CPET 575 Management of Technology. Intel Santa Clara, CA

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1 CPET 575 Management of Technology Case II-10 Intel Corporation: the DRAM Decision Discussion Note Professor Paul I-Hai Lin A 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 , Strategic Management of Technology and Innovation, 5th edition, McGraw-Hill, ISBN , Prof. Paul Lin 1 Intel Santa Clara, CA Intel, 1971 present, 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, Prof. Paul Lin 2 1

Key Concepts and Their Relationships (cont.

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

Busicom* 141-PF printing calculator Prof.

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

source: CPU Galaxy 1103 DRAM (Dynamic RAM), 1-kilo bit, 1970, the world first DRAM

2 Key Concepts and Their Relationships (cont.) Invention of Microprocessor In the November 1971, Intel announced the first microprocessor Intel 4004 to the world, Busicom eventually sold some 100,000 calculators Intel 4004 microprocessor Busicom* 141-PF printing calculator Prof. Paul Lin 3 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, , Prof. Paul Lin 4 2

3 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 Prof. Paul Lin 5 The Major Themes of the Case The DRAM (Dynamic Random Access Memory) situation in 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 Prof. Paul Lin 6 3

4 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 Prof. Paul Lin 7 Selected Intel Final Statements (Reports): , 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 Prof. Paul Lin 8 4

5 Selected Intel Annual Final Reports: 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 Prof. Paul Lin 9 Development of DRAM 1-kbit DRAM 1103 : 2 nd 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 Prof. Paul Lin 10 5

6 New DRAM Generation 1-kbit DRAM 1103 : 2 nd 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 Prof. Paul Lin 11 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 Prof. Paul Lin 12 6

7 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 K with internal multiplexing 1 transfer DRAM cell Industry standard 16-k DRAM: Intel 2117, 2118 TI, Toshiba Enter MOSTEK 64-k DRAM: Intel 2164A, first CMOS Fujitsu 256-k DRAM: , NEC has largest share 1983, Intel regains largest share Prof. Paul Lin 13 New DRAM Technology Management Strategy Process technology and equipment challenges Improvement: quality, yields, Innovation Gain process capability leadership Technology Strategy focusing on the singlepower 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 Prof. Paul Lin 14 7

8 EPROMs and Microprocessors Invention of Microprocessor: 1971 CPU RAM (Random Access Memory Read/Write) ROM (Read Only Memory) Competitors: Zilog Motorola Others Prof. Paul Lin 15 Exhibit 4 - Market Information ( ): 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 Prof. Paul Lin 16 8

9 Intel Processors: 1972 to 2003 Intel Museum : bit Microprocessor 1972: 8008 Microprocessor 1974: 8080 Microprocessor, (8085) 1978: Microprocessor 1982: 286 Microprocessor 1985: Inetl386 TM Microprocessor 1989: Intel486 TM 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 Prof. Paul Lin 17 EPROMs and Microprocessors EPROM (electrically programmable read-only memory) : 2716: 16K EPROM : 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 Prof. Paul Lin 18 9

10 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 Prof. Paul Lin 19 Intel Facilities in 2014 News Intel Fab 6 Lives on Through Equipment Donation to Arizona State University s Polytechnic Campus, Intel Cancel Fab 42 (Chandler, AZ), 2014/1/16, Intel cancels 14 nm Fab 42 in Arizona, due to increasing competition from ARM, 2014/1/15, 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), ants 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 Prof. Paul Lin 20 10

11 Technology Development at Intel Technology Development Groups, Exhibit 6 DRAM 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 Prof. Paul Lin 21 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 Prof. Paul Lin 22 11

12 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 Prof. Paul Lin 23 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. Prof. Paul Lin 24 12

13 Environmental Forces Policies During Recession 125 Percent solution work an additional 10 hrs per week Another 10 percent pay cut Competitors, Exhibit 9 1 st Category: Full-line digital design and supply house Motorola, National Semiconductor, Texas Instruments 2 nd Category Competitors focus on Process Technology AMD (full-line of component products), with a significant portion was manufactured under license from Intel and others 3 rd 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% Prof. Paul Lin 25 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 ( ) 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 Prof. Paul Lin 26 13

14 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 Mega generation?? To exploit new technology and create a lead against competitors based on Proprietary Knowledge Customers, 1983 IBM K DRAM Consolidation Phase out NMOS technology Consolidated all DRAM fabrication in Oregon s Fab 5 Prof. Paul Lin 27 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) Prof. Paul Lin 28 14

15 Options for DRAM Business Andy Grove, CEO The key question Should 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 Prof. Paul Lin 29 Conclusion Prof. Paul Lin 30 15

CPET 575 Management of Technology. Company Overview, Intel Santa Clara, CA

CPET 575 Management of Technology Case II-10 Intel Corporation: the DRAM Decision Discussion Note Professor Paul I-Hai Lin A Special Course for M.S. in Technology Graduate Program Purdue University Fort