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CPET 575 Management of Technology

Case II-10

Intel Corporation: the DRAM Decision

Discussion Note

Professor Paul I-Hai LinA Special Course

for

M.S. in Technology Graduate Program

Purdue University Fort Wayne Campus

References: [1] George W. Cogan and Robert A. Burgelman, Case II-10 Intel Corporation: the DRAM

Decision, pp. 521-544, Strategic Management of Technology and Innovation, 5th edition, McGraw-Hill, ISBN 0073381543, 2009.

Prof. Paul Lin 1

Intel – Santa Clara, CA

Intel, 1971 – present, http://www.intel.com/about/index.htm?iid=hdr+about

• Technology Leadership

Architecture & Silicon

Product Technologies

Manufacturing

Research

Standards

• Healthcare Technologies

Intel in Healthcare

Intel-GE Care Innovations LLC

• New Technology Development

Intel’s 22 nm 3-D Tri-Gate Transistor Technology,

http://newsroom.intel.com/docs/DOC-2032Prof. Paul Lin 2

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Prof. Paul Lin 3

Key Concepts and Their Relationships (cont.)

Invention of Microprocessor

• In the November 1971, Intel announced the first

microprocessor Intel 4004 to the world, http://www.intel.com/museum/archives/4004.htm

• Busicom eventually sold some 100,000 calculators

Intel® 4004 microprocessor

Busicom* 141-PF printing calculator

Prof. Paul Lin 4

RAM History: from SRAM 1101 to … 3001 Schottky bipolar 64-bit SRAM (static Random

Access Memory

Intel 1101 SRAM 2-inch Wafer, 1969, source: UCLA calisphere

C1001A Technical Specification, PMOS, 256-bit SRAM, introduction date: July 1969, source: CPU Galaxy

1103 DRAM (Dynamic RAM), 1-kilo bit, 1970, the world first DRAM chip, source: About.com Inventors

Dynamic random-access memory, Wikipedia

35 years of Innovation, 1968-2003, http://www.intel.com/Assets/PDF/General/35yrs.pdf

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Prof. Paul Lin 5

RAM History: from SRAM 1101 to … Process Innovation

• Bipolar Schottky Process, 64-bit SRAM 1103

• P-MOS Process, 256-bit SRAM 1101

• MOS Process Technology, 1-k bit DRAM Required external circuitry: Access & Refresh

• Process yield

Industry/Market• Technology

Magnetic core memory

• Customers Replacement of core memory

Mainframe – shift register

• Market Competition: Japan

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The Major Themes of the Case

The DRAM (Dynamic Random Access Memory) situation in 1990.

The rationalization of “technology strategy” with changing industry dynamic and paradigms.

The continuing implications for corporate strategy of tensions between commodity and proprietary businesses: EPROM and Flash.

Changing modes of corporate entrepreneurship and strategic renewal: RISC (Reduced Instruction Set Computer) versus CISC (Complex Instruction Set Computer), Flash

Forward integration and the future of Intel

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Investment Decision … 1984 Assessment of Investment Decision

• DRAM Memory chip business Commodity, price/performance, facility & manufacturing

equipment investment

$$ Investment

Competition

ROI..

• Microprocessor business

Decision to exit the DRAM• DRAM product volume – low

• DRAM business grown unfocused Changing environment and competition

It was a critical component in the sales product mix

• DRAM technology – core

• Competitive advantage – may be

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Selected Intel Final Statements (Reports): 1976-1984, Exhibit 2

Sales (revenue)

COGS (Cost of Goods Sold)

Gross margin

R&D (Research & Development)

SG&A (Selling, General & Administrative Expenses)

Operating profit

Interest & other

Profit before tax

Income tax

Net income

Depreciation

Capital invest

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Selected Intel Annual Final Reports: 1976-1984

Cash and ST invest (sum of cash & short-term investments)

Working capital (current assets – current liability)

Fixed assets

LT debt (Long-Term)

Equity (net assets)

Employee

ROS (Return on Sales) • Operating profit margin, before interest & tax, expressed as

a percentage of sales (revenue)

• ROS = EBIT/Revenue

• EBIT – Earning before Interest & Tax

ROA (Return on Assets)• ROA = Net Income/Total Assets

ROE (Return on Equity) = Net Income/Equity

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Development of DRAM

1-kbit DRAM “1103”: 2nd Technical innovation in 1970

Technology advantage• Increased storage capacity

• Price/performance advantage

Disadvantages• Required external circuits for access and refresh

• Most difficult to use product

Customer adoption/development• Customer training

• MSO (Memory System Operations) Leaning kit, Development kit

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New DRAM Generation

1-kbit DRAM “1103”: 2nd Technical innovation in 1970

Early 1103 Runs – low yields (25/250 fully functional)

