Adapting Episode 3 Intel

In this episode of "Acquired," hosts Ben Gilbert and David Rosenthal discuss Intel's strategic pivot from a dominant memory chip producer to a microprocessor powerhouse in 1985, under the leadership of Andy Grove. Faced with intense competition from Japanese companies and a dwindling market share, Intel made the difficult decision to exit the memory business and focus on their emerging CPU technology. The hosts highlight Grove's remarkable journey from a Hungarian refugee to becoming Intel's first employee and eventually its transformative CEO, emphasizing the importance of adaptability, strategic foresight, and the challenges of overcoming internal resistance during a major business shift. They also touch on Intel's current endeavors, including a return to the memory market, showcasing the cyclical nature of business strategies.

• Ben Gilbert introduces the "Adapting" miniseries and the podcast's focus on companies and leaders adapting to change.
• David Rosenthal mentions that the podcast generally grades a culminating event for a company, such as an acquisition or IPO, but they are not doing any grading in the adapting series.
• Both hosts are industry practitioners, not journalists, and they aim to learn how to build great companies in public with their audience.

I don't think so. I mean, we said on adapting we weren't doing any grading. I don't know. I don't know what we would grade. I mean, it's the decision to pivot. Welcome to this Potapalooza special. We are in episode three of our adapting miniseries, where we tell the stories of great companies and leaders who are adapting to a world that's changing in real time. For those keeping track at home, welcome to season six, episode six of Acquired. I'm Ben Gilbert. I'm David Resenthal and we are your hosts.

The quotes explain the focus of the podcast and the special series "Adapting," which does not involve grading companies but rather discussing their pivotal decisions.

• Intel faced a crisis when their core product line became commoditized.
• The company made a significant pivot to focus on their emerging microprocessor business.
• This pivot occurred 17 years after Intel's founding, highlighting the potential for long-established companies to reinvent themselves.

Today we tell a historical story of a company in crisis, a different and more industry specific crisis than the one we are all going through right now, but a crisis nonetheless. This is the story of a business whose amazing and differentiated core product line became a pure commodity overnight, and the realization, action, and bravery that followed thereafter. Today we cover Intel and their incredible bet the company move on their newly emerging microprocessor business in 1985. This was an astounding part of the research for me was a full 17 years after their founding.

The quote summarizes the historical context of Intel's pivot to microprocessors, which was a bold move made well after the company's establishment.

• The Acquired Limited Partner program offers deeper insights into company building topics.
• Subscribers gain access to the LP show with guests discussing pre-seed investing, portfolio construction, and real-time business pivots during the pandemic.
• The program includes interactive LP calls via Zoom.

Well, a few announcements before we get to it. If you love acquired and you want to go deeper on company building topics into the nitty gritty, you can become an acquired limited partner. You will get access to the LP show, which has recent guests like venture capitalists Charles Hudson and mystery co-founders Shane Kavalski and Vince Coppola. With Charles, we discuss the inside baseball of pre seed investing and portfolio construction, and with Shane and Vince, their insane pivot in real time, where they took their seed stage experience hospitality company, which is a tough spot right now, into the world of in-home kind of morphing their offering during the coronavirus pandemic and figuring it out in real time.

The quote provides details about the Acquired Limited Partner program and the type of content and discussions available to subscribers.

• Pilot is a partner of the Acquired podcast and provides accounting, tax, and bookkeeping services to startups and growth companies.
• The company has grown significantly and is backed by prominent investors.
• Pilot operates the entire financial stack for companies, including CFO services, and has worked with thousands of startups.

Our next sponsor for this episode is one of our favorite companies and longtime acquired partner pilot for startups and growth companies of all kinds. Pilot is the one team for all of your company's accounting, tax and bookkeeping needs, and in fact now is the largest startup focused accounting firm in the US.

The quote introduces Pilot as a sponsor and describes the comprehensive financial services it offers to startups and growth companies.

• The story of Intel's founding is intertwined with the origins of Silicon Valley.
• William Shockley's move to Mountain View, California, and the establishment of Shockley Semiconductor marked the beginning of Silicon Valley.
• Shockley, a Nobel laureate and co-inventor of the transistor, had a significant but controversial role in the tech industry's early days.

So we start our story in 1956 with a man named William Shockley, who has just moved from New Jersey... to Mountain View, California, where he starts a company called Shockley Semiconductor... He was living in New Jersey because he worked at Bell Labs, where he had just co-invented the transistor. In fact, in that same year, in 1956, he won the Nobel Prize for doing so.

The quote outlines the historical significance of William Shockley's move to California and the inception of Shockley Semiconductor, which contributed to the birth of Silicon Valley.

