Business Model of Intel

Intel entered its second half century in 2018. The company was created in 1968 when the world was seeing a boom in hardware capability. Today computing has grown omnipresent and become a part and parcel of our daily lives. Intel has also evolved as the world of computing has done. The world of computing has transitioned from a PC centric era to a data centric era. Intel has also altered its model to respond to the changing industry environment. 2018 was a profitable year for the company when its revenue and profits in both PC centric and data centric businesses grew. In the other areas too including AI, autonomous driving and 5G, Intel has continued to grow its performance and capabilities. The path ahead is full of opportunities but it is equally challenging. The company is investing a lot in research and development to improve the existing products and to grow its portfolio of products and services. Intel is a global leader in the design and manufacturing of essential technologies that power the cloud and a smart and connected world. To tackle the upcoming challenges and profit from the growing opportunities, the company has set its priorities for the near future. Read more about how Intel operates its business and its competitive advantage in this article.

Intel Business Model
Intel Corporation in April 2019 introduces the Intel Agilex FPGA. The family of field programmable gate arrays addresses the data-centric business challenges across embedded, network and data center markets. (Credit: Intel Corporation)

Operating Segments :-

Intel operates its business through the following operating segments :-

  • • Client Computing Group (CCG)
  • • Data Center Group (DCG)
  • • Internet of Things Group (IOTG)
  • • Non-Volatile Memory Solutions Group (NSG)
  • • Programmable Solutions Group (PSG)
  • • All other

However, it is only the first two – CCG and DCG that are considered reportable operating segments. Here is a detailed discussion of how these operating segments work.

Client Computing Group :-

The client computing group is the largest operating segment of Intel based upon the level of revenue it generates. In 2018, this segment generated around 52% of the entire revenue of the company. The CCG segment is dedicated to delivering client computing end user solutions. Its main focus is upon the higher growth segments including 2-in-1, thin-and-light, commercial, and gaming, as well as growing adjacencies such as WiFi and modem.

Data Center Group :-

The data center group or the DCG is the second largest operating segment of Intel based upon revenue. In 2018, it generated around 32% of the company’s entire revenue. This segment designs and develops workload-optimized platforms for compute, storage, and network functions. Among the main customers of the DCG segment are cloud service providers, enterprise and government, and communications service providers. DCG segment has experienced faster growth than the entire company in 2018 as a whole. It generated around 32% of the company’s entire revenue. Strong demand in key workloads like AI and network function virtualization in the cloud service provider and communications service provider market segments fuelled the  growth of this segment.

IOTG :-

This segment of Intel makes high-performance compute for targeted verticals and embedded markets. The customers of IOTG include retailers, manufacturers, health care providers, energy companies, automakers, and governments. Intel through its IOTG services helps its customers create, store, and process data generated by connected devices to accelerate business transformations. IOTG generated around $3.5 billion in revenue in 2018 compared to $3.2 billion last year. Growing demand for edge computing and computer vision based applications fuelled the growth of the IOTG segment.

NSG : –

The core offerings of this segment include Intel Optane and Intel 3D NAND technologies. These technologies drive innovation in SSDs and next-generation memory and storage products. The customers of this segment include enterprise and cloud-based data centers, users of business and consumer desktops and laptops, and a variety of Internet of Things application providers. The company is  ramping 64-layer (64L) triple-level cell (TLC) and quad-level cell (QLC) NAND technologies, and Intel Optane technology in innovative new form factors and densities. This will help address the challenges that the customers of Intel face in a rapidly evolving technological landscape.


PSG :-

The programmable solutions group or the PSG offers programmable semiconductors, mainly FPGAs and related products for a large range of market segments, including communications, data center, industrial, and military. PSG delivers FPGA acceleration in tandem with Intel microprocessors in collaboration with the other businesses run by Intel. This integration helps broaden the use of FPGAs and combines the benefits of both technologies to allow higher flexibility for systems to operate with increased efficiency and higher performance.

Main Products by Intel : –

The world is growing increasingly connected and smart. Intel is at the forefront of the new technologies and solutions that  form the building blocks of a smarter and more connected world. In a broad spectrum of markets, these products and solutions are utilized by customers as integrated solutions. Intel products are based on customer needs and expectations and their focus is upon providing compelling user experiences. The company closely works wit its customers and partners to provide products and solutions which deliver higher performance and whose total cost of ownership is lower. The company has been able to deliver higher value to its customers by improving its products and by expanding its product portfolio including adjacent products like modem and memory where the company experienced significant growth in 2018.

The company has a broad product portfolio of innovative solutions for a wide range of customers including data transfer, storage and analysis solutions. These products for example, the gaming CPUs made by Intel can be sold to the consumers directly or can be integrated by its customers further into their products like notebooks or storage servers. Some of these products can also be combined to enable synergistic incremental value and higher performance.

Platform Products by Intel :-

The platform products by Intel include a CPU and chipset, an SoC, or a multichip package that processes data and controls other devices in a system. These products are mainly used in solutions sold through CCG, DCG, and IOTG.

