Business, Management

Intel Corporation Five Forces Analysis (Porter’s) & Recommendations

Updated on Updated on by Edward Ferguson
Intel Five Forces Analysis, Porter’s, competition, power buyers, suppliers, threat, substitution, new entrants, processor case study
Pentium 4 (2.4 GHz). A Porter’s Five Forces Analysis of Intel Corporation reveals competition and new entry as the most significant, based on external factors in the semiconductor industry environment. (Photo: Public Domain)

Intel Corporation is a leading semiconductor firm that strategically addresses the issues raised in its Five Forces analysis. Michael Porter’s Five Forces Analysis model is a strategic decision-making tool that evaluates the strengths or intensities of the external factors in a firm’s industry environment. These external factors are responsible for the condition of the competitive landscape. In Intel’s case, the external factors in the global semiconductor industry environment define strategic options. The company uses these strategic options to succeed in selling its microprocessors and other technological products. Facing tough competition, Intel must ensure its competitive advantage. Stronger competitive advantage is needed. In addition, Intel must continue enhancing its competitiveness, considering the rapid advancement of computing technologies in the market. Upon understanding the bases of the five forces indicated in this analysis, the company can develop appropriate solutions to address issues in its business environment. These solutions must support the long-term dominance of Intel in the semiconductor industry.

A Porter’s Five Forces analysis of Intel Corporation shows the intensities of the five forces in the semiconductor industry environment. Accordingly, the company must develop strategic plans that prioritize the strongest of these forces. Nonetheless, addressing all of the external factors identified in the analysis maximizes Intel’s competence and resilience. These external factors determine the extent of influence that the five forces have on the business organization.

Summary & Recommendations: Intel’s Five Forces Analysis

This Five Forces analysis (Porter’s model) of Intel Corporation shows the most significant external factors that contribute to the intensities of the five forces affecting the company’s industry environment. In this case, the strongest of the five forces are competitive rivalry and the threat of new entrants. Intel must prioritize these two forces in strategy formulation. However, the other forces are also significant factors in the long term. The following are the intensities of the five forces determined in this analysis of Intel’s business environment:

  1. Competitive rivalry or competition (moderate force)
  2. Bargaining power of buyers or customers (weak force)
  3. Bargaining power of suppliers (weak force)
  4. Threat of substitutes or substitution (weak force)
  5. Threat of new entrants or new entry (moderate force)

Recommendations. Based on the results of this Porter’s Five Forces Analysis, Intel needs to develop appropriate competitive advantage to address the most significant forces affecting the business and its industry environment. An improvement in overall competitive advantage enables the company to deal with competition and the threat of new entrants. A recommendation to enhance Intel’s competitive advantage is to continue its rapid innovation strategy, which is at the core of the firm’s competence in providing cutting-edge microprocessors (Read: Intel’s Generic Strategy & Intensive Growth Strategies). Also, it is recommended that the company must find new alliances in addition to the one it already has with Microsoft. The new alliances should enable Intel to open new opportunities for its processors and other products. For example, an alliance with a smart home appliance manufacturer can create new revenue streams for the company, thereby reducing dependence on Windows systems. While competition and the threat of new entry are the forces with the highest intensities determined in this Five Forces analysis, Intel must develop strategies to remain resilient in the face of the other forces. For instance, market diversification can address the external factors that create the weak but significant force of the bargaining power of Intel’s customers.

Competitive Rivalry or Competition with Intel Corporation (Moderate Force)

Intel’s market performance depends on the level of competitive rivalry. This aspect of the Five Forces Analysis determines how other firms affect the company. In Intel’s industry environment, the following external factors and their intensities are responsible for the moderate force of competitive rivalry:

  • Moderate aggressiveness of firms (moderate force)
  • Moderate market growth rate (moderate force)
  • High switching costs (weak force)

The moderate aggressiveness of firms creates a moderate force on Intel’s industry environment. Even though the company is highly aggressive, especially in fighting competitors in legal battles, these rivals are only moderately aggressive because of their limited capabilities compared to Intel’s economies of scale, which is a major strength (Read: SWOT Analysis of Intel Corporation). In addition, the moderate market growth rate imposes limits on the level of competition. Moreover, the effects of competition are only of moderate intensity because of high switching costs. For example, it is difficult for customers like laptop manufacturers to switch from Intel’s processors to other processors, such as those from AMD, because doing so requires significant costs in design change, as well as a potential decline in sales. Based on the external factors in this aspect of the Five Forces analysis of Intel, competitive rivalry is a major factor to consider in strategy formulation.

