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Starting a company wasn't always easy.
For over 35 years, Intel Corporation has developed technology enabling the computer and Internet revolution that has changed the world. Founded in 1968 to build semiconductor memory products, Intel introduced the world's first microprocessor in 1971. Today, Intel supplies the computing and communications industries with chips, boards, systems, and software building blocks that are the "ingredients" of computers , servers and networking and communications products. These products are used by industry members to create advanced computing and communications systems. Intel's mission is to do a great job for our customers, employees, and stockholders by being the preeminent building bloc k supplier to the worldwide digital economy.
History of Intel Corporation
Intel Corporation is the largest semiconductor manufacturer in the world, with 11 fabrication facilities and six assembly and test facilities around the world. Intel has changed the global marketplace dramatically since it was founded in 1968; the company invented the microprocessor, the "computer on a chip" that made possible the first handheld calculators and personal computers (PCs). By the early 21st century, Intel's microprocessors were found in approximately 80 percent of PCs worldwide. The company's product line also includes chipsets and motherboards; flash memory used in wireless communications and other applications; networking devices and equipment for accessing the Internet, local area networks, and home networks; and embedded control microchips used in networking products, laser printers, factory automat ion instruments, cellular phone base stations, and other applications . Intel has remained competitive through a combination of clever marketing, well-supported research and development, superior manufacturing proficiency, a vital corporate culture, prowess in legal matters, and an ongoing alliance with software giant Microsoft Corporation often referred to as "Wintel."
1968-79: From DRAM to the 8086
Intel's founders, Robert Noyce and Gordon Moore, were among the eight founders of Fairchild Semiconductor Corporation, established in 1957 . While at Fairchild, Noyce and Moore invented the integrated circuit ; in 1968, they decided to form their own company. They were soon joined by Andrew Grove, a Hungarian refugee who had arrived in the Unite d States in 1956 and joined Fairchild in 1963. Grove would remain president and CEO of Intel into the 1990s.
To obtain start-up capital, Noyce and Moore approached Arthur Rock, a venture capitalist, with a one-page business plan simply stating the ir intention of developing large-scale integrated circuits. Rock, who had helped start Fairchild Semiconductor, as well as Teledyne and Scientific Data Systems, had confidence in Noyce and Moore and provided $3 million in capital. The company was incorporated on July 18, 1968, as N M Electronics (the letters standing for Noyce Moore), but quickly changed its name to Intel, formed from the first syllables of "integrated electronics." Intel gathered another $2 million in capital before going public in 1971.
Noyce and Moore's scanty business proposal belied a clear plan to produce large-scale integrated (LSI) semiconductor memories. At that time, semiconductor memories were ten times more expensive than standard magnetic core memories. Costs were falling, however, and Intel's founders surmised that with the greater speed and efficiency of LSI technology, semiconductors would soon replace magnetic cores. Within a few months of its start up, Intel produced the 3101 Schottky bipolar memory, a high-speed random access memory (RAM) chip. The 3101 proved popular enough to sustain the company until the 1101, a metal oxide semiconductor (MOS) chip, was perfected and introduced in 1969. The following year, Intel introduced the 1103, a 1-kilobyte (K) dynamic RAM, or DRAM, which was the first chip large enough to store a significant amount of information. With the 1103, Intel finally had a chip that really did begin to replace magnetic cores; DRAMs eventually proved indispensable to the personal computer.
The company's most dramatic impact on the computer industry involved its 1971 introduction of the 4004, the world's first microprocessor. Like many of Intel's innovations, the microprocessor was a by product of efforts to develop another technology. When a Japanese calculator manufacturer, Busicom, asked Intel to design cost-effective chips for a series of calculators, Intel engineer Ted Hoff was assigned to the project; during his search for such a design, Hoff conceived a plan for a central processing unit (CPU) on one chip. The 4004, which cram med 2,300 transistors onto a one-eighth- by one-sixth-inch chip, had the power of the old 3,000-cubic-foot ENIAC computer, which depended on 38,000 vacuum tubes.
Although Intel initially focused on the microprocessor as a computer enhancement that would allow users to add more memory to their units, the microprocessor's great potential--for everything from calculator s to cash registers and traffic lights--soon became clear. The applications were facilitated by Intel's introduction of the 8008, an 8-bit microprocessor developed along with the 4004 but oriented toward data and character (rather than arithmetic) manipulation. The 8080, introduced in 1974, was the first truly general purpose microprocessor. F or $360, Intel sold a whole computer on one chip, while conventional computers sold for thousands of dollars. The response was overwhelming. The 8080 soon became the industry standard and Intel the industry leader in the 8-bit market.
