-market and the ability to create product designs that can quickly be turned into new products and product line extensions over time.

Company Analysis

In analyzing the company's inherent strengths, weaknesses, opportunities and threats, a SWOT analysis framework has been defined. Beginning with the company's strengths, Intel has exceptional market position and branding awareness in the microprocessor market. It has strengthened this position with its innovative use of cooperative advertising programs for PC manufacturers standardizing on their processors, and for channel resellers reselling their products. This is the Intel Inside program and is considered the best run cooperative advertising framework in the high tech industry. Second, Intel is exceptionally strong in the area of strategic collaboration (Gelinas, 2009) and has successfully partnered with a diverse set of solution and technology providers, from General Electric to Hewlett-Packard and many other companies as well. As the company relies in a steady stream of innovation, the core strength of Research & Development (R&D) is exemplified in the company's many advances in microprocessor, networking integration and multimedia new products development. All of these strengths together have given Intel the ability to scale into a strategy that concentrates on multimedia, networking and core processing.

For all of the company's strengths, they also have significant weaknesses as well. First, the level of customer concentration in terms of computer server, PC, laptop and mobile processor is highly skewed to the higher end brands and lacks any competitive breadth. This customer concentration is also exemplified in how dependent Intel is primarily on American-based technology companies and the need they have to break into cellular and mobile-based markets for processors more aggressively. A second weakness is the cultural belief that technology can in the end still create markets. This mindset is seen in a few of the products, systems and microprocessors the company has created that have not attained market success.

Intel however has been managed exceptionally well from a financial standpoint and has exceptional opportunities as a result. First, there are the opportunities to grow through acquisition in key new market areas including visualization, server virtualization and the development of low-end processors for mobile phones. Second, the NetBook market, albeit a highly competitive one, is a very significant opportunity for Intel as well, and one they have been able to capitalize on with their low-cost, low power consumption microprocessor designs. The company's ability to move quickly into high performance wireless networking products, from the chipset on a motherboard all the way to completing an entire system is full of potential revenue and profits for the company. The WiMax market is exceptional in its growth potential for Intel (Edwards, 2005).

The threats that Intel is facing are both more economically driven and also more regulatory in scope. First, the global economic recession is creating a reduction in demand from the company's core PC manufacturing base of customers. The NetBook orders however have helped the company to continually grow despite the slow-down. The economic recession however is slowing down purchases of large-scale systems in enterprises, and this is the most significant threat long-term from a revenue standpoint to Intel. The additional threats of regulatory commissions throughout the European Union (EU) that are forcing the company to spend more both in legal fees and also in additional product costs are significant.

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The net effect of the EU is driving up the cost to produce their products over time. The last major significant threat is the continued threat of severe price cutting and intense competition as a result. This can already bee seen in the many smaller competitors on mobile devices as well.

Financial Analysis

In terms its financial performance, Intel lags industry averages across the ratios of Gross Margin (%), Current Ratio, Total Debt to Equity and Inventory Turnover. See Table 1, Financial Analysis of Intel and Three Competitors in the Appendix for a thorough analysis. First, on Gross margin (%) Intel delivered in 2009 to date a performance of 55.46% against an industry average of 56.82%. Qualcomm, their most entrenched competitor in the cellular market, generated 69.36% and all other competitors in the comparison fell below the industry average. On the Current Ratio, Intel was again below industry average with 2.54-year-to-date in 2009, with an industry average of 3.82. Qualcomm and Broadcom, two competitors in the broader mobile marketplace had higher Current Ratios. On Inventory Turns, Intel is significantly below industry average of 14.41, at 10.6 for the current year. Broadcom is at 15.5 and Qualcomm at 22.57, which illustrates how much more aggressively these cellular phone providers are being in the management of their supply chains. In terms of Total Debt to Equity, according to Bloomberg's analysis Intel is at the industry average for this measure of financial performance at .05% relative to its competitors who are significantly higher levels of debt exposure.

Recommendations

Within the next 90 days Intel needs to more fully define its WiMax strategy at the chipset level to more effectively compete with Broadcom and Qualcomm, two competitors who have significantly greater levels of profitability as a result of their strengths in this market. The second immediate recommendation is to define a competitive analysis of what Intel can do from an inventory management and supply chain standpoint to increase inventory turns within the quarter.

The short-term recommendation within the year is to concentrate on design-in wins at the major cellular phone and WiMax providers to ensure their gross margins can increase. This is critical for the company to continue growing profitably, and apparently Broadcom and Qualcomm both are gaining margin growth as a result of beating Intel in this area.

For the long-term, Intel needs to go after a more effective approach to managing their supply chain and coordination with suppliers in new and emerging markets. These longer-term implications of a revamped supply chain will make it possible for the company to adopt Radio Frequency identification (RFID) tags for example to have more efficient warehouses. All of these investments over the long-term will hopefully lead to greater levels of inventory turns in the future.

Appendix

Table 1: Financial Analysis of Intel and Three Competitors

Gross Margin % - latest

Gross Margin % - 2008

Gross Margin % - 2007

Peer Avg: 56.82

Peer Avg: 56.82

Peer Avg: 56.55

Broadcom Corp.

52.49

52.49

51.48

Intel Corp

55.46

55.46

51.92

Qualcomm, Inc.

69.36

69.36

69.78

Texas Instruments Inc.

49.96

49.96

53

Current Ratio - latest

Current Ratio - 2008

Current Ratio - 2007

Peer Avg: 3.82

Peer Avg: 3.82

Peer Avg: 3.54

Broadcom Corp.

3.84

3.84

4.03

Intel Corp

2.54

2.54

2.79

Qualcomm, Inc.

5.12

5.12

3.91

Texas Instruments Inc.

3.78

3.78

3.42

Total Debt to Equity - latest

Total Debt to Equity - 2008

Total Debt to Equity - 2007

Peer Avg: 0.05

Peer Avg: 0.05

Peer Avg: 0.05

Broadcom Corp.

0.10

0.12

0.13

Intel Corp

0.05

0.05

0.05

Qualcomm, Inc......

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