Intel (US)

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It's not just computers that have 'Intel Inside'. Since 2006 the US chipmaker has campaigned to widen its market to handsets and other high-end devices, albeit so far with less success than with which it dominates the PC sector. It is pushing hard into the "internet of things" market, as demonstrated by the recent partnership with Tag Heuer in 2015 to develop a luxury smart watch. The world might be a very different place had it not been for the American company that invented the microprocessor, a tiny silicon chip that allows electrical products to "think" for themselves. Almost all electrical appliances now contain microprocessors, from toys to washing machines, from cars to traffic lights, from telephones to thermostats. And computers of course. Around 80% of PCs worldwide operate on Intel microprocessors, and the company has powerful alliances with most of the world's biggest manufacturers. Intel also makes a variety of other memory chips and computing components. After a slowdown in the market in 2008 and 2009, the group was back in growth mode by 2010. However the shift towards smartphones and tablets - not an area of strength for Intel - began to create problems in 2012, prompting the company to launch a bigger push for its own line of Ultrabook laptops, as well as a series of acquisitions of chip manufacturers specialising in other sectors.

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 8th Sep 2016: Intel agreed to transfer control of internet security business McAfee to private equity firm TPG. Intel acquired McAfee in 2010 but has failed to find a way of successfully integrating McAfee's security protocols directly into its chips, as it had intended. TPG is buying a 51% stake in a standalone McAfee for an enterprise value of $4.2bn, considerably less than the $7.7bn for which Intel bought the business.

Adbrands Weekly Update 12th Nov 2015: LVMH's Tag Heuer brand unveiled its $1,500 Connected smartwatch, the first response from any of the Swiss luxury manufacturers to Apple Watch. The device is a three-way collaboration with Intel - which has actually manufactured the first batch of timepieces - and Google. "This is a marriage of Watch Valley and Silicon Valley," said LVMH watch division president Jean-Claude Biver. "The biggest challenge was to make a connected watch that didn’t look like a connected watch," unlike the devices from Apple and other electronics companies. He admitted that Apple's device is likely to lead the market for the foreseeable future, but "the more Apple sells, the more we sell. They opened the door for us." Researcher Strategy Analytics estimated sales of 4.5m units for Apple Watch in 3Q 2015, far ahead of Samsung's Gear, in second place at around 0.6m units.

Adbrands Weekly Update 9th July 2015: There was a shake-up at Intel, with the departure of several senior executives including group president Renee James, appointed to the #2 position in the company two years ago at the same time that Brian Krzanich was promoted to CEO. It's understood that no replacement will be appointed; Krzanich will take over James' duties.

Adbrands Weekly Update 4th June 2015: Chip giant Intel unveiled the acquisition of smaller rival Altera for $16.7bn, in order to expand its profile in server systems and wireless devices. The deal was seen by investors as a defensive move by Intel in the wake of widespread consolidation across the sector. It is the company's biggest ever purchase and one that will wipe out most of its cash reserves and also require it to take on significant debt for the first time since the 1980s.

Adbrands Weekly Update 8th May 2014: Former Staples and P&G marketer Steve Fund was named as the new chief marketing officer for Intel, replacing long-serving Deborah Conrad, who recently retired after 27 years with the tech company.


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Background

Free for all users | see full profile for current activities: During the 1950s, Bob Noyce and Gordon Moore were two of the founders of US technology company Fairchild Semiconductor. In 1959, Noyce developed the first integrated circuit, which allowed miniature electronic circuits to be stamped onto a single silicon chip. By the late 1960s, Noyce and Moore were frustrated with the way Fairchild was developing and wanted to set up their own business. In particular they felt that computer memory could be stored on miniature chips rather than on magnetic media such as tape or disk drives. In 1965, Moore devised a planning model later known as Moore's Law. This predicted that the number of transistors that the industry would be able to place on a computer chip would double every year. (Incredibly, the model was to remain true for the next 30 years, until Moore revised it to doubling every two years).