In response to ensuing competition in the manufacture of 8-bit microprocessors, Intel introduced the 8085, a faster chip with more functions. The company was also developing two more advanced projects, the 3 2-bit 432 and the 16-bit 8086. The 8086 was introduced in 1978 but to ok two years to achieve wide use, and, during this time, Motorola, In c. produced a competing chip (the 68000) that seemed to be selling faster. Intel responded with a massive sales effort to establish its architecture as the standard. When International Business Machines Corp oration (IBM) chose the 8008, the 8086's 8-bit cousin, for its person al computer in 1980, Intel seemed to have beat out the competition.
During the 1970s, Intel had also developed the erasable programmable read-only memory (EPROM), another revolutionary but unintended research by product. Intel physicist Dov Frohman was working on the reliability problems of the silicon gate used in the MOS process when he realized that the disconnected, or "floating," gates that were causing malfunctions could be used to create a chip that was erasable and reprogrammable. Since conventional ROM chips had to be permanently program med during manufacture, any change required the manufacture of a whole new chip. With EPROM, however, Intel could offer customers chips that could be erased and reprogrammed with ultraviolet light and electricity. At its introduction in 1971, EPROM was a novelty without much of a market. But the microprocessor, invented at the same time, created a demand for memory; the EPROM offered memory that could be conveniently used to test microprocessors.
Another major development at Intel during this time was that of peripheral controller chips. Streamlined for specific tasks and stripped o f unneeded functions, peripheral chips could greatly increase a computer's abilities without raising software development costs. One of Intel's most important developments in peripherals was the coprocessor, first introduced in 1980. Coprocessor chips were an extension of the CPU that could handle specific computer-intensive tasks more efficiently than the CPU itself. Once again, innovation kept Intel ahead of its competition.
Intel's rapid growth, from the 12 employees at its founding in 1968 t o 15,000 in 1980, demanded a careful approach to corporate culture. Noyce, Moore, and Grove, who remembered their frustration with Fairchild's bureaucratic bottlenecks, found that defining a workable management style was important. Informal weekly lunches with employees kept communication lines open while the company was small, but that system had become unwieldy. Thus, the founders installed a carefully outlined program emphasizing openness, decision-making on the lowest levels , discipline, and problem solving rather than paper shuffling. Moreover, the company's top executives eschewed such luxuries as limousines , expense account lunches, and private parking spaces to establish a sense of teamwork with their subordinates.
In an interview with the Harvard Business Review in 1980, Noyc e remarked on the company's hiring policy, stating, "we expect people to work hard. We expect them to be here when they are committed to b e here; we measure absolutely everything that we can in terms of performance." Employee incentives included options on Intel stock, and technological breakthroughs were celebrated with custom-bottled champagne--"Vintage Intel" marked the first $250 million quarter, in 198 3--the year sales reached $1 billion for the first time.
1980s: From 286 to 486
During the 1974 recession, Intel was forced to lay off 30 percent of its employees, and morale declined substantially as a result. Thus, i n 1981, when economic struggles again surfaced, instead of laying off more employees, Intel accelerated new product development with the " 125 Percent Solution," which asked exempt employees to work two extra hours per day, without pay, for six months. A brief surge in sales t he following year did not last, and, again, instead of more layoffs, Intel imposed pay cuts of up to 10 percent. Such measures were not po pular among all its workforce, but, by June 1983, all cuts had been r estored and retroactive raises had been made. Moreover, in December 1 982, IBM paid $250 million for a 12 percent share of Intel, givin g the company not only a strong capital boost, but also strong ties t o the undisputed industry leader. IBM would eventually increase its s take to 20 percent before selling its Intel stock in 1987.
During the early 1980s, Intel began to slip in some of its markets. F ierce competition in DRAMs, static RAMs, and EPROMs left Intel concen trating on microprocessors. While competitors claimed that Intel simp ly gave away its DRAM market, Moore told Business Week in 1988 that the company deliberately focused on microprocessors as the leas t cyclical field in which to operate. Customer service, an area Intel had been able to overlook for years as it dominated its markets, bec ame more important as highly efficient Japanese and other increasingl y innovative competitors challenged Intel's position. In addition, In tel's manufacturing record, strained in years past by undercapacity, needed fixing. Fab 7, Intel's seventh wafer-fabrication plant, opened in 1983 only to face two years of troubled operations before reachin g full capacity. Between 1984 and 1988, Intel closed eight old plants , and in 1988 it spent some $450 million on new technology to bri ng its manufacturing capacity into line with its developmental prowes .