• A group of eight employees left Shockley Semiconductor due to Shockley's management style and founded Fairchild Semiconductor.
• Bob Noyce and Gordon Moore, part of the "Traitorous Eight," later played pivotal roles in the development of Intel.
• Fairchild Semiconductor became a leading company in the industry, but the lack of equity for employees led to further entrepreneurial ventures.

So kind of a year into this, when Shockley's acting crazy, a group of eight employees who are really talented, they're kind of fed up with his antics. They decide to do something pretty radical. They all resign en masse. On the same day they leave Shockley. They walk out the door, and they start a competing company, becoming known in the process as the quote unquote traitorous eight...

This quote describes the departure of the "Traitorous Eight" from Shockley Semiconductor and the founding of Fairchild Semiconductor, which set the stage for future developments in the tech industry.

• Noyce and Moore envisioned using semiconductor technology for computer memory and founded Intel with the help of Arthur Rock and venture capital.
• Intel's focus on creating memory chips in silicon was a significant innovation in the computing industry.
• The investment in Intel marked a shift in how technology ventures were financed, moving away from corporate subsidiaries to independent companies with venture capital backing.

So noise and Moore leave. They have this vision of, like, we can create this short term memory product in silicon. They go find Arthur rock again, like, oh, well, he helped us start Fairchild. Let's talk to him again. This time, Arthur has gotten smarter. He says, you know, I saw Sherman get pretty rich at Fairchild. Rather than hooking you up with somebody who can set this up as a division, what if you start the company, and I'll invest in the company? And that they do.

The quote captures the entrepreneurial spirit of Noyce and Moore, their vision for Intel, and the role of Arthur Rock in securing venture capital to start the company.

• Early semiconductor companies were typically named after founders or owners.
• "More noise" was initially considered as a company name, but quickly dismissed due to its negative connotation in electronics.
• NM Electronics was the initial name upon incorporation, but it lacked appeal.
• Intel was chosen to represent integrated electronics, but the name was already taken.
• Intel is a coined term, borrowing from military intelligence.
• Intel had to purchase the trademark for the name from a hotel chain for $15,000.

"So they actually incorporated the company as NM Electronics. But then I wasn't able to find. Were you able to find who said, like, yeah, that does." "Doesn't roll off. No, I didn't find that."

This quote discusses the initial naming of Intel as NM Electronics and the lack of information on who decided against the name.

"They changed the name from NM Electronics to maybe nm sounded a little bit like intel. They changed it to intel because they wanted it to be integrated electronics."

The quote explains the transition from NM Electronics to Intel, highlighting the intent to signify integrated electronics.

"They invent the word intel, or I guess they borrow intel from military intelligence."

Intel's name is clarified as an invented term, inspired by military intelligence, to represent their focus on integrated electronics.

"There was a hotel chain called Alco. Yeah. And they had to go buy the trademark."

Intel's acquisition of the trademark from the Alco hotel chain is noted, emphasizing the effort and cost involved in securing the company name.

• Intel was founded with a focus on memory chips.
• The company had a rapid growth trajectory, going public with a $58 million market cap within three years.
• Intel's early success attracted attention in the venture capital industry, influencing Don Valentine to start Sequoia Capital.
• If not for later developments, Intel could have become a forgotten part of tech history.

"That two and a half million proves to be quite a good investment. On behalf of Arthur Rock and his associates, intel goes public with a market cap of $58 million."

This quote highlights the successful return on investment for Arthur Rock's group, with Intel's IPO reaching a market cap of $58 million.

"Intel founded making memories. Literally making memories. Making people rich."

The dual meaning of "making memories" is noted, referring to both the production of memory chips and the wealth generated for investors.

"It's a fast IPO. We're like, way before. Stay private longer."

The quote reflects on Intel's quick move to go public, contrasting with the modern trend for companies to remain private longer.

• Intel was initially successful due to being first to market with memory chips.
• The company heavily invested in R&D to maintain a technological lead.
• Despite innovation, memory chips became a commodity with low barriers to entry.
• Intel faced increasing competition, particularly from Japanese companies with operational excellence.
• By the mid-1980s, Intel's market share had plummeted due to Japanese competitors' superior production capabilities and access to capital.

"So what was the problem that would have killed the company, it was. Know, Ben, I think you mentioned this. It turns out that memory and really all of the silicon that was being made at this time was a commodity."

This quote introduces the issue that nearly led to Intel's downfall: the commoditization of memory chips.

"They just didn't realize it because they were first to market. Like memory chips didn't exist before."

Intel's lack of realization that they were in a commodity market is highlighted, as they were the first to introduce memory chips.

"Japanese electronics companies to enter the market with all of the power that they had at that point."

The entry of Japanese electronics companies into the market is noted, signifying a major threat to Intel's business.

"Intel's market share of memories goes from above 80% at the beginning of the decade to by 1984. I think it's in 1984, they dropped a 1.3% of the global market."

