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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/Business Development
Intel’s 22 nm 3-D Tri-Gate Transistor Technology,
http://newsroom.intel.com/docs/DOC-2032
Technology Showcases: Sensification of Computing
(Sensification, Smart and Connected, Extension of You), http://www.intel.com/content/www/us/en/intel-developer-forum-idf/san-francisco/2015/idf-2015-san-francisco-technology-showcase.html
Prof. Paul Lin 2
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Invention of Microprocessor - Intel
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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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
DRAM and CPU Chips – Tech Info
50 Years of Moore’s Law (Gordon Moore) – Intel
(video), http://www.intel.com/content/www/us/en/silicon-
innovations/moores-law-technology.html
Global Market Share held by DRAM Chip Vendors
since 2010, http://www.statista.com/statistics/271726/global-market-
share-held-by-dram-chip-vendors-since-2010/
Samsung Recorded Its Highest DRAM Shipment in
1Q15, http://marketrealist.com/2015/07/samsung-recorded-highest-dram-
shipments-1q15/
Kingston DRAM Manufacturing Tour, https://www.youtube.com/watch?v=EWDirCg-Wu8
Making Silicon Chips – Intel, http://www.intel.com/content/www/us/en/history/museum-making-
silicon.html
Intel: The Making of a Chip with 22nm/3D
Transistors, May 25, 2012, https://www.youtube.com/watch?v=d9SWNLZvA8gProf. Paul Lin 6
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The Major Themes of the Case
The DRAM (Dynamic Random Access Memory) situationin 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
Microprocessor 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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Intel Self-Assessment Questionnaire
Summary, June 2015
Source, https://supplier.intel.com/static/eicc/Intel%202015%20SAQ%20Assessment%20Summary.pdf
Evaluation of specific areas of risk• Supply chain
• Covering management system
• Labor
• Health and safety
• Environment
• Ethics
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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 cases
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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