X86 and Intel
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Intel’s corporate branding strategy, which many credit for the company’s unparalleled success in the microprocessor industry during the 1990s, stemmed from a court decision. On March 1, 1991, District Judge William Ingram ruled that the “386” designation used by Intel for its microprocessor family was a generic description and could not be trademarked. Intel had been confident that the judge would rule in its favor, and the unexpected court decision effectively invalidated Intel’s current branding strategy. This decision allowed competitors to use Intel’s established naming scheme, which would have been disastrous.
Intel’s response was to develop a trademark name for its processor family, the now-familiar “Pentium,” and launch a corporate branding campaign designed to make Intel the first name in processors. Both moves proved to be enormously successful. Intel became one of the leading companies in the PC boom, enjoying virtually unchallenged market leadership through the 1990s. Problems arose, however, as the PC industry slowed down in the early 2000s. Intel faced a future where the PC which represented the core of the company’s microprocessor business, was no longer the essential tool for the Information Age. Wireless telecommunications devices were becoming increasingly popular, and they required different types of processors.
The company had spent over three decades building the most recognizable brand in the PC microprocessor industry. Intel’s challenge in the new century was to extend into innovative categories while maintaining the equity in the brand and its microprocessor leadership position. In response to this challenge, the 2006 Intel retooled its brand identity, restructured its brand architecture, and launched an entirely new branding campaign called “Intel. Leap Ahead.”
Intel Corporation was founded in 1968 by Robert Noyce and Gordon Moore. Soon thereafter, Andy Grove joined the firm and later became President and Chief Executive Officer. Intel’s initial focus was the integration of large numbers of transistors into silicon chips to make semiconductor computer memory.
In 1978, Intel introduced the 16-bit 8086 processor followed by the 8088, the 8-bit bus version of the 8086 in 1979. These microprocessors were the first of the Intel “x86” line of microprocessors. At the time, Intel faced competition from a number of companies, the most serious being Motorola with its 68000 microprocessor. In response, Intel launched a campaign to make the 8086/8088 architecture the standard in the emerging microprocessor market. A critical milestone was IBM’s selection in 1980 of the 8088 as the exclusive microprocessor architecture for its first personal computer. The success of the IBM PC placed Intel at the center of the personal computer revolution and established Intel’s x86 microprocessor architecture as the de factor industry standard.
Intel continued to produce chips with improved performance over the next decade. Intel introduced the Intel 386 SX microprocessors, which became the backbone of IBM’s and other manufacturers’ growing PC lines and positioned Intel for its explosive growth over the next five years. In April 1989, the company introduced the next generation microprocessor, the Intel 486 processor. In 1990, Intel sold approximately 7.5 million 386 and 486 microprocessors. Intel’s 1990 revenue from 386 microprocessor sales alone was estimated at be $850 million. As of 1990, Intel had $3.9 billion in sales, representing a 360 percent growth in 10 years, and $650 million in earnings, representing a 570 percent growth in 10 years. Intel microprocessors were found in almost 80 percent of all IBM and IBM compatible machines. The company, one of the largest semiconductor manufacturers in the world, was recognized as the undisputed industry leader.
THE MICROPROCESSOR INDUSTRY IN THE EARLY 1990s
Since 1986, Intel had been the only supplier of 386 and 486 technology. A number of competitors, however, had announced intentions to market their own versions of Intel’s 386 and 486 microprocessors in the latter half of 1990. The most serious threat came from Advanced Micro Devices (AMD), who in October 1990 announced its own version of Intel’s then hottest product, the i386 SX, called the AM386. In January 1991, two small semiconductors firms, Chips and Technologies and NexGen Microsystems, announced their intentions to introduce 386-compatible chips within the year. Many competitors claimed that their 386 microprocessors would rival certain configurations of Intel’s i486 chip. Whatever their true technological capabilities, Intel knew these chips could be named “386” or “486” and that it could do nothing to prevent such naming.
Intel’s Branding Issues
In the late 1980’s, there was a significant shift in the general focus of the personal computer industry toward the mass-market, non-technical business, and home PC users. Recognizing this shift, Intel moved from a “push” strategy to more of a “pull” strategy and began to redirect a portion of its advertising efforts away from computer manufacturers to actual computer buyers. Until this time, the consumer’s choice of a personal computer was based almost exclusively on the manufacturer’s brand image, such as Compaq, Dell, or IBM. Consumers did not think about the components inside the computer. By shifting its advertising focus to the consumer, Intel hoped to create brand awareness for Intel and its microprocessors, as well as build brand preference for the microprocessor inside the PC.
Intel still considered the Management Information Services (MIS) community to be its primary buyer, but also recognized the growing importance of the retail or “Circuit City” buyer, as a significant market segment and wanted a message that spoke directly to them. As the market and technology leader, Intel was always first to introduce a new generation of products and establish the name and value of the new technology to consumers. With competing products, carrying the same or similar names, however, it became increasingly difficult for Intel to differentiate its products from those of its competitors. As a result, consumers were confused about who made a particular generation of microprocessor and what level of performance to expect. Consumers were confronted with a product “alphabet soup” that made establishing a point of differentiation and a distinct brand identity for Intel products increasingly difficult.
In June 1989, the company experimented with its first print campaign targeted to the consumer. The $5 million campaign promoted Intel microprocessors through its numbers – the 286 and 386. The initial ad was an oblique but attention-getting print ad and outdoor billboard that mimicked graffiti by spray painting over “286” and inserting “386 SX.” The tag line read, “Now get 386 system performance at a 286 system performance price.” Within months, buyers began asking for personal computers with the Intel 386 SX chip. In 1991, the 80386 SX became Intel’s best-selling chip ever, shipping approximately 8 million units. Intel’s graffiti ad campaign successfully had introduced the microprocessor to consumers, and market research indicated that an increasing number of consumers identified with 386 and 486 microprocessor technology.
EVOLUTION OF INTEL’S BRANDING STRATEGY
During the fall of 1990 and winter of 1991, Intel was involved in a trademark case with AMD to prevent their use of the “386” name in a new AMD microprocessor. A negative verdict would mean that in the future any competitor could market its products under the same marks used by Intel. It would also mean that any computer maker could call a machine “386” without regard to the manufacturer who supplied the chip. Concerned about the possible negative verdict and feeling a general need to clarify strategy, Dennis Carter, vice president of Intel’s Corporate Marketing Group, began developing an alternative branding strategy, although he planned to wait until the court’s ruling to decide whether or not to implement it.
