As strategic drift occurred and Intel did not achieve the results desired, subsequent decisions, still based on a single driver, made matters worse. While there is no question that Intel remains a great company, their recent appointment of the first CEO without an engineering degree may suggest that they are open to understanding the need for multiple strategic drivers, rather than just relying on technology.

It has been said that a mediocre strategy well executed beats a great strategy poorly executed. While that may be true, Intel is an example of a company that executes extremely well, but made a fundamental strategic mis-step in the early 1980s that they are paying for today. Many pundits looking at Intel's performance today compared to ten years ago cite increased competitive pressures and execution mis-steps as the cause of Intel's lowered profit margins. To the contrary, I will argue that it was actually a major strategic mistake years ago that accounts for today's lower performance.

Flawed strategic decisions that go back more than 20 years, are at the root of Intel's less than stellar performance over the past few years. While I acknowledge the stunning success that Intel has had over the years, my point is that the last several years have been far less successful than they could have been. The root cause of Intel's original success was Intel's strategic decision in the early 1970s to exit the memory market and focus on the microprocessor market. This new market focus led Intel to beat Motorola and others, and be selected by IBM in 1979/80 to use the SOSx¹ architecture in their desktop personal computer. That strategic market decision (to focus on microprocessors) and its successful execution won them the IBM contract and "made" Intel. But the engineering culture that drove Intel's early success also blinded them to the correct strategy later.

Companies identify strategies to allow them to achieve their goals, given the external circumstances in which they find themselves. Intel's goal was to be the dominant microprocessor supplier and thus achieve well above average profit margins and growth as a result. While Intel is still the dominant supplier of microprocessor integrated circuits (ICs), their market share is now eroding. Every major personal computer and server manufacturer now uses both Intel and Advanced Micro Devices (AMD) microprocessors, where just a few years ago most of the majors only used Intel products. More importantly Intel's margins are eroding because they are no longer able to command the same price premium over AMD as they were able to achieve in the past.

This situation is a direct result of their strategy, not lack of execution. To understand why this is so, we need to review history.

In the early days of the microprocessor (as with most proprietary ICs of that day), Intel was expected to cross-license the manufacture of their ICs to another semiconductor company to assure continuity of supply. This was a common practice in the industry. In line with industry practice, in 1976 Intel licensed AMD the rights to manufacture Intel's microprocessors under a royalty agreement.

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