Despite these retrenchments, the company continued to excel in the mi croprocessor market. In 1982 Intel introduced its 80286 microprocesso r, the chip that quickly came to dominate the upper-end PC market, wh en IBM came out with the 286-powered PC/AT. The 286 was followed in 1 985 by Intel's 80386 chip, popularized in 1987 by the Compaq DESKPRO 386, and which, despite bugs when it first came out, became one of th e most popular chips on the market. While the 286 brought to the pers onal computer a speed and power that gave larger computers their firs t real challenge, the 386 offered even greater speed and power togeth er with the ability to run more than one program at a time. The 386 f eatured 32-bit architecture and 275,000 transistors, more than twice the number of the 286.
In 1989 Intel introduced the 80486, a chip Business Week heral ded as "a veritable mainframe-on-a-chip." The 486 included 1.2 millio n transistors and the first built-in math coprocessor, and was 50 tim es faster than the 4004, the first microprocessor. In designing the i 486, Intel resisted an industry trend toward RISC (reduced instructio n-set computing), a chip design that eliminated rarely used instructions in order to gain speed. Intel argued that what RISC chips gained in speed they lost in flexibility and that, moreover, RISC chips were not compatible with software already on the market, which Intel felt would secure the 486's position. A new chip, the 64-bit i860 announced in early 1989, however, did make use of RISC technology to offer w hat Intel claimed would be a "supercomputer on a chip."
Also in 1989, a major lawsuit that Intel had filed against NEC Corporation five years before was decided. Intel had claimed that NEC viola ted its copyright on the microcode, or embedded software instructions , of Intel's 8086 and 8088 chips. Although Intel had licensed NEC to produce the microcode, NEC had subsequently designed a similar chip o f its own. At issue was whether microcode could be copyrighted. The court ruled that it could but that NEC had not violated any copyright in the case at hand. The suit made public some issues surrounding Intel's reputation. Some rivals and consumers, for example, claimed that Intel used its size and power to repress competition through such tactics as filing "meritless" lawsuits and tying microprocessor sales t o other chips. Other observers, however, praised Intel's protection o f its intellectual property and, subsequently, its profits. The Federal Trade Commission conducted a two-year investigation of Intel's practices and did not recommend criminal charges against the company, but two rival companies, Advanced Micro Devices, Inc. (AMD) and Cyrix Corporation, filed antitrust lawsuits against Intel in 1993.
1990s: The Pentium Decade
Intel's annual net income topped $1 billion for the first time in 1992, following a very successful, brand-building marketing campaign . Intel ads aggressively sought to bolster consumer interest in and demand for computers that featured "Intel Inside." By late 1993, the company's brand equity total $17.8 billion, more than three time s its 1992 sales. Also during this time, Intel began to branch out from chip making. In 1992 the company's Intel Products Group introduced network, communications, and personal conferencing products for retail sale directly to PC users.
In 1993 Intel released its fifth-generation Pentium processor, a trademarked chip capable of executing over 100 million instructions per second (MIPS) and supporting, for example, real-time video communication. The Pentium processor, with its 3.1 million transistors, was up t o five times more powerful than the 33-megahertz Intel 486 DX microprocessor (and 1,500 times the speed of the 4004), but, in an unusual marketing man ever, the company suggested that "all but the most demanding users" would seek out PCs powered by the previous chip. The Pentium's reputation was initially sullied by the revelation of an embedded mathematical flaw, but Intel moved quickly to fix the problem.
The company enjoyed a dramatic 50 percent revenue increase in 1993, reaching $8.78 billion from $5.84 billion in 1992. Moreover, Intel's net income leapt 115 percent to $2.3 billion, repudiating Wall Street's worries that competition had squeezed profit margins. While Intel faced strong competition both from chip makers such as Motorola's PowerPC and former partner IBM, its place at the leading edge of technology was undisputed.