In March 1991, Intel did lose the “386” trademark case. It was now clear to Carter that Intel needed to change its branding strategy and knowing that AMD would begin selling its own version of the 386 microprocessor within the month, created a sense of urgency. Within a few days Carter proposed a new processor branding strategy to Intel’s executive office. The strategy recognized Intel’s status as an ingredient supplier to PC Original Equipment Manufacturers (OEMs) and consisted of three elements, combining both push and pull communication strategies: 1) the use of a logo based around the words “Intel Inside” to represent Intel processors used in PCs; 2) the use of coop marketing funds to share PC OEM advertising expenses; and 3) an Intel advertising program to build equity. The strategy was accepted and Carter immediately established a task force whose sole mission was to implement this new branding strategy.
The task force’s first action was to raise awareness of the Intel brand name. They launched a new ad using the “Intel: The Computer Inside” slogan. This ad asked the reader, “Quick, do you know the first name in microprocessors?” showing a blank line in front of the numbers 486, 386 and 386 SX. Turning the page, the blanks were filled in with the word “Intel.” At the bottom of the ad was the Intel corporate logo with the slogan, “The Computer Inside” below it. The ad copy sought to assure the reader that purchasing a personal computer with an Intel microprocessor inside was a safe and technologically sound investment, providing “the power and compatibility to take you into the future.”
The task force established a new branding system within a month of the court decision. The primary focus of the new strategy was the establishment of Intel as a brand, transferring the equity of “386” and “486” microprocessors to Intel, the company. Establishing a unique identity for Intel was considered the best way not only to distinguish Intel products, but also to communicate the depth of Intel as a corporation with respect to its competitors. While the majority of the company’s revenues were derived from sales of microprocessors, the company offered a broad range of products for the computer industry, including microprocessor peripherals, multimedia products and PC enhancement products. Dennis Carter explained:
We wanted to brand the whole company, but in a way that was clearly focused on processors. An initial proposal that I rejected early on that Intel Japan was proposing to do within Japan was to brand all components. That would not, however, solve our current problem. The branding program had to carry the Intel name and image but focus on selling processors.
It was critical to reverse the perceptions that Intel was an impersonal, unfriendly technology company. Intel wanted to establish itself as a brand that offered “safety” and “technology” to consumers. Then, the company could position itself as a premium product with a premium price. Consumers did not necessarily need to know exactly who Intel was or what it made as long as they could be convinced that a personal computer powered by the “creator of microprocessors” was preferable. Intel also believed that if it could gain consumer confidence in Intel as a brand, it would be able to transfer the equity of the Intel brand to launch new products and technologies.
Because Intel’s products were always inside the computer, unseen by the average purchaser of a personal computer, the company wanted to make the consumer believe that what was inside the computer was as important, if not more important, than the PC manufacturer. Intel’s “The Computer Inside” campaign had not been explicit enough in linking Intel’s name to the microprocessor inside the computer. The company needed a slogan, logo, or some other means that more explicitly identified an Intel microprocessor as the essential ingredient when purchasing a computer.
Carter had previously wanted to use “The Computer Inside” campaign in Japan. Intel’s agency in Japan, Dentsu, believed the slogan too complex and recommended modifying it to “Intel In It” instead and presenting it in a logo form. Japan adopted this logo and began using it for all Intel products, not just processors. Needing a logo for processors fast, Carter, as part of his recommendation to the executive office, suggested using this logo form as the basis for the new microprocessor logo. In order to keep continuity with “The Computer Inside” tag line being used elsewhere in the world, Carter changed the phrase to “Intel Inside” that clearly conveyed to the consumer that it was an Intel microprocessor in the computer. The new logo – a swirl with “Intel Inside” – placed the company and its name directly in front of the consumer.
Enlisting OEM Support
In order to execute the new brand strategy, it was essential that Intel get support from the OEMs who used Intel microprocessors. PC manufacturers purchased the majority of Intel’s microprocessor and were the most important group of OEMs. Intel’s first priority was to get these manufacturers to include the Intel logo in their print ads. In additional to this “push” strategy, the team planned Intel-sponsored advertising and promotions to build equity in the logo and create a “pull” preference among consumers for Intel processors.
To enlist the support of OEMs for their Intel Inside program, Intel developed a cooperative (co-op) advertising program available to all computer manufacturers who used Intel microprocessors. Intel offered computer manufacturers rebates between 30 and 50 percent of the cost of a print ad when they included the Intel Inside logo, up to a maximum of 3 percent of the cooperating company’s Intel processor purchases. Intel received mixed reactions during negotiations with OEMs in 1991. The smaller, third tier manufacturers in particular loved the idea. They had no brand name of their own and promoted their products primarily on the basis of price. Print was their main medium of communications, so any advertising subsidy was considered very beneficial. In addition, adding the Intel logo to their machines gave an assurance of quality to their product, and they proved eager to sign on.
On the other hand, the first and second tier OEMs were afraid that the Intel campaign would dilute their own brand equity and weaken their points of differentiation from one another. According to Kevin Bohren, a Compaq vice president, Intel’s campaign “was leveling the playing field,” thereby making Compaq’s efforts to differentiate its PCs from clones harder. It was this group, however, that Intel needed most to ensure the success of its strategy.
Launching the “Intel Inside” Program
Intel officially announced the launch of its “Intel Inside” program in November 1991. The company announced its intention to spend approximately $125 million during the next 18 months on a combination of print, billboard, and spot television advertising. Intel also announced that 240 OEM customers had agreed to participate in the co-op advertising program and to carry the new Intel Inside logo on their packaging. Dennis Carter described the program as “trying to create a brand image for products that fall under the Intel Inside umbrella”. As one reporter described the campaign, “The ‘Intel Inside’ campaign … is aimed at changing Intel’s image from a microchip-maker to a quality standard-bearer.
Relationship with OEMs
IBM was the first major OEM to use the Intel Inside logo, in April 1991. After running this ad, however, IBM did not use the Intel Inside logo again for nearly a year. By December 1991, over 300 OEMs had signed co-op advertising agreements with Intel, including first, second, and third tier manufacturers. Over 100 of these companies featured the Intel logo in their ads, including Zenith Data Systems, Everex System, NCR Corp., Dell Computer, and AST Research. Nevertheless, at this time the largest first tier computer manufacturers – including Compaq and IBM – still were not using the Intel Inside logo in their ads.