Backed by venture capitalist Art Rock, they set up as Intel, short for Integrated Electronics, in 1968. Recruiting another ex-Fairchild engineer, Andy Grove, they started by making RAM memory chips for mainframe computers. But in 1970 a Japanese client, Busicom, commissioned a new order. Busicom asked for 12 custom-built logic chips to run a low-cost desktop calculator. Instead Intel decided to amalgamate the 12 separate chips as one, designed so that it could be controlled by software, instead of having its programming built-in. After nine months of development, the first microprocessor was born in 1971. Smaller than a thumbnail, it contained as much computing power as ENIAC, the first mainframe computer developed in 1946, which had filled 3,000 cubic feet and weighed 30 tons.

Unfortunately, the technology had been funded by Busicom, so they owned it. Noyce and Moore bought out Busicom for $60,000. (The Japanese company went bust a year later). The other catch was that no hardware manufacturers were making products capable of using this revolutionary new technology. Intel mounted a huge campaign designed to let the electronics community know what they'd devised. In fact the first electrical products to use microprocessors had nothing directly to do with computers - they were supermarket scales, traffic lights and telephones. In effect, microprocessors allowed traffic lights to operate independently, as opposed to being wired into a huge city-wide network. Supermarket scales could convert weights into prices and print labels. Telephones could hold numbers in memory for speed-dial or redial.

However gradually computer hobbyists also began to incorporate Intel's chips into their amateur projects. Effectively the first personal computer was the Altair, sold to hobbyists as a DIY kit. It was launched in 1974, using Intel's third-generation processor design, the 8080 chip. Shortly afterwards, two Seattle-based programmers named Bill Gates and Paul Allen set up a small software partnership called Microsoft to write a simple programming language for the Altair. Meanwhile, Intel acquired watch manufacturer Microma and began manufacturing digital timepieces powered by microchips. It was a bad call. The company was quickly overtaken by Japanese manufacturers, and Intel disposed of the business in 1978.

In 1981, computer giant IBM took the decision to sub-contract some of its technology for the first time in order to develop the first commercial personal computer. It selected Intel to provide their fourth generation 8088 microprocessors, and commissioned Microsoft to supply the operating system. A year later, the 80286 - usually called the 286 - was the first chip to be reverse-compatible with software written for its predecessors. In an attempt to make the 286 an industry standard, Intel licensed the technology to smaller company Advanced Micro Devices (AMD), but quickly found they had created a competitor not a collaborator. Meanwhile Japanese rivals forced Intel out of the less profitable memory business, as well as the wider non-computer processor market. The company reinforced its position by concentrating on PC chips, launching the Intel386 in 1985. This was capable of multi-tasking - allowing the computer to run multiple programs at the same time. The 486, launched in 1989, was even faster. However, AMD sued for being shut out of the new technology and a series of lawsuits dragged until the mid-1990s.

In 1993, Intel developed a new family to replace the 86 series, the Pentium series. Containing 3.1m microscopic transistors and circuits each 1/300th the width of a human hair, the Pentium was 1,500 times faster than Intel's first 4004 chip. The Pentium Pro launched in 1995, followed by Pentium II in 1997. The company also began to diversify its range, custom-designing specific sorts of chips for different types of applications instead of the one-size-fits-all approach of previous CPUs. The Pentium II was specifically designed to provide enhanced multimedia; however this wasn't always the most important requirement for different computers. So the Pentium II Xeon range, launched 1998, was introduced for servers and workstations, which specialise in networked business applications. The budget range of Celeron chips, also 1998, offered high multimedia performance at lower prices for home users. The Pentium III, launched in 1999, is top of the range with enhanced handling of multimedia as well as demanding business computing. It is being superseded in 2000 by the company's newest chips, the Itanium processor, and Pentium 4. Advances in technology mean that the company can now stamp more than 10m transistors on a silicon chip, using circuits 1/1000th the width of human hair.

