Test

9-703-427

REV: FEBRUARY 8, 2010

RAMON CASADESUS-MASANELL DAVID YOFFIE SASHA MATTU

Intel Corporation: 1968–2003

In September 2000, Intel’s stock market valuation peaked at $510 billion, making it one of the two most valuable companies in the world. Intel’s phenomenal success was built on the microprocessor (also known as the central processing unit, or CPU), a product it invented in 1971. Intel began as a leading manufacturer of memory chips, switched to microprocessors in the 1980s, and by the late 1990s had evolved its strategy to become the main supplier of the building blocks for the Internet economy. As the company stated in its 2001 annual report: There’s plenty of room for growth in the Internet revolution. In the next two decades, we predict ubiquitous networks worldwide, with tens of millions of servers connecting billions of PCs and other clients. All of these systems are based on silicon, much of it from Intel. We are well positioned to be at the heart of this long-term technology build-out, with innovative architectures targeted at key Internet areas. Our computing and communications products are the basic building blocks of the Internet. By December 2002, however, the semiconductor industry was mired in its worst recession in history. Intel’s sales, profits, and valuation had plummeted over the prior two years (see Exhibits 1 and 2). To restore growth, Craig Barrett, Intel’s CEO, placed a number of bets. Most important, he believed that “innovation was the key to escaping a recession,” so he continued investing in research and development (R&D) and manufacturing capacity while most of Intel’s competitors cut back. In addition, Intel was pouring billions of dollars into networking and communications silicon, despite a depression in the communications industry. The obvious questions were: Would these moves restore Intel’s historical performance? Would Intel be able to once again shape industry structure to become the leading building-block...