Intel’s Ad Campaign
Simultaneous with the development of its OEM co-op advertising program, Intel developed its own Intel Inside ad campaign. The first Intel Inside ad was a print ad called the “measles” ad and showed the Intel Inside logo splashed across a page. The headline read: “How to spot the very best computers.” At the bottom of the page, was the tag line: “Intel: The Computer Inside.” The primary objective of this ad was to get the new Intel Inside logo in front of consumers and get them familiar with the Intel name. The ad text promoted Intel as “the world’s leader in microprocessor design and development,” and reassured the reader that “with Intel Inside, you know you’ve got unquestioned compatibility and unparalleled quality. Or simply put, the very best computer technology.” The ad ran in both computer trade publications and magazines such as National Geographic and Time.
In November 1991, Intel launched its first television ad, dubbed “Room for the Future.” The spot, developed by Intel’s ad agency, Dahlin Smith White, used special effects designed by Lucas Arts’ Industrial Light and Magic Co. to take the viewer inside the computer, giving them a whirlwind tour of the inside of a microcomputer that showed how the Intel 486 SX chip streamlined computer upgrading. At the end of the ride, a flashing “Vacancy” sign indicate where the faster chip of the future might go. Careful not to use any “technospeak,” a friendly voice-over said, “Something’s waiting inside the powerful Intel486 SX computer. We call it … room for the future. Check into it. From Intel. The Computer Inside.”
Complementing the television campaign was a print campaign launched one week later. The print ad headline read: “The affordable power source for today’s software.” A version of this Intel486 SX processor ad was placed on billboards in Los Angeles, San Francisco, Chicago, Toronto, and seven other metropolitan markets. Finally, the company prepared a small booklet describing in detail capabilities of the Intel486 SX microprocessor. Two pages of text were devoted to describing each of the following product attributes: upgradability, power, affordability, compatibility, and the experience of the Intel.
The “Room for the Future” ad was Intel’s first experiment with television as an advertising medium. Dennis Carter explained, “We thought it might be an interesting cost effective way of reaching a broader audience more effectively – a more impactful way to augment the print advertising campaigns that we do.” Consumer research indicated that most viewers of the commercial remembered the Intel name, rather than the product being advertised. Intel’s print ads, on the other hand, proved much more successful in educating the consumer on specific product attributes associated with the Intel486 SX.
“Intel Inside” Campaign Matures
By December 1992, over 700 customers were participating in the program, primarily consisting of second and third tier OEMs. According to Carter, by July 1992, at least half the computer ads in personal computer magazines included the Intel Inside logo. Participating OEMs were pleased with the result of the co-op program, and many claimed that the Intel Inside logo had boosted their advertising effectiveness. Bill Saylor, manager of U.S. advertising for NCR commented, “The Intel Inside program has been a good program for us. It has helped add some credibility and enhancements to our messages. You know our product is a quality product because it has an Intel chip in it.
BRANDING INTEL’S “P5”
Intel expected to introduce its next generation processor, code-named “P5,” sometime after the fall of 1992. Unlike previous processors, it was not obvious what Intel should name the “P5” or how it should be branded in light of the developing Intel Inside program.
The Intel Inside program had generated significant awareness for Intel and meant that any branding strategy developed for the “P5” would have to work in conjunction with the existing program. The heightened competition during the prior year within the industry had also generated unusually keen interest in the “P5,” and both the technical and business markets were looking for information on the product – its capabilities, its expected introduction date, and its name.
Carter appointed Karen Alter to manage the P5 naming process. She formed a team whose first concern was choosing a name for this new processor. The team wanted a name that would stand on its own as well as indicate the generation of the new chip. The court’s decision that numbers were not trademarkable made the choice of “586” a risky one. In a June 1992 interview with an AP reporter, Andy Grove was quoted as saying, “Over my dead body will this new product be named 586.” With the “586” option eliminated, the team decided to use the “P5” naming process as an opportunity to redefine the industry language for microprocessors. Intel could create a new brand that would acquire its own equity over time and make it difficult for other CPU suppliers to get a “free ride” from Intel’s equity. The team decided that it was necessary that the name: 1) be difficult for competition to copy; 2) be trademarkable; 3) indicate a new generation of technology that could effectively transition from generation to generation; 4) have positive associations and work on a global basis; 5) support brand equity; and 6) sound like an ingredient so that it worked with Intel’s partners’ brand names. The team’s primary target audience was the retail consumer.
Intel’s sales force surveyed a broad range of customers during a two-month period to get their reaction to the planned naming concept (i.e., to not use a numerical name). Some customers told Intel that changing the industry language by not using “586” was not possible. They argued that the industry moved too fast, that the market was already on a level playing field, and that the product was too complicated to “re-educate” the consumer. Others, particularly and technologically sophisticated OEMs, like the idea as a way to differentiate Intel technology. A distinctive name would allow the company to distinguish its products from lower tier manufacturers in the PC market, as well as from the competition in the workstation and server markets.
Intel undertook the most extensive search in its history to find a name for the “P5.” In addition to hundreds of names generated from the task force’s own brainstorming sessions, Intel hired the naming firm Lexicon and ran a company-wide naming contest in which over 1,200 employees worldwide participated. Some of the most humorous entries submitted included, “iCUCyrix, iAmFastest, GenuIn5 and 586NOT! Computer Reseller News, and industry trade publication, even held its own contest. In all, the selection process generated 3,300 names. Karen Alter described the process:
We divided the names into three concept categories: 1) closely linked to Intel; 2) technologically “cool” – e.g., naming an architecture; and 3) completely new with some generational concept category and selected ten alternatives for extensive review and testing.
The company conducted a detailed global trademark search to ensure that each name on the list could not be copied, as well as a worldwide linguistic review to ensure the name would be effective in all languages. The final three name options for the name for the respective concept categories were: InteLigence, RADAR1, and Pentium. Ten days before the planned announcement of the official name, the company’s top executives and the members of the task force met to make the final name selection. Grove led the meeting, asking each participant to choose from the three alternatives and describe what they liked about that name and why. Grove and Carter did not give their opinions, saying that they would make the final decision after the meeting was over.