In 1997 the company also began a program of acquisitions to reinforce its product portfolio. During the 1980s, smaller company CHIPS had proved a thorn in Intel's side as a manufacturer of clone microprocessors, undercutting Intel's prices. By the 1990s, CHIPS had become a specialist in graphics controllers for portable computers. Intel paid $420m to buy the business in 1998. It also settled a lawsuit from Digital, who claimed the Pentium chip plagiarised their rival Alpha CPUs, by paying $700 to acquire Digital's semiconductor business.

Later that year Intel moved into networking, buying Level One Communications for $2.2bn. It paid a further $780bn for computer telephony business Dialogic in 1999, followed by $1.6bn to purchase cellular communications software maker DSPC. Intel also invested $100m for a strategic alliance with Korea's leading semiconductor manufacturer Samsung. There were a series of stock-based acquisitions during 2000 in a variety of companies including networking processor company Basis Communications ($450m), communications software designer Trillium ($300m), Danish chipmaker GIGA ($1.25bn) and circuit board maker Ziatech ($240m). The rivalry with AMD resurfaced in 2000 when the smaller company beat Intel to the launch of a 1-gig processor by two days. But Intel's close ties to Dell, Compaq, Microsoft and several other major developers have effectively closed out AMD from the top tiers of the computer industry.

In early 2001, the company raised the stakes even further in chip development, announcing they had perfected the technology to make microprocessors containing more than 400m transistors by 2005. Intel's current top-end chip, the Pentium 4, has 42m transistors. The group also spent almost $2bn in cash and stock to acquire a number of smaller technology developers during the year, including wireless communications company Xircom, semiconductor maker VxTel, components company Cognet and fire-optics developer LightLogic. The Itanium 64-bit microprocessor for servers, developed with Hewlett-Packard, finally launched in 2001, several years later than planned. The group sealed a deal to become the exclusive supplier of server chips to Compaq; however AMD's new Athlon chip for PCs loosened a small part of Intel's hold on the desktop market. Intel won back the lost ground with substantial price cuts, and a string of even faster Pentium chips.

Although the group has consistently held onto its leadership of the market, the economic downturn in 2001 and 2002 hit hard. Sales dropped more than 20%, as both unit volumes and chip prices fell in response to slower demand. Net income plummeted from $10.5bn in 2000 to just $1.3bn in 2001. However 2003 saw a strong recovery throughout the industry, and Intel was no exception.

Yet at least some of Intel's recovery was supported by aggressive and sometimes unfair behind-the-scenes negotiations with manufacturers and retailers, in which it paid computer makers to limit the number of chips they sourced from competitors. This led to a lawsuit from main rival AMD which resulted in fines in several countries. The most significant of these was an unprecedented E1.06bn fine handed down by European regulators in Spring 2009. The EU found that Intel had given large discounts to several manufacturers on condition that they buy some or all of their components from the company, and paid electronics retailer Media Markt, a unit of Metro Group, to sell only Intel-based machines in its stores. Intel vowed to appeal against the fine.

For several years, the group was determined to cross over from computer components into traditional wireless handsets, but these operations incurred heavy losses as Intel had difficulty breaking the stranglehold of rivals such as Texas Instruments and Freescale on the mobile phone sector. The Intel Communications Group's products included wired and wireless networking and connectivity products, application processors and chipsets for cellular handsets and handheld devices. Brand names include StrataFlash memory for high-end cellular phones and XScale processors. Performance improved dramatically in this unit in 2004, with sales rising almost 30%, but the business still reported losses. Eventually Intel called it a day in 2006, selling the entire communications unit to Marvell Technology for around $600m.

A separate unit, the New Business Group, launched a range of other products in early 2000, including DSL modems, PC cameras and toys, but the project was later phased out in the light of poor returns. Its remaining activities, web hosting services for corporate customers, were phased out in 2003. See full profile for current activities


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