Managing Intel’s Way
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Highly successful companies are not accidents. One does not just wish billions of dollars in revenue, high profit margins and streamlined operations into being. Intel’s (NASDAQ: INTC) management prides itself on being at the right place at the right time; from strategic decisions to rewarding and nurturing their employees, all of these details are prioritized. After reporting record annual revenue at the end of 2011 of $54 billion, Intel was quick to realize that the management should not be complacent but rather made decisions for promotions and rotations quickly.
But Intel is at a bit of a crossroads as their focus as chip designers has always been about producing more IPC (instructions per cycle). Their chips reveal a form of myopia that has them slightly behind the curve as the world of computing shifts away from discrete PC units to devices that are more an extension of us. While that transition takes place, however, Intel will rely on its core strengths of design efficiency and manufacturing to carry them while new products designed around power management are developed.
The technology industry is so competitive and changes within it so rapid that it requires tremendous precision in making deals leading to mergers and acquisitions. This is one area that Intel has down cold. Developing strong partnerships and purchasing companies that they have worked in the past is Intel’s process. In essence, doing business with someone is the best form of due diligence. In this context, purchasing 15% voting rights in ASML was of great significance as it would help Intel lower the cost of manufacturing 450mm wafers, thereby streamlining production as the competition moves from 300mm to 450mm wafers.
Management’s efficiency has allowed them to fend off the odd challenge by rival AMD (NYSE: AMD) over the years by using size to their advantage and executing at a consistent level, making AMD’s margin for error very small. Moreover, the top management and executives encourage the middle management to seek ideas and suggestions from those closest to the market in order to develop products that’ll help them acquire first mover advantage with each chip generation.
To develop specific solutions within a market a functional team is set up for the development of any particular product or venture in the pipeline. A functional team at Intel is made up of the technical departments needed for the job at hand. Having functional teams at the product development stage is designed to get the maximum out of the expertise team members have. But this structure retains the flexibility to form cross functional teams for more complex tasks. Product development and product ownership is the same thing at Intel in that the person that generated the idea becomes a part of the product development cycle. Allowing people to see their ideas through to the end is an important part of maintaining employee loyalty.
The Current Conundrum
Even though the management at Intel has worked exceedingly well in making the organization the giant in the chip manufacturing industry, management has not taken any backup measures considering the macroeconomic problems surrounding the economies across the world. There are a number of challenges on the horizon: rising costs resulting in margin erosion, shifting computing tastes which de-emphasize their x86 i-series Core CPUs in favor of ARM Holdings-based (NASDAQ: ARMH)SoCs.
Management has its work cut out for it to successfully insert itself into the smartphone/tablet market. It will have to be up to the Clover Trail SoCs mated to Microsoft’s (NASDAQ: MSFT) Windows 8 and potentially Windows Phone to start doing that heavy lifting. Intel has been outplayed by Qualcomm, Samsung, Nvidia and Apple on this front. And it means leveraging their superior fabrication skills at the 22 and 14nm level if they want to be players, while slowly building a body of experiences through smaller players outside of the U.S., likely subsidizing them at every step of the process. Watch Intel’s relationship with Lenovo carefully to see how this plays out in China.
Of the various management decisions which were taken earlier this year by Intel, the appointment of Brian Krzanich as the Chief Operating Officer as his tenure as senior vice president of Manufacturing and promoting him to the top was the right step which the management took due to his technical expertise as Intel’s manufacturing prowess will be needed to manage the next few years. This decision, among others, may be a key to their success in adapting to a future in computing not dominated as much by Moore’s Law but rather Jobs’ Vision.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Intel, and Microsoft. Motley Fool newsletter services recommend Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.