Not surprisingly, the members of the task force were almost evenly split across the three names. The public relations members of the task force liked the InteLigence name because it was the easiest name for them to explain to the public. The technically oriented members liked the “techie cool” name RADAR1. The sales / marketing-oriented members were partial to the Pentium name because it was new and represented the cleanest break – they felt that it would be easier to sell to OEMs and other customers. After everyone had given their opinion, Grove and Carter thanked the group and went into Grove’s office to make a final decision.
Communicating the New Name
When the naming options had been narrowed to three choices, the task force considered the impact of each name on the multiple audiences – press, OEMs / dealers, competitors, and employees – to whom they would have to communicate the decision. Without question, many people would react negatively to any name that was not “586” and Intel wanted to counter this reaction as quickly as possible. Intel hoped the computer companies would market the name to users as a key product ingredient, much like NutraSweet, Teflon, and Gore-Tex. As one Intel spokesperson explained, “The market is changing and with other people (competing chip makers) introducing a key ingredient, you don’t know what part you’re getting inside.” Intel also hoped computer companies would market the name to users as a way to convey the power and efficacy of its fifth generation processor family.
Launching the Pentium Processor
Intel officially announced the name of the new chip on October 20, 1992. Andy Grove made the announcement during an exclusive interview on CNN, who provided Intel the ability to make a live official announcement on a worldwide basis. Grove announced that the name of Intel’s fifth generation microprocessor was Pentium and said the company would begin shipping production versions of the chip in early 1993. In describing the choice of Pentium for the name, Grove explained, “the name should suggest an ingredient. The ‘Pent’ of Pentium, from the Greek meaning five, alludes to the fact that the new chip is the fifth generation of the family. The ‘ium’ was added to make the chip sound like a fundamental element.” The company coined the name because it conveyed the positive attributes such as quality, state-of-the-art-technology, software compatibility, and performance. Grove explained the rationale for not using a number as a name, “We can’t count on another number. It’s so much cleaner to designate a name that’s protectable.”
Immediately following Grove’s announcement, the Pentium processor marketing team launched a full-scale effort to ensure the Pentium name was quickly adopted into the everyday industry vernacular. Intel’s PR department phoned all leading individuals who wrote about the industry to let them know the new name. A not uncommon response was: “I can’t believe this name. This is the most ridiculous name I’ve ever heard.” Intel’s PR department carefully monitored all press for references to the Pentium processor, and if they found anyone using “568” or “P5,” they immediately sent the author a letter correcting the error. Within one month after the naming launch, over 90 percent of press mentions used Pentium instead of “586.” The Pentium Processor Product Announcement
One week before the Pentium processor-based PCs were available for sale, Intel introduced its first Pentium ad. The four-page magazine insert, the first in a year long “technology briefing” campaign, positioned the Pentium processor at the elitist end of the market, saying “all but the most demanding users” should use personal computers with Intel486 chips. Because of this target market, the insert, which described in some detail how the Pentium processor made PCs run faster, was a shift away from the simpler, consumer-style advertising Intel had done since 1989. As one Intel spokesperson explained, “In the olden days, we would do very “techy,” spec-driven ads in engineering books, and then we got very end-user (focused) without much meat on the bones. Now we’re going a little bit back to our roots.”
Indication of Success
Between 1990 and 1993, Intel had invested over $500 million in advertising and promotional programs designed to build Intel’s brand equity. The Intel Inside campaign had constituted the bulk of this investment and plans were to continue with the campaign. Within the industry, there was considerable debate about the effectiveness of Intel’s “brand ingredient” strategy. AMD, for example, had publicly rejected adoption of a similar branding strategy. As one AMD spokesman explained, “You wouldn’t find an ‘AMD Inside’ campaign even if we had the kind of deep pockets that Intel has. We don’t think it’s particularly effective to try to build brand awareness.”
The Intel Inside program had won a number of advertising awards, including the Marcom Award for best television campaign in 1992 at the computer industry’s premier trade show, Comdex. Also at Comdex, Dahlin Smith White, Intel’s ad agency, won the “Grand Marquis” excellence award for its “Power Source” commercial. In presenting the award, Donna Tapellini, editor of Marketing Computers magazine, explained:
This is not just for the best marketing program or campaign, it is for a work that has raised the standard irrevocably and made a difference … Not only have they moved the goal posts in terms of advertising values, but this campaign is a culmination of a brilliant ‘Intel Inside’ branding strategy. They have done for (computer) chips what Frank Perdue has done for chickens. They have set the standard and become the ones to beat in the industry.
Intel’s own market research, both in the United States and in Europe indicated that end user awareness of the Intel brand name had increased significantly since the introduction of Intel Inside program. The independent research, performed in June 1992, indicated that users worldwide viewed Intel as the technology leader versus such competitors as AMD and Cyrix and the overwhelming microprocessor of choice. Research in the United States also showed that Intel had the strongest image on quality and compatibility attributes. Over 80 percent of those surveyed had seen the Intel Inside logo in personal computer ads and nearly half had seen the logo in store displays, product literature, or on a personal computer. Over 75 percent of those who had seen the logo said that it conveyed positive attributes, and 50 percent said they looked for the symbol in making their personal computer selection. In Europe, two-thirds of business computer purchasers surveyed had seen the Intel Inside logo and understood that the logo indicated a CPU brand. However, among the non-sophisticated non-technical users, the “Intel” name and Intel Inside logo were often confused. The problem was particularly acute in certain foreign languages, like character-based Chinese, that did not link the Intel Inside brand with the Intel company name.
The 1993, Financial World rated Intel as the third most valuable brand, behind Marlboro and Coca-Cola, with an estimated worth of $17.8 billion.
Pentium Becomes a Hit
The price of the original Pentiums targeted high-end consumers – at the time of their launch, Pentium PCs cost around $5,000, compared with 486 systems that cost as little as half as much. The prohibitive cost of the chip and limited availability prevented the Pentium from making an instant sales splash, and a year after the chip’s introduction it accounted for only 10 percent of Intel’s revenues. When the company increased production and began cutting Pentium prices, sales rose dramatically. In 1994, Pentium sales grew eight times faster than 486 sales did when that chip was new. That same year, the company shipped over 6 million Pentiums. Within two years after the company’s decision to use the “Pentium” name for its P5-generation chips in 1992, Intel possessed roughly 90 percent of the world’s PC microprocessor market and enjoyed exclusive relationships with several of the biggest computer manufacturers.