The drastic decline in Intel's market share underscores the severity of the competition faced from Japanese manufacturers.

• Andy Grove was born in Budapest, Hungary, and survived the Nazi occupation and later Soviet control.
• Grove's early life experiences were marked by hiding his Jewish identity and facing persecution.
• He immigrated to the U.S. as a refugee, excelled academically, and joined Fairchild Semiconductor.
• Arthur Rock insisted on Grove's recruitment as a condition for financing Intel.
• Grove quickly rose through the ranks and became Intel's president in 1979.
• His leadership and strategic thinking were pivotal during Intel's crisis in the mid-1980s.

"Andres Istevan Groff was born in 1936 in Budapest, Hungary, to jewish parents in a jewish family."

This quote introduces Andy Grove's birth and heritage, setting the stage for his challenging early life.

"His dad is shipped off to a labor camp, disappears for four years. Amazingly, he survives."

The hardships faced by Grove's family during World War II are described, including his father's survival of a labor camp.

"Andres and his mother go into hiding. They assume new identities."

The survival tactics of Grove and his mother during the Nazi occupation are recounted, highlighting their resilience.

"He comes to New York City, 20 years old, with $20 in his pocket and nothing else."

Grove's arrival in the U.S. as a refugee is described, emphasizing his humble beginnings and determination.

"He gets a scholarship and works his way through City College of New York as a chemical engineer."

The quote showcases Grove's academic achievements and his path to becoming a leading figure in the semiconductor industry.

"He was employee number one when the company was started in 1968. By 1979, he had been promoted many times. He became president."

Grove's rapid ascent at Intel is noted, culminating in his presidency and setting the stage for his crucial role in the company's future.

• Strategic inflection points occur with a significant change in one of Porter's Five Forces.
• In the case discussed, competition intensifies tenfold, causing disruption.
• Current times reflect different crises, such as reduced buyer power across industries due to decreased demand.
• The COVID-19 pandemic has significantly impacted consumer spending, travel, and hospitality sectors.

"Changes come about whenever there's a sudden huge kind of ten x change in one of the five fundamental porters. Five forces of the business. In this case, competition."

• This quote explains that strategic inflection points arise when there's a major shift in competition or other fundamental business forces, leading to significant changes in the industry.

• Intel faced chaos due to a 10x change in customer behavior.
• Opinions within Intel were conflicting during the crisis, leading to infighting.
• Different factions within Intel had various strategies to address competition, such as improving memory technology or increasing production.
• There was a lack of consensus, with some suggesting value-added memory as a competitive strategy.

"There's a ten x change in your customer behavior inside of intel. It's chaos."

• This quote highlights the internal turmoil at Intel caused by a drastic shift in customer behavior, leading to disagreements and conflict among employees.

• Andy Grove and Gordon Moore had a moment of clarity, realizing the need to exit the memory business.
• This realization came from a hypothetical question about what a new CEO would do in their situation.
• The symbolic act of firing and rehiring themselves gave them the psychological clarity to make the tough decision.
• Their decision was significant, as it was akin to a company like Uber exiting the ride-sharing business.

"And Grove says to Andy says, to mean things are like, know if the board kicked us out and brought in a new CEO, what do you think the new CEO would do in response to this situation?"

• This quote captures the critical moment when Andy Grove and Gordon Moore contemplated a radical strategic shift, leading to their decision to exit the memory business, which was core to Intel's identity at the time.

• Intel's transition from memory to CPUs was fraught with resistance and practical challenges.
• Sales teams objected due to the incomplete CPU product line and their reliance on memory sales.
• The memory division leadership resisted the change, leading to leadership replacements.
• Andy Grove had to take drastic measures to enforce the strategic shift, including personally shutting down factories.

"It gets to the point where Andy is personally going to factories and just laying everyone off on the spot."

• This quote illustrates the extreme measures Andy Grove had to take to implement the strategic shift from memory to CPUs, showcasing the difficulty of changing a company's direction.

• Intel's focus on the microprocessor business proved to be a smart move as the PC wave was starting.
• Intel's strategic decisions, such as not second-sourcing the 386 processor, gave them a monopoly in the market.
• Intel's "Intel Inside" campaign was a marketing masterstroke that solidified their market dominance.
• The company's revenue skyrocketed from $1.9 billion to over $26 billion during Andy Grove's tenure as CEO.

"So Moore and Grove walk out of the office for the second time. And Andy starts going around like, giving speeches about how they're going to get out of the memory business."

• This quote underscores the determined actions taken by Intel's leadership to shift the company's focus to CPUs, despite internal resistance, leading to a period of significant growth and market dominance.

