Should Intel Penetrate the Smart Phone Market and Tablet Market?
1.0 Research Statement Proposition
The response to the research question whether Intel should penetrate the smartphone and tablet markets is clear – yes. This answer is based on the current market demand and financial or investment considerations. The latest report on Intel financials conducted in 2013 reveals that the company’s revenues have fallen by over 3% in the first quarter of the year and the company’s earnings declined by approximately 25% during the same year (Intel). The reason for declined revenues is that personal computer sales have significantly dropped in favor of smartphone and tablets. In addition, the company’s overall earnings have continued to drop due to increased start-up costs relating to development of the next generation of personal computer microprocessors (Intel). For these reasons, Intel should penetrate the smartphone and tablet market in order to redeem and bolster its growth and profitability. The second reason is that the company should move towards consumer preference [Smartphone and Tablets] and start creating an array of processors not only for the personal computer, but also for the two devices in order to remain relevant in the industry.
This shift would create a wider market niche so that the company would stop relying on personal computer market that is gradually decreasing and capture themselves the growing smartphone and tablet increasing market.
The method for penetrating the market should be through organic growth rather than a takeover for two reasons: to curb competition from their main rivals AMD and ARM by garnering a high market share through its developed products and to avoid litigations and collapse that arise from business acquisitions. A 2008 plan by Intel to take over Spectra Watt Inc. assets in order to start an autonomous company failed because the latter company filed for bankruptcy (Kapsch). This situation divulges the risks that could rise from acquisition attempts.
Acquisitions are mainly deemed to work in situations where the company is small or in a situation where the company has been shown to suffer from negligible growth that is likely to lead to closure (Hess 58). However, Intel is a distinguished company considered to be the world’s largest producer of microprocessors and 3-D transistors. The company has designed and implemented a series of microprocessors found in most personal computers including the famous computer brands like Apple, Dell, and HP. Organic growth process has repeatedly proven that mature companies can generate incredible growth through innovation (Kapsch n.p). In other words, organic growth assists in augmenting the value of the business in the long-term and this not only helps to build company reputation but it also generates revenues needed for further investments. For instance, Samsung in mobile phones and Toyota in cars have been able to produce innovative designs that have thrived in their respective markets.
While many companies choose to remain in their primary business for fear of declining, research shows that there are benefits that come from diversifying and integrating into new spheres of business. The reason for diversifying is usually to maintain company revenue growth by finding alternative revenue streams as well as acclimatizing to regular business changes in the market. The manner in which diversification occurs by either shifting through products or by organic or inorganic growth [mergers and acquisitions] depends on the size of the company and the economic viability for diversification to bring intended changes (Jackson n.p). Therefore, attempts to penetrate a certain market or business venture are not a treat, but a necessity for company growth. The argument forms the basis of whether Intel should penetrate the smartphone and tablet markets and the response being an affirmative one. Intel operates in a technological industry and for this reason is always in constant attempt to invent superior products in line with other companies technologically advanced products particularly the computer and chip manufacturing industries.
Constant technological advancements call for diversification as consumers are shown to favor superior products that come in reasonable costs. According to Hill et al, diversification is a process and if top managers want to pursue it they have to have the ability to distinguish profitable opportunities to penetrate new industries and to execute the strategies needed to make diversification profitable (Hill and Jones 352). Intel should penetrate the Smartphone and Tablet market through organic growth to maintain its competitive advantage and to increase its revenue collection. This paper will discuss why Intel should penetrate smartphone and tablet markets using organic growth as well as other alternatives in view of various in view of business strategic models as well drawbacks that could ensue from such a strategic decisions.
3.1 Does Intel have the ability for diversification?
Diversification is a business process where a company engages in design, manufacture, and marketing of a new product. There are namely two types of diversification: related diversification that entails remaining in the industry/market that one is accustomed to and unrelated diversification that entails shifting from manufacture of a familiar product. Intel can be said to be undertaking related diversification because the company wants to produce processors [their primary product] but for different market segments [those using smartphone and tablets]. The other question we should be asking ourselves is whether Intel has the capacity to design and produce processing chips for smartphone and tablets. If the answer is yes, then the company can undertake diversification process without serious impediment like designing the product or marketing.
The common conception is that a company can only adapt well if it has matured and been proven to do so. For instance, how did Apple Inc. manage to come back from an almost obsolete case in the late 90’s to become the leading computer and technology manufacturer globally. The answer can be found in the type of strategies used by the top management to increase company’s performance. The Strategic Management Model underscores that for companies to undertake successful diversification process they must examine the industry environment by evaluating the competitive structure of the company’s industry including the company’s competitive position with that of its major rivals (Hill and Jones 18). Apple Inc. was able to remerge as a global technological company because part of its agenda was to diversify through creating superior products in a market that seemed to have more mediocre goods than advanced ones. The emergence of Apple superior products in the twenty first century for instance the manufacture of new products like iPod, iMac, Mac Mini, Mac Book, and iPad from earlier versions like power Macintosh and Newton Message Pad 100 discloses the company’s objective to satisfy consumer needs. The new Apple products not only serve customer’s needs like portability, easy to use devices [touch screens], varied applications, and diverse entertainment such as Mp3 player, but the devices comes in low-price and this is what attracts consumers.
In the same way, Intel underwent slow growth in the early twenty first century following a decline in demand for advanced micro-processors leading its reduced market share and subsequent increase for its rival company AMD (McVeigh 6). Moreover, Intel suffered from multiple litigations regarding business-related issues like microprocessor property rights and allegations from AMD company concerning unfair competition in (McVeigh 7). These litigations created finical constraints on the company in regards to legal bills that would reduce the company’s aptitude to compete with its rivals. However, the company has always managed to rise from setback situations through strategic decision-making to restore the funds lost through litigation process and low demand. For instance in 2006 just after the lawsuits, a plan to revive from prior litigation drawback saw Intel create the P6 and NetBurst that raised considerable revenues because of high demand caused by the device’s small size (McVeigh).