EVOLUTION OF THE PENTIUM
The company saw the Pentium sub-brand as an important part of its success, and extended the name in branding its next four processors (by 2000, Intel had unveiled the Pentium Pro, Pentium II, Pentium III, and Pentium 4 chips, see Exhibit 1 for timeline). In 1994, Intel’s revenues rose 24 percent from the previous year to $11.5 billion on the strength of over 6 million Pentium processor shipments. Following the success of the Pentium chip, Intel decided to call its next generation P6 processors the “Pentium Pro.” The first Pentium Pro chips were released in December 1993.
In 1997, Intel launched its next chip, the Pentium II processor. That year, the company spent a record $100 million on an integrated marketing campaign to promote the Pentium II. The campaign included several high profile advertisements, such as a Super Bowl spot featuring the popular “bunny people” series. The “bunny people,” which first introduced the Pentium MMX, were commercial versions of Intel technicians dressed in brightly colored contamination suits. In the ads, the colorful characters danced to a disco soundtrack while they worked inside a processor fabrication facility. The company felt that by taking the audience inside the fabrication plant where the chips were manufactured, the new television spots remained consistent with the original Intel Inside television ads, which had given the viewer a
virtual tour of the interior of the computer. Even though the bunny people were popular, some felt that the lively spot strayed too far from Intel’s core product placement, the inside of the computer. Renewed Processor Competition
In 1998, Hewlett-Packard and Compaq chose to buy cheaper chips from Cyrix and AMD instead of buying certain Intel Pentium models. Intel executives initially ignored the discount PC market, noting that PCs priced at less than $1,200 comprised only 27 percent of the total market in 1997 and did not sell well overseas. But as the cheaper PCs attracted American consumers who only needed a simple machine that would allow them to access the Internet, Intel re-thought its strategy. By the middle of summer in 1997, AMD and Cyrix had gained 20 percent of the overall U.S. retail PC market and Intel’s share of the low-end market dropped below 30 percent.
By not properly anticipating the surge in popularity of sub-$1,000 PCs, Intel wound up fighting to keep from losing overall market share. To combat the increasing competition from AMD and Cyrix, Intel released the low-end Celeron chip in April 1998. The first Celerons, slower than comparably priced chips, drew unfavorable reviews and sold poorly. As a result of these sluggish sales, Intel’s share of the sub-$1,000 PC market dropped from 68 to 56 percent in the third quarter of 1998, while AMD’s share rose to from 19 to 24 percent.
In 1999, Intel released the Pentium III. The company positioned the chip as a tool to enhance home PC users’ Internet experience. Intel nearly doubled its 1998 advertising budget, spending $300 million on a global campaign that promoted the processor in nearly every available medium. Sensing that the “bunny people” strategy had run its course, Intel shifted back to a more PC-centered campaign for the Pentium III. The new marketing campaign used a theme reminiscent of the original “Intel Inside” slogan: a blue door bearing the Intel Inside insignia accompanied by the line, “This way in.”
In October 2000, the company introduced a trio of spokespeople – performance artists Blue Man Group – that appeared in television ads for the Pentium III. The ads featured the Blue Man Group performing acrobatic and musical stunts that reinforced the number “III”.
AMD Battles for “Fastest Chip”
In the fall of 1999, AMD unveiled a 700 MHz version of its Athlon chip, which surpassed the latest Pentium in terms of performance. The release of the 700 MHz Athlon put Intel in the unfamiliar position of trailing a competitor’s technology advancements. Major PC manufacturers had been reluctant to buy AMD processors, however, and as of late 1999 none of the top PC makers used an AMD processor in its machine. “It’s the same reason that people bought IBM for years and nothing else,” said an executive with a computer reseller. “There’s a sense that there is less risk in Intel.”
For much of 2000, AMD and Intel battled for the title of “fastest chip,” which usually changed hands with each successive product release. The important issue for AMD was to keep pace with Intel’s highest performing chips, a valuable point of comparison that helped AMD’s stock rise 353 percent from 1999 to 2000. By June 2000, AMD was selling microprocessors to every major PC manufacturer. Many industry analysts considered AMD’s revitalized business to be a “serious challenge” to Intel. Intel experienced a number of product flaws, shortages, and delays in 1999 to 2000, which critics partly blamed Intel’s push to beat rival AMD to market with faster processors. Intel’s product delays enabled AMD to gain significant inroads in the PC microprocessor business. In 2000, AMD had increased 4 percent to a 17 percent share of the chip market. In addition, nine out of the top 10 PC makers were using AMD chips in their computers in 2000.
INTEL’S SEGMENTATION STRATEGY
The increased competition prompted then-CEO Andy Grove to initiate an aggressive promotion of Intel’s low-end chip, the Celeron, while admonishing his co-workers “if we lose the low end today, we could lose the high end tomorrow.” Intel quickly increased the processor speed on its Celerons and cut prices 30 percent. The counter measures precipitated an overall microprocessor market share drop for AMD from 16 percent to 13 percent from the third to fourth quarter of 1998. Intel’s market share rose over 80 percent from 75 percent over the same period.
The fear of “losing the high end” drove Intel to restructure its processor business by segmenting it into three price and performance categories. The top processor, the Xeon, was designed for servers and powerful networks and retailed for as much as $3,000. The Pentium class targeted the performance-PC market and sold for roughly half the Xeon’s cost. The Celeron retailed for as low as $63. The aggressive promotion of the Celeron eventually had the desired effect: Intel gained a 62 percent market share in the sub-$1,000 PC category by the year 2000. Still, Intel made most of its profits from sales of the two upper-level processors, and designed its marketing strategy accordingly. The Pentium II processor received heavy marketing support across nearly every medium, from expensive TV spots to web advertising to print campaigns. The Celeron processor, on the other hand, got no TV time and was marketed using comparatively sparse print and radio.
In 2000, Intel announced that their next Pentium-generation chip would be called the Pentium 4, and would be the company’s first completely new desktop processor design since 1995 Pentium Pro. The Pentium 4 was a major new weapon in Intel’s processor speed battle with AMD. Pentium 4 debuted in November 2000, in PCs starting at $2,000 and soon became the fastest desktop processor on the market, outpacing AMD’s 1.5 GHz Athlon.
Intel supported Pentium 4 with a $300 million advertising campaign, Intel’s largest outlay for a single chip, which also featured the Blue Man Group. The company decided to keep the Blue Man Group, in order to provide “continuity between two chips as it phases out the older product.” Research found that the Blue Man Group ads scored high among Pentium 4’s target audience of well educated, middle- to upper-income PC consumers. The ads positioned Pentium 4 as a chip that enhanced media and Internet applications with the tagline “The center of your digital world.”