Process Technology Improvement• Double capacity (Bipolar): 2-inch diameter silicon wafer =>

3-inch wafer

MSO (memory system operation) Redundancy strategy: • 1 defective memory cell out of 1024 (1103 DRAM)

• Required an extra 1103 DRAM

New competitors entered DRAM market• MOSTEK, TI, Toshiba

Every 3 years (mid 1970’s)• A new generation with 4 times as much capacity as its

predecessor was developed

• Exhibit 3 Product Introduction Timelines

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New DRAM Generation

4-kbit DRAM Competition and Strategy• Staying ahead of the experience curve using

process technology Reducing the required number and size of components

per memory cell

Photolithograph process: line-width 5 µm => 0.7µm make larger chips without defects

• Using DRAM as a technology driver

• Merge Research & Manufacturing functions to enhance their linkage Perform all process research directly on the production

line

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New DRAM Generation(Products and Competitors)

4-k DRAM: 1972…• Intel 2107 DRAM (4-K – no multiplexing) – 1972

• New start-up MOSTEK: 4 –K DRAM (with on-chip multiplexing) – 1973

• Intel 2104 DRAM - 1974

• 4 K – with internal multiplexing

• 1 transfer DRAM cell – Industry standard

16-k DRAM: 1975 …1979• Intel 2117, 2118

• TI, Toshiba Enter

• MOSTEK

64-k DRAM: 1981 .. 1983• Intel 2164A, first CMOS

• Fujitsu

256-k DRAM: 1982 … 1985• 1982, NEC has largest share

• 1983, Intel regains largest share

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New DRAM Technology Management Strategy

Process technology and equipment challenges• Improvement: quality, yields,

• Innovation

• Gain process capability leadership

Technology Strategy focusing on the single-power supply 16k DRAM• Projected long life cycle for the 16-K generation, due

to the technical challenge in achieving the 64K generation

• One-power supply technique would dominate the design

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EPROMs and Microprocessors

Invention of Microprocessor: 1971 … • CPU

• RAM (Random Access Memory – Read/Write)

• ROM (Read Only Memory)

Competitors:• Zilog

• Motorola

• Others

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Exhibit 4 - Market Information (1974-1984):DRAMs and Microprocessors

Worldwide unit shipment of DRAMs (in thousands)

Worldwide yearly average selling price of DRAMs ($/unit)

Intel DRAM market share

Micropocessor sales history by architecture

• 8-bit Zilog Z80

Intel (8080, 8085, 8088)

Motorola (6800, 650X, 680X)

Others

• 16-bit Zilog Z8000

Intel (80186/286, 8086)

Motorola 68000

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Intel Processors: 1972 to 2003 Intel Museum http://www.intel.com/content/www/us/en/company-

overview/intel-museum.html• 1971: 4004 4-bit Microprocessor

• 1972: 8008 Microprocessor

• 1974: 8080 Microprocessor, (8085)

• 1978: 8086-8088 Microprocessor

• 1982: 286 Microprocessor

• 1985: Inetl386TM Microprocessor

• 1989: Intel486TM DX CPU Microprocessor

• 1995: Intel® Pentium® Processor

• 1997: Intel® Pentium® II Processor

• 1998: Intel® Pentium II Xeon Processor

• 1999: Intel® Celeron® Processor

• 2003: Intel® Pentium® M Processor

• …

• 2014 …

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EPROMs and Microprocessors

EPROM (electrically programmable read-only memory)• 1997-1979: 2716: 16K EPROM

• 1981-82: recession

Market competition, price dropped 75%

• Retrofit the brand new Fab 7 at Chandler, Arizona, with

Opened in 1980

Products: Pilot and DRAM Logic, EPROM, Microcontrollers

A new photolithography technology: Stepper alignment

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Intel Facilities in 1984 (Exhibit 5)

Exhibit 5 Intel Facilities (Fab 1-11) in 1984, page 530• Intel’s Wafer foundries

Fab 1, CA, 1977

Fab 2, Santa Clara, CA, 1971

Fab 3, Santa Clara, CA, 1973

Fab 4, Livermore, CA, 1979

Fab 5, Aloha, OR, 1979

Fab 6, Aloha, OR, 1980

Fab 7, Chandler, AZ

..