• Intel's success story is marked by its ability to innovate and diversify before facing strategic inflection points.
• The company's revenue continued to grow even after Andy Grove's departure, reaching $72 billion in 2019.
• Despite criticisms in the modern era, Intel remains a major player in the chip industry.
• The narrative of Intel's transformation and growth highlights the importance of visionary leadership and strategic adaptation.

"The number, and I think David quoted something like this earlier. When Andy came in, annual revenues at intel were $1.9 billion. Nothing too bad. When he left in 97, it was $26 billion."

• This quote reflects on Intel's dramatic revenue growth under Andy Grove's leadership, emphasizing the successful transformation from a memory company to a microprocessor giant.

• Intel was historically known for memory but shifted focus to CPUs.
• They introduced a new type of memory to compete with SSDs, providing a value-added alternative to traditional DDR2 DRAM.
• Intel's annual report outlined three operating segments: data-centric, PC-centric, and big bets, with memory being one of the big bets.
• The PC-centric segment includes well-known processors like the Core i5, i7, and i9.
• The data-centric business includes server-related products such as Xeon processors and acquisitions like Mobileye.

"Here we are with intel making a bet on memory. And to underscore this, I just read the annual report from intel last year. They have three operating segments. They have a data centric one and pc centric one, and those are both responsible for about half of their revenue."

This quote explains Intel's current business strategy, highlighting their focus on memory as one of their "big bets" in addition to their two main revenue streams: data-centric and PC-centric operations.

• Intel calls its strategic initiatives "big bets," a term popularized by other companies.
• The current environment justifies Intel's focus on memory as a significant strategic move.
• The discussion emphasizes the cyclical nature of history in business strategies, implying that while exact events may not repeat, patterns and trends often do.

"Currently our big bets are memory."

The quote directly states that Intel is placing strategic emphasis on memory technology, indicating a significant investment and focus area for the company.

• Middle management plays a crucial role in adapting to strategic shifts within a company.
• Andy Grove's experience with Intel's shift from memory to CPUs highlighted the adaptability and foresight of middle management.
• Despite resistance from top executives, mid-level managers close to the product and customers were already preparing for the shift to CPUs.
• This theme reflects the importance of listening to those directly involved with operations and customers when making strategic decisions.

"And so by the time the changes sort of trickle down to them, the middle management is like, oh, yeah, no, we definitely need to be doing way more in cpus."

The quote captures the sentiment of middle management who, due to their proximity to the product and customers, recognized the need to pivot from memory to CPUs, showcasing their critical role in the transition.

• Companies should start experimenting and planning for strategic inflection points well before they occur.
• Differentiating from commodities in the market is essential for building a sustainable business.
• Companies need to introduce unique features or shift the commoditization to another layer to maintain competitive advantage.
• Acting swiftly on tough changes is often beneficial, and companies shouldn't delay necessary strategic shifts.
• Ceremonial actions, like firing and rehiring executives, can facilitate difficult decision-making processes.

"One of the biggest ones that I wanted to talk about we already have. Which is the time to start experimenting and figuring out your response to the next strategic inflection point is well, before that happens."

This quote underscores the proactive approach to strategic planning, emphasizing the importance of preparing for future market changes ahead of time to ensure a company's longevity and success.

• Companies and individuals must focus on learning and adapting to new environments rather than lamenting past conditions.
• Andy Grove's philosophy was to pour energy into adapting and learning new skills to thrive in changing landscapes.
• Embracing change and being a "learning machine" is vital for personal and organizational growth.

"Pour your energy, every bit of it, into adapting to your new world, into learning the skills you need to prosper in it, and into shaping it around you."

This quote from Andy Grove encourages a mindset of continuous learning and adaptation, which is crucial for navigating and shaping the future in both business and personal contexts.

• The book "The Fifth Risk" by Michael Lewis provides insights into the operation of the US federal government.
• The transition of government power and the importance of understanding how to operate the government's "crazy machine" are highlighted.
• Public servants are often driven and innovative individuals, despite the government's reputation for being stodgy.
• The book offers a glimpse into the responsibilities and functions of various government departments.

"It's an amazing collection of stories that are basically the handbook of how to run the federal government."

The quote describes "The Fifth Risk" as a valuable resource for understanding the complexities of government operations, emphasizing the importance of effective transition and knowledge transfer in public service.

• Notion is a productivity tool that aligns with the no-code movement, empowering users to create custom software solutions.
• Users can design their own task management systems, databases, and logic within Notion.
• The tool offers flexibility and personalization, moving the abstraction layer higher and making software development more accessible.

"What's cool about notion is that you have the power to shape the software as you want it to your so like I've built in notion a task management system that I've completely designed all the UI for, all the logic of how it works, all the database and it's tailored to me."

This quote reflects the empowerment that Notion provides to its users, allowing them to customize and design their own productivity systems, which is a key aspect of the no-code movement.