At the time of the Pentium 4 launch, the domestic PC market was in less than ideal condition. The percentage of U.S. homes with PCs had stayed at 58 percent since 1999. Faced with a declining PC market, Intel cut prices on Pentium 4 chips by as much as 23 percent in January 2011, only two months following the chip’s release. The Pentium 4 got off to a slow start, and less that 4 percent of PCs in the U.S. retail market contained Pentium 4 chips by April.
Itanium Targets High End
Intel continued to increase its research and development budget to fund new technologies. Intel’s next big processor development in 2011 was, the Itanium, a 64-bit chip capable of performing advanced operations on complex data much more rapidly than the 32-bit Pentium family of chips (a 64-bit chip can process data twice as fast as a 32-bit chip). Delivered two years late and at cost of $2 billion, detractors quickly labeled it “the Itanic.” The Itanium performed poorly, processing data even slower than Intel’s current 32-bit chips. The company released a newer version, Itanium 2, in 2002, but this chip was soon overshadowed by AMDs Opteron chip.
Intel’s Vision for New Growth
After enjoying ten years of better than 30 percent compound annual growth, Intel executives looked toward the future and saw the PC market declining in the years to come. Consumers in America bought cheaper computers than they had in previous years. These discount computers contained cheaper processors manufactured by Intel’s competitors, which meant that expensive Pentium processors often sat in the top-of-the-line computers on store shelves. With sales of Pentium-based computers – which provided Intel with 70 percent margins – dwindling, Intel was forced to lower the prices of its chips during 1997 and 1998 to retain market share. As price drops cut into margins, Intel profits fell and its stocks shed about 30 percent from its peak. Intel recognized that the period of high growth and large margins in its PC processor business was ending, and determined that diversification within its processor lines and growth into other technologies would help the company weather the PC market decline.
In 1998, Andy Grove stepped down and Intel appointed company president Craig Barrett as its new CEO. Barrett’s vision for Intel’s future included broad product offerings and technological developments for the Internet. He understood the limitation of a processor-dominated business strategy, declaring “If Intel wants to continue to occupy a central position [in high tech], it’s not just enough to build the hearts and brains of computer.” Broadening the company’s focus seemed like a bold risk at first glance, since 90 percent of revenues and 100 percent of profits came from Intel’s microprocessor business. But with the Internet technology sector growing 30 percent faster than the PC industry and new technology like wireless communication increasing in popularity, Barrett knew that an expanded role on the Internet would be crucial in helping the company grow in the next decade.
From the start of his tenure as CEO, Barrett steered the company into a host of new businesses, such as consumer electronics, e-commerce, and Internet hosting. He also revamped Intel’s microprocessor offerings, expanding into chips for network utilities, information appliances, and lower-priced PCs. The company supplemented its expansion by rapidly acquiring competitors and specialists in new growth areas. In 1999, Intel spent $6 billion acquiring 12 different companies. In Barrett’s first two years as CEO, the company invested in 25 communications-technology startups. Over half of the more than 250 companies Intel invested in from 1996 to 2000 were Internet-focused startups, including such ventures as online retailer e-Toys and web searching technology developer Inktomi. In part due to Barrett’s vision, and in part due to market conditions at the time, Intel’s stock price soared.
New Product Introductions
Intel also recognized the importance of extending its business beyond processors by developing other electronic products. The company introduced modems and videoconferencing equipment in the mid-1990s, but these brand extensions went virtually nowhere. The company refocused its efforts to establish itself in consumer electronics in 1998 by creating the Home Products Group. This new group developed Internet appliances such as web-ready televisions, set-tops boxes, PC cameras, a children’s microscope, and wireless keyboards. In 2000, Intel introduced two digital cameras, the Me2Cam and the Pocket PC Camera. The company also unveiled a digital music player, the Intel Personal Audio Player. For children, Intel’s Smart Toy Lab designed a Computer Sound Morpher that enabled users to record sounds and mix and alter them on a computer. Said John Middleton, marketing manager for Intel’s consumer products, “These products extend the business and the brand and they make Internet more fun.”
In 1998, Barrett established the New Business Group, a division aimed at growing Intel’s business opportunities outside processors. The group worked on small projects, each one of which was treated like a start-up, with “venture capital” coming from Intel’s cash reserves. By 2000 the company had spent $50 million on over 20 new projects, including an effort to install 3,000 terminals on seats at Madison Square Garden that sports fans could use to access information about teams and players and a start-up called Vivonic that built handheld computers designed to enable users to monitor their diet and fitness.
CHALLENGES IN THE NEW CENTURY
Craig Barrett remained highly optimistic about the benefits of the company’s brand extensions. In 2000, he announced that within five years he expected the every new business Intel ventured into would generate revenues exceeding $1 billion. Barrett also anticipated that Intel’s expansion strategy would yield success, however. While the Internet remained the hottest place for new business growth, Intel was not a proven player in the Internet economy and faced stiff competition from established Internet powerhouses and earnest startups. Additionally, some investors and analysts worried that Intel’s rush to develop, in the words of the company’s New Business Group head Gerry Parker, “as many ideas as possible” outside its core business demonstrated a loss of focus. Amidst the plaudits and the criticisms, Intel
financial performance suffered.
The 2001 fiscal year was Intel’s worst in its 34-year history. Revenues that year plummeted 21 percent to $26.5 billion, while net income dropped 70 percent to $3.6 billion as the PC market slowed (see Exhibit 3). Intel’s new business rang up zero profits, while losses doubled each year since 1998. A former Intel executive said, “They’re dabbling in everything and overwhelming nothing.”
In order to stem its losses, Intel exited non-processor businesses such as digital cameras, streaming media software for online audio and video transmissions, toys, and networking hardware. The company shut down its Connected Products unit that made many of Intel’s consumer products. Intel stopped manufacturing network servers and routers after several of its big chip customers, including Dell and Cisco and Hewlett-Packard, complained that Intel was competing against them. The company spun off its interactive media-services division and scaled back its information-appliance business.
In response to these moves Barrett said, ”I think we have cleaned up our product line. In this difficult time [these peripheral businesses] were distracting us from our core strengths.” Intel renewed its focus on microprocessors, servers, mobile devices, and networking equipment.