• Intel’s other worldwide facilities

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Intel Facilities in 2014 News

• Intel Fab 6 Lives on Through Equipment Donation to Arizona State University’s Polytechnic Campus, https://asunews.asu.edu/20000816_donation

• Intel Cancel Fab 42 (Chandler, AZ), 2014/1/16, http://www.eetimes.com/document.asp?doc_id=1320670

• Intel cancels 14 nm Fab 42 in Arizona, due to increasing competition from ARM, 2014/1/15, http://www.extremetech.com/computing/174832-intel-cancels-14nm-fab-42-in-arizona-but-its-nothing-to-worry-about

Intel’s other worldwide facilities • List of semiconductor fabrication plants (accessed 2014/3/27),

http://en.wikipedia.org/wiki/List_of_semiconductor_fabrication_plants

USA: AZ (Tempe, Chandler), OR (Gresham, Hillsboro) Texas (Austin, San Antonio), NM (Rio Rancho), MA (Hudson), Virginia(Manassas), Idaho(Boise), NY (Malta), MN

World-Wide: Singapore, China, Ireland, Israel, China, Taiwan, UAE, Japan, Germany, UK, Netherlands, France, Italy, South Korea

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Technology Development at Intel

Technology Development Groups, Exhibit 6DRAM | EPROM | Logic/SRAM

• Product focus

• Process/design interface

• Key distinctive technical competence

• Number of personnel: 120 staffs for each group

• 1985 budget allocation: $65 Million for each group

• Other Comments

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Intel Product Line and Situation in Late 1984

Exhibit 7 Composition of Revenues• Systems

• Micro devices (logic)

• DRAM and SRAM

• EPROM

• Biploar

Exhibit 8 Sample of Cost Accounting Data for selected Intel Products in 1984

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Environmental Forces

Exhibit 8: Sample of Cost Accounting Data for selected Intel Products in 1984

ROS – return on sales = EBIT/Net Income• Relative high

ROA – return on asset• Decreasing, low

• Business too capital intensive

• Couldn’t provide its investors with an adequate return when a new plant cost $150 million and took at least 2 years to build

ROE – return on equity• Respectable ROE

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Environmental Forces

1985 Prediction of Semiconductor Industry• Expected to enter into another series of cyclical

downturns (occur every 5 years)

• Classic case

Oversupply

Softening demand

• Since 1980, a large amount of worldwide semiconductor fabrication capacity had been added

• Learning curve effect, adds another 30% per year to worldwide capacity

Increase in yields

Decrease in chip size

etc.

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Environmental Forces

1981-84 Policies During Recession• 125 Percent solution – work an additional 10 hrs per week

• Another 10 percent pay cut

Competitors, Exhibit 9• 1st Category: Full-line digital design and supply house

Motorola, National Semiconductor, Texas Instruments

• 2nd Category

Competitors focus on Process Technology

AMD (full-line of component products), with a significant portion was manufactured under license from Intel and others

• 3rd Category

Foreign competitors (Japanese)

Concentrated on DRAM and SRAM, EPROM

U.S. invested 22% of sales in new plant and equipment; Japanese firm invested 40%

Japanese production yields exceeds U.S. producers by 40%

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DRAM Situation in 1984

Intel had lost significant market share in DRAM• See Exhibits 4 and 9

At Intel• Real difficulties with the 64K generation (1980-1984)

• Redundancy technology

• Fuse technology

• Not economical to solve

• Sales force was disappointed in Intel’s performance

Japanese competitors• 64K DRAM capacity increase (from 1981 to 1982): 9 million

to 66 million devices per year

• Improving the underling defect density problem

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Attempts to Regain Leadership Position

Technology shifting Strategy• NMOS (8 to 9 masking steps) => CMOS (10 to 12 masking

steps)

Lower power consumption

Faster access time

• Introduce CMOS 64K and 256K DRAMs in 1984

• 1-Mega generation??

• To exploit new technology and create a lead against competitors based on Proprietary Knowledge

Customers, 1983• IBM – 2164 64K DRAM

Consolidation• Phase out NMOS technology

• Consolidated all DRAM fabrication in Oregon’s Fab 5

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Attempts to Regain Leadership Position

CMOS 64K and 256 K- Market strategy (Niche strategy)

By late 1984• Commodity market (staying in power – a function of size)

• Ability to make profits?

• Project future profits in DRAMs was limited

Decisions• Stop DRAM manufacturing

• Technology transfer deal => Korean chip manufacturer

• Support the business through an R&D alliance, to be the technology leader

• Create a new competitor (technology transfer backfire)

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Options for DRAM Business

Andy Grove, CEOThe key questionShould Intel really commit to being a leader? Can we be? What is the cost if we try? What is the cost if we don’t?

1. Drop it all together, or

2. Stay in the business as a niche player, or

3. License the technology to another company, or

4. Invest in DRAM capability at the 1-Mega level and commit to a low-margin business

Conclusion

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