Bargaining Power of Intel’s Customers/Buyers (Weak Force)

Customers determine the sales volume and profits of Intel’s operations in the semiconductor industry environment. This aspect of the Five Forces Analysis deals with the influence of buyers or consumers. The weak force of the bargaining power of Intel’s customers are based on the following external factors and their intensities:

  • High switching costs (weak force)
  • Low substitute availability (weak force)
  • Low backward integration of customers (weak force)

The high switching costs make it difficult for customers like desktop manufacturers to move from Intel to other microprocessor manufacturers. This external factor weakens the bargaining power of customers. On the other hand, the low availability of substitutes also prevents customers from abandoning Intel, further weakening such power. Also, the low level of backward integration weakens the intensity of customers’ power on the company. For example, most manufacturers of laptops, desktops and related computing devices do not have microprocessor fabrication facilities. Thus, customers exert a weak force on Intel’s industry environment, as described in this aspect of the Five Forces Analysis.

Bargaining Power of Intel’s Suppliers (Weak Force)

Intel’s business capacity and the conditions of the industry environment partly depend on the sufficiency of suppliers. The effects of suppliers on firms are determined in this aspect of the Five Forces Analysis. The following external factors with their intensities contribute to the weak force of the bargaining power of Intel’s suppliers:

  • Moderate overall supply (moderate force)
  • Moderate size of individual suppliers (moderate force)
  • Low forward integration of suppliers (weak force)

Intel has access to a moderate overall supply of materials, such as the raw materials used for microprocessor fabrication. This external factor exerts a moderate force on the company. In addition, the moderate size of individual suppliers creates a considerable but limited force on the semiconductor industry environment. The bargaining power of suppliers is also limited because of the low degree of their forward integration, which corresponds to the high degree of Intel’s backward integration. For example, the company maintains significant control on its supply chain. In contrast, suppliers have limited control on Intel’s supply chain. In this situation, the overall combination of the external factors leads to the weak intensity of the bargaining power of suppliers. Based on this aspect of the Five Forces Analysis of Intel Corporation, the bargaining power of suppliers is a minor consideration in strategic decision-making.

Threat of Substitutes or Substitution against Intel (Weak Force)

Substitutes can reduce the sales and overall performance of Intel, thereby imposing a threat in the industry environment. The intensity of such threat is considered in this aspect of the Five Forces Analysis. The weak force of the threat of substitution against Intel is based on the following external factors:

  • High switching costs (weak force)
  • Low availability of substitutes (weak force)
  • Low performance-to-price ratio of substitutes (weak force)

The high switching costs make it difficult for substitutes to draw customers away from firms like Intel. This external factor exerts a weak force on the company and the semiconductor industry environment. Also, the low availability of substitutes weakens the threat of substitution against Intel. For example, even if customers are interested in using substitutes, these substitutes are not readily available. On the other hand, the relatively low performance-to-price ratio of substitutes exerts a weak force in the industry environment. As a result, customers like laptop manufacturers are unlikely to easily switch from Intel’s processors to substitute products. The intensities of the external factors determined in this aspect of the Five Forces analysis point to the minor role of the threat of substitution in Intel’s business.

Threat of New Entrants or New Entry against Intel Corporation (Moderate Force)

Intel Corporation faces the potential impact of new entrants in the semiconductor industry environment. This aspect of the Five Forces Analysis deals with the influence of new firms on the industry. In Intel’s case, the following external factors and their intensities are responsible for the moderate force of the threat of new entry:

  • Presence of high-potential new entrants (strong force)
  • Moderate brand differentiation (moderate force)
  • High switching costs (weak force)

There are only a few possible new entrants in the semiconductor market, particularly in the microprocessor market. However, these firms have high potential to succeed in competing head-to-head against Intel. For example, Apple has the foundations necessary to develop advanced processors for non-Mac systems and capture a significant market share (Read: SWOT Analysis of Apple Inc.). This external factor imposes a strong force against Intel. On the other hand, the moderate degree of brand differentiation strengthens new entrants to a limited extent. This external factor exerts a moderate force on firms like Intel. The high switching costs further limits the intensity of this threat because it is difficult for customers like computer manufacturers to readily change the processors in their designs. Based on this aspect of the Five Forces Analysis of Intel Corporation, the threat of new entry is a considerable issue in the semiconductor industry environment.

References
Tags: , , , , ,