Intel Focuses on a Platform Strategy
Realizing that many computer users were taking their laptops on the road, but not getting the optimal performance they expected, Intel designed and launched a new platform called Centrino in early 2003. Centrino was Intel’s first brand to stand for a combination of products. The bundle was based on a new processor (the Pentium M) that was designed to consume little electricity and extend battery life. The package also included other Intel chips that were specifically designed for wireless communication. Intel said the Centrino platform of chips allowed notebook computers to be lighter, smaller, and have better battery life. Centrino was also designed to work together and would provide users with seamless access to Wi-Fi “hot spots.”
Intel launched a $300 million effort to promote the Centrino wireless platform. The first phase of the campaign, which ran in 11 countries, was targeted at business users and tech-savvy consumers. Intel created eight page inserts for major newspapers that urged the wired world to not only “unwire,” but also “Untangle. Unburden. Uncompromise. Unstress.” Later that year, Intel launched a series of television spots aimed at a broader audience. The ads were designed to appeal to moms and students, and showed everyday people enjoying the benefit of using their laptops without wired Internet connections. To further market its new technology, Intel joined with The New Yorker magazine and developed a mini-guide to Wi-Fi hot spots that was published in the magazine. Intel also sponsored “One Unwired Day,” where mobile PC users received free access to thousands of hotspots in major cities. Intel even brought back the Blue Man Group for a new round of advertisements.
The most controversial part of the Centrino launch was the co-op advertising subsidies that Intel offered to OEMs. In order to qualify for the subsidies, and be able to show the Centrino logo on their products, computer makers had to purchase the entire bundle. OEMs were excited about the new Pentium M chip, but less excited about the wireless networking chip that was the other part of the platform. One computer manufacturer executive remarked, “We can quickly get much better components available unbundled. Intel is trying to get more into systems design, and force us to have less freedom as far as engineering and trying to deliver value to customers.” Although this sentiment was echoed by others, OEMs were reluctant to not use the Centrino platform. They feared a cost disadvantage by not getting the advertising subsidies. Also, Intel’s heavy promotion of the new brand would indirectly benefit any computer maker that adopted the new technology. Dell, Toshiba, HP, and IBM offered Centrino branded notebooks as one choice, but also gave consumers the option of “upgrading” to other wireless chips, allowing them to get the Centrino marketing subsidies.
AMD Surges in the Marketplace
Competition heated up in April 2003 when AMD launched its Opteron chip, a direct rival of Intel’s Xeon. This powerful chip soon found customers with Hewlett-Packard, Sun Microsystems, and IBM. Opteron used much less electricity and generated much less heat than Intel’s Xeon server chips, an important difference in corporate data centers. In addition, software makers such as Linux and Microsoft began to write software specifically designed to run on 64-bit chips; this promised to give the chips even better performance.
AMD competed with Intel in other areas as well. In response to the success of the Centrino, AMD launched the Turion chip. Turion was designed to provide optimum performance for mobile computers. It used 32-bit and 64-bit technology in a chip that allowed OEMs to make thinner and lighter notebook computers with longer battery life, enhanced security, and compatibility with the latest wireless technology. The company also launched the Athlon 64, a powerful 64-bit chip designed for desktop computers.
AMD managed to beat Intel in certain areas. In the commodity-like memory business, AMD had become the global leader in a critical type of flash memory. This memory was the most expensive component in what was the world’s hottest technology product – the cell phone. AMD also became the first company to launch a major product aimed at bridging the “digital divide” between rich and poor. In October 2004, it introduced the Personal Internet Communicator (known inside the company as “Emma”) a rugged, shoebox-sized computer. Emma was designed so people in remote villages all over the world could get help with education, agricultural, and health-care information, as well as entertainment. The cost, including monitor, was $230. Emma was being offered along with Internet access for a sub-$10 monthly subscription. This was the first of a variety of products planned by AMD, all aimed at a goal they call 50X15, meaning 50 percent of the world’s population should be online by 2015.
AMD only spent $2.6 million on measured media in 2003, and $2.2 million in the first nine months of 2004. AMD realized that it must make branding its new chips and processors a priority. At the end of 2004, the company spent $30 million to advertise its Athon 64 and Opteron brands. Tracey Brown, AMD’s director of worldwide consumer marketing commented, “We are not trying to educate people on the technical specifications of the processor, but letting them know that with AMD processors you get a better experience or a better lifestyle.” She continued, “Intel is more than twice our size and so our marketing approaches are very different. You’ll probably never see us do a mass marketing carpet-bombing approach.”
In May 2005, Craig Barrett stepped down as CEO and was replaced by COO Paul Otellini. Otellini was a 30-year veteran of Intel but many looked at him as an outsider since he was the first Intel CEO without a degree in engineering. His four predecessors each had a Ph.D. – Otellini had a BA in economics and an MBA. Otellini did bring technical experience to the job, however. He fought successfully with engineers over the need to create Centrino. He won, and Centrino paid off. There were significant challenges facing the company, including technical chip design, a maturing PC market, and strengthened competition from AMD. To address these issues, Otellini pushed for what he called a “right turn.” No longer would Intel focus on processor speed for speed’s sake alone. Instead, it would listen to what customers wanted. “People still want performance in a different way.”
Otellini’s reorganized the company from two operating segments – Intel Architecture Business and Intel Communications Group – six business units – the Mobility Group, the Digital Enterprise Group, the Digital Home Group, the Digital Health Group, and the Channel Platforms Group. The goal was to bring all major product groups in line with the company’s strategy to drive development of complete technology platforms.
In addition, Intel also hired a new chief marketing officer, Eric Kim. Kim had been the head of marketing at Samsung Electronics for the previous five years, where he was credited with helping to push the giant consumer-electronics company to be competitive with rivals like Sony, Panasonic, and Sharp.
Although Otellini was eager to pursue a marketing strategy of embracing technology “platforms” – which are different than individual microprocessors because they include other chips and software that work together – there were other areas where he wanted the company to explore. One of the largest opportunities for Intel was expansion in China. By 2005, China was the world’s third largest market for chips. With many analysts predicting that the U.S. market for PCs would grow by only about 5 percent a year, Intel was eager to reap gains from growth in China. Intel controlled 84 percent of the microprocessor market in China, with AMD taking up the remaining 16 percent. AMD gained momentum, however, when they signed an agreement with Lenovo, China’s biggest PC manufacturer, to be the exclusive supplier of chips for Lenovo’s low-end PCs. Intel further invested in China in 2005 when they established a venture capital fund to invest in Chinese technology companies. Intel hoped that by investing in emerging companies, these companies would create products that would use Intel microprocessors, driving future growth.