A key initiative that kept Intel ahead of its competitors was the company's move beyond chip design into computer design. With the advent of the Pentium, Intel began designing chipsets and motherboards, the latter being the PC circuit board that combined a microprocessor and a chipset into the basic subsystem of a PC. With the company now selling the guts of a PC, dozens of computer manufacturers began making and selling Pentium-based machines.
In the mid-1990s, as sales of PCs accelerated and multimedia and the Internet were beginning to emerge, Intel continued developing ever mo re powerful microprocessors. In 1995 the Pentium Pro hit the market s porting 5.5 million transistors and capable of performing up to 300 M IPS. Intel next added MMX technology to its existing line of Pentium processors. MMX consisted of a new set of instructions that was designed specifically to improve the multimedia performance of personal computers. Fuelled by exploding demand, revenues hit $20.85 billion by 1996, while net income soared to $5.16 billion.
At this point Intel was continuing its long time strategy of designing new, more powerful chips for the top end of the market while allowing previous-generation microprocessors to migrate down to the lower segments of the market. With the introduction of the Pentium II in May 1997, however, the company adopted a new strategy of developing a range of microprocessors for every segment of the computing market. The Pentium II, with 7.5 transistors, debuted with a top-end model that c locked at 300 megahertz. Originally designed for high-end desktop PCs , the Pentium II was soon adapted for use in notebook and laptop computers. With the following year came the launch of the Celeron process or, which was designed specifically for the value PC desktop sector, a rapidly growing segment of the market ever since the early 1997 debut of a sub-$1,000 PC from Compaq. Also in 1998 Intel for the first time designed a microprocessor, the Pentium II Xeon, especially for midrange and higher-end servers and workstations. At the same time Intel was moving into another burgeoning sector, that of embedded control chips for networking and other applications, such as digital set -top boxes.
Meanwhile Intel settled a dispute with Digital Equipment Corporation (DEC) over the development of the Pentium chip by acquiring DEC's semiconductor operations. In May 1997 Craig R. Barrett was named president of Intel, having joined the company in 1974, serving as head of manufacturing starting in 1985, and being named chief operating officer in 1993. Grove remained chairman and CEO for one year, whereupon Barrett was named president and CEO, with Grove retaining the chairmanship. In early 1999 Intel reached a settlement with the Federal Trade Commission on an antitrust suit, thereby avoiding the protracted litigation and negative publicity that beset its Wintel partner, Microsoft , in the late 1990s. Reflecting the increasing importance of technology to the U.S. economy, Intel was added to the Dow Jones Industrial Average in November 1999.
During the late 1990s Intel made several strategic acquisitions that rapidly gave the company a significant presence in areas outside its microprocessor core: wireless communications products, such as flash memory for mobile phones and two-way pagers; networking building blocks, such as hubs, switches, and routers; and embedded control chips f or laser printers, storage media, and automotive systems. Intel also entered the market for e-commerce services, rapidly building up the largest business-to-business e-commerce site in the world, with $1 billion per month in online sales by mid-1999. The company was not neglecting its core, however; in 1999 Intel had its largest microprocessor launch ever with the simultaneous introduction of 15 Pentium III and Pentium III Xeon processors.
New Strategies in the Less Buoyant Early 2000s
The new product launches continued in 2000, but they were accompanied by an uncharacteristic series of blunders. In February arch-rival AM D had bested Intel by releasing the first 1-gigahertz chip, the Athlon, which had the added benefit of being cheaper than the Pentium III. Intel responded by speeding a 1.13-gigahertz version of the Pentium III to market, but the processor simply did not work right and thousands had to be recalled. Further embarrassment came when the firm had to recall a million motherboards because of a faulty chip. Intel had also underestimated growth in PC sales, leaving its production capacity insufficient to meet the demands of computer makers, and it also cancelled plans to develop a low-end microprocessor called Timna that had been slated for budget PCs. Intel continued to encounter problems developing the complex Itanium 64-bit processor, the company's first , which was specifically designed, in partnership with Hewlett-Packard Company, to meet the needs of powerful Internet servers. The long-delayed Itanium, seven years in the making at a cost of $2 billion , finally reached the market in 2001, receiving a rather muted initial reception. (The Itanium line was later shifted from servers to high -end computers.) On the bright side, Intel successfully released the Pentium 4 in November 2000. This processor included 42 million transistors and ran at an initial speed of 1.5 gigahertz, enabling Intel to regain the lead in the ongoing chip-speed battle with AMD. Despite all of the year's travails, Intel reached new heights in financial performance, earning $10.54 billion in profits on revenues of $3 3.73 billion.