Accelerators :-

The accelerators by Intel are silicon products that can operate alone or in combination with Intel processors in a system like FPGAs, visual processing units (VPU), and Mobileye EyeQ SoC.

Boards and systems :-

The product in this category include server boards and small form factor systems such as Intel NUC.

Connectivity :-

The connectivity products by Intel include Cellular modem, Ethernet controllers, silicon photonics, fabric, WiFi, and Bluetooth.

Memory and storage :-

The memory and storage products made and sold by Intel include SSD, persistent memory, and memory components

As the company has moved from being a PC centric to a data-centric company, it has also added new products to its existing product portfolio.

Major drivers of competitive strength :-

Intel products compete with those by other brands mainly on the basis of performance, energy efficiency, integration, ease-of-use and several more features including innovative design, features, price, quality, reliability, security features and developer support, time-to-market, brand recognition, customer support and customization, and availability. The importance of these factors varies based upon the end user and type of application. For example, performance may be most important in case of the Intel products  made for data center servers. In case of memory products, energy efficiency and prices might be most important.

Some of the key competitive advantages of Intel include :-

Positioned for growth in the era of data centric computing : –

Apart for the growth and proliferation of cloud computing and edge computing, the transition to 5G as well as growth of AI and analytics have brought  a profound change in the way of computing. This has led to generation of massive amounts of untapped data and significant opportunities. Intel is one of the select few companies that have a large product portfolio of products that can fulfil the needs of the data centric world. Intel has all the products that can help its customers process, analyze, store, and transfer large amounts of data. In this way, Intel has the opportunity to be the leading end-to-end platform provider for our customers.

Research and development : –

Intel has made significant capital and R&D investments into its integrated manufacturing network, which enables it to have more direct control over its design, development, and manufacturing processes; quality control; product cost; production timing; performance; power consumption; and manufacturing yield. Apart from that, Intel also has the scale and expertise necessary to engage its customers deeply on their product needs. The cost of constructing new fabrication facilities to support smaller transistor geometries and larger wafers has grown and this has led to a very small number of companies having the capability to build and equip leading-edge manufacturing facilities. Most of the competitors of Intel rely on third party foundries like Taiwan Semiconductor Manufacturing Company, Ltd. or Samsung Electronics Co., Ltd. for their manufacturing assembly and test needs. In this way, the research and development capabilities of Intel are a significant strength of the brand that enable it to remain ahead of their competitors.

Risks and challenges :-

While the business model of Intel is full of opportunities, it is also full of significant risks. Apart from the high level competition and fast changing industry environment, there are also several more risks in the global environment that can affect Intel and its profitability. While competition is among the most significant risks, other challenges in the global environment has also grown.

High level of competition :-

The industry in which Intel operates is marked by significant competition. Apart from the rapidly changing technological environment, there are several more factors like fast changing customer needs as well as market developments too make the industry environment highly challenging. Intel both needs to anticipate and respond to these changes swiftly in order to remain competitive. Intel faces intense competition from companies with a similar product portfolio.  In order to remain competitive, Intel must retain its focus on research and development. If the company does not make a significant investment in research and development every year, it will not be able to successfully maintain its competitive position in the market.

Global or regional conditions can affect the profitability of the company :-

Intel has manufacturing, assembly and test, R&D, sales, and other operations in several countries around the globe. Some of its business activities are concentrated in one or more geographical areas. While U.S., is a leading market for Intel, its sales and revenue from China have grown and in 2018, the company earned around 84% of its revenue from the non US markets. Adverse changes and economic fluctuations in the global or local economic environment can have a negative impact on the financial results of Intel. Slowed economic growth, uncertainty in fiscal or monetary policy, higher interest rates, tighter credit, inflation, lower capital expenditures by businesses including on IT and several more similar factors can have a negative impact on the growth and profitability of Intel. International trade disputes like the growing trade wars between U.S. and China can lead to increased tariff and higher operational costs and increase in costs of commodities for the brand which will in turn reduce the profits.

Apart from the above outlined risks, there are several more risks and challenges that can also harm the results and profitability of the brand including manufacturing and product related risks as well as security and privacy related risks. Its global supply chain is also full of risks and managing it can be highly challenging. Intel sources form thousands of suppliers from around the globe and reduced availability of raw material can lead to production delays or other difficulties in manufacturing. For the assembly and testing of certain products and components the company also depends on third party providers. If any of the third party providers is unable to provide their services in a timely and cost effective manner, that too will lead to problems and complexities for Intel. There are several legal and political challenges too that can lead to an increase in operational costs and compliance costs. Overall, there are several risks and challenges related to the business model of Intel . However, the transition to a data centric model has proved effective for the business and its revenues and profits have kept increasing in the recent years.

Sources:

Intel Annual Report 2018.

Intel SWOT Analysis

Abhijeet Pratap

I am Abhijeet Pratap, editor of notesmatic. I am an MBA with marketing (major). Apart from writing on various topics in business management, marketing and English literature, I like to read and write about technology.