In June 2005, Intel announced that Apple Computer would begin using Intel microprocessors in its Macintosh computers in 2006. Apple planned to transition all of its Macs to using Intel products by the end of 2007. Steve Jobs, Apple’s CEO commented, “Our goal is to provide our customers with the best personal computers in the world, and looking ahead Intel has the strongest processor roadmap by far.”
Intel also looked to what it called the “digital household” for growth. One of the biggest-selling products in the digital household was the flat-panel TV, which represented a $10 billion market. Intel worked on developing processors that could cut the cost of some flat-panel TV screens in half. A smaller, but growing, market was for entertainment PCs. These computers were specially designed to play movies, music, and be the source for other living room-centered media. Intel had 90 percent of this $120 million market in 2004.
Even with these developments in the microprocessor business, Intel realized PC growth was slow and that in order to keep the $34 billion company growing, Intel would have to expand. As a result, Intel unveiled a new brand strategy in 2006 that acted as a milestone in the evolution of its brand.
Intel Tries to “Leap Ahead”
In January 2006, Intel officially launched a new brand identity campaign. Not only did it include a $2 billion global marketing campaign but also a revised brand architecture strategy that positioned Intel as a “market-driving platform solutions company” instead of a microprocessor company.
There were three significant changes to Intel’s new brand strategy. First, the company reorganized its business divisions into four strategic key markets: Mobile, Digital Home, Enterprise and Health. Second, Intel launched a new platform called Intel Viiv (rhymes with five) technology that targeted home entertainment buffs. A PC with a Viiv platform allowed consumers to download and send movies to televisions around the house. Intel also launched two new PC chips code named Merom and Conroe. Finally, Intel revamped its brand image with a new logo and slogan, to help create the impression of a “warm and fuzzy consumer company.” Intel executives also hoped it would better link Intel into areas like consumer electronics and cell phones instead of just PCs.
The company modified the familiar 37-year-old blue encircled Intel logo with a dropped “e” in the name. The marketing group launched a version of the logo with a new font and tweaked the swish that appeared around the company’s name. In addition, marketing executives developed a new slogan called “Leap Ahead.” Eric Kim explained, “Intel. Leap Ahead.’ Is a simple expression that declares who we are and what we do. This is a part of our heritage. Our mission at Intel has always been to find and drive the next leap ahead – in technology, in education, social responsibility, manufacturing, and more – to continuously challenge the status quo. It’s about using Intel technology to make life better, richer, and more convenient for everyone.”
The new campaign was met with mixed reviews. Samuel Jones, CIO of Trillium Asset Management and a leading Intel shareholder complained, “I understand why Intel would want people to understand that their focus is not just on PCs, but why abandon existing branding? They have huge recognition globally and I’m not sure they need to go this far.” Robin Wight, chairman of advertising agency WCRS, agreed, “It takes a while for a name or slogan to reach the hippocampus (the portion that helps names get into memory). Losing a well-known logo or slogan often means throwing away that investment.”
Despite the initial criticism, Intel stood by its new brand image and Viiv platform. CEO Paul Otellini commented at the International Consumer Electronics show, “With our new platforms, we’re not only boosting wireless computing, but also advancing digital entertainment a few steps closer to effortless.”
Coinciding with the campaign was a shift in Intel’s microprocessor strategy. For more than a decade, Intel’s main metric was operating speed, expressed in MHz. However, that metric was only one measure of how computing work was accomplished. Other factors included having the circuitry to execute multiple tasks at the same time, how energy-efficient the chips were, and how much built-in memory and communication capacity the chips had. In 2006, Intel announced plans to phase out its Pentium chip architecture in favor of a suite of dual core processors called Core 2 Duo that use 35 percent less power and improve performance by 80 percent.
From its early place as a Silicon Valley pioneer, Intel had become the dominant chipmaker of the PC era. But like other tech stocks after the tech boom, Intel’s stock price had swung wildly, from a high of over $71 a share in March of 2000 to a near low of $18 a share in April of 2006. In 2004, Intel was the second worst performer on the Dow Jones Industrial Average. Things began looking up in the first half of 2005. The company was sitting on over $14 billion in cash and had seen its stock rise 22 percent, the Dow’s second-best performer. In addition, Interbrand, a brand consultancy firm, ranked Intel the world’s fifth most valuable brand that year. However, the first half of 2006 brought more disappointing financial results, even with the launch of a new brand identity. Due to increased competition from AMD in key markets and excess inventory, first-quarter revenues were $500 million under projections, and the stock price fell to its lowest earnings multiple in a decade. Second-quarter revenues decreased 13 percent and net income for the quarter fell 57 percent.
Amid this competitive environment, Intel faced questions of whether the company had the optimal product portfolio and whether the platform strategy would prove successful. Intel executives hoped that changing its 37-year-old-logo and introducing a new slogan would be instrumental in helping the brand achieve renewed success. Despite its challenges, Intel had much in its favor, including a strong track record for innovation, lower manufacturing costs, and one of the most powerful brands in business.
1. What were the strengths and weaknesses of the Intel Inside campaign? 2. Evaluate Intel’s continued use of the Pentium family of processors. Did Intel make the right decision by extending the name through the Pentium 4 processor? 3. Suppose you were the Chief Marketing Officer for AMD. How would you propose the company position itself to better compete with Intel? Would you propose that AMD institute an Inside-like ad campaign? 4. Evaluate Intel’s segmentation strategy. Is having a good/better/best product line (Celeron, Pentium, Xeon) the best positioning for Intel? Should it discontinue a line(s) and focus on the other(s)? 5. In light of Intel’s move into the “digital home,” did the company’s executives make the right decision in launching an entirely new brand identity? Did it make the right decision in changing a 37-year-old Intel logo and dropping the Intel Inside campaign for Leap Ahead? What other marketing strategies might the company employ? 6. Intel moved into consumer-electronics products, such as digital cameras in 2000, only to withdraw after receiving complaints from OEMs such as Dell. Does Intel face a similar issue with its move into the “digital home?” Does this move too far outside Intel’s core competency of producing microprocessors?