The bursting of the Internet bubble posed new challenges for Intel in 2001 as consumer spending on computers dropped off and corporate information technology managers pulled back as well. The fierce competition from AMD prompted Intel to initiate a brutal price war, which cut both revenues and profits, and it also slashed Intel's worldwide share of the microprocessor market to below 80 percent, compared to the 86.7 percent figure from 1998. In 2001 Barrett began jettisoning many of the new ventures and acquisitions that were part of the late 1990 s diversification drive, in a renewed refocusing on microprocessors. Revenues for 2001 fell 21 percent to $26.54 billion--the first such drop since the mid-1980s tech recession--while profits plummeted 8 7 percent to $1.29 billion. Early the following year, Paul Otellini was named president and chief operating officer, with Barrett remaining CEO. Otellini had served in a variety of marketing and management positions since joining the company in 1974, most recently serving as head of Intel's core operating unit, the architecture group, which was responsible for developing microprocessors, chipsets, and motherboards for desktop and notebook computers and for servers.
As the technology downturn continued in 2002, Intel cut thousands of workers from its payroll to reduce costs. Behind the scenes, unimportant change occurred in the company's approach to designing chips. Since the 1980s Intel had maintained its leading position by creating ever-faster processors. But by the early 2000s speed was becoming less important to the majority of PC users, who were mainly employing the ir desktop PCs and laptops to surf the Internet and run basic program s, such as word processors. Intel decided to deemphasize speed in favour of designing chips to better fit the way people were actually using their computers and to do so using technology "platforms," which we re composed of several chips rather than a single microprocessor. The first fruit of this end weaver was Centrino, launched in early 2003. Centrino was a combination of chips specifically designed for portable computers. It included the Pentium M microprocessor, which while not sporting top speeds consumed much less power than the typical chip, providing for longer battery life (and reduced energy consumption when installed in desktop computers). The Pentium M was also smaller in size, making it less expensive to manufacture. Centrino also included a supporting chipset to further improve battery life and graphics performance as well as a wireless radio chip for connecting to the burgeoning number of wireless (Wi-Fi) networks being installed at corporate offices, in retail outlets, and within homes.
Buoyed by the success of Centrino, Intel's revenues hit a new high in 2004, $34.21 billion, despite a number of manufacturing glitches , product delays, and schedule changes during the year. Intel abandoned its efforts to develop television display chips and also scrapped plans to introduce the first 4-gigahertz processor because of problem s with overheating. The profits of $7.52 billion were an impressive 33 percent higher than the previous year but below the peak reached in 2000.
In May 2005 Otellini became only the fifth CEO in Intel history and t he first non-engineer. At the same time, Barrett succeeded Grove as chairman. One of the key legacies of Barrett's tenure was surely the huge outlay of capital, as much as $32 billion over six years, exp ended to rebuild Intel's manufacturing base and enabling the firm to increase capacity to meet chip demand and add capabilities to the pro ducts. At the same time, Otellini was credited with leading the push toward platforms, and this approach was institutionalized in a 2005 reorganization that divided the company into five market-focused group s: corporate computing, the digital home, mobile computing, healthcare, and channels (PCs for small manufacturers). Otellini was also shifting the product development effort toward so-called dual-core techno logy featuring two computing engines on a single piece of silicon. In this realm, Intel was competing fiercely with, and playing catchupt o, AMD, which released its first dual-core chips for PCs in 2005, whereas Intel was aiming to produce three lines of dual-core processors, for notebooks, desktops, and servers, during the second half of 2006 . Like the Centrino technology, dual-core chips were being developed to extend battery life in laptops and cut power costs for desktop PCs and servers. They were also intended to improve performance while avoiding the problems with overheating that had plagued some of the fastest single-processor models. Intel was simultaneously beginning work on multicore platforms with three or more "brains." Two other developments from mid-2005 held potential long-term significance. AMD filed a wide-ranging antitrust suit in U.S. federal court accusing Intel o f using illegal inducements and coercion to discourage computer maker s from buying AMD's computer chips. This action followed an antitrust ruling against Intel in Japan, earlier in the year. In the meantime, in what seemed a significant coup, Intel reached an agreement with Apple Computer, Inc. whereby Apple would begin shifting its Macintosh computers from IBM's PowerPC chips to Intel chips.