Ibm Pc Case Assignment

The case indicates that in 1980, when IBM was creating the first IBM PC, they could easily have chosen to use either an Intel or a Motorola microprocessor. However, by the late-1980s, the case strongly suggests that PC OEMs did not feel that they could use any microprocessor other than an Intel chip without substantial profit repercussions. In other words, by the late-1980s, the PC OEMs viewed Intel’s chips as being irreplaceable. Why?

By the late 1980s, PC OEMs viewed Intel’s chips as irreplaceable because Intel was able to demonstrate that it provided more added value to the OEMs than its competitors did. The first tactic Intel employed was to lower the added value of other microprocessor manufacturers, especially Motorola, in the late 70s/early 80s through programs like Operation CRUSH. By reducing Motorola’s market share down to 15% through the CRUSH program, Intel was able to gain a competitive advantage early in the process and was able to convince major OEMs (including IBM) to design Intel’s microprocessors into their products. By gaining this early mover advantage, Intel was able to integrate itself into IBM’s growing personal computing business, which helped lower the value that Motorola was able to provide to IBM and other PC OEMs while establishing Intel as a major player in microprocessor manufacturing.

This move also played a big role in the mid-80s as the issue of second-sourcing came to the forefront and as Intel executives realized the additional revenue the company could earn by eliminating second-source suppliers from the picture (while also protecting its technology). Because of the negotiation power Intel had generated in the late 70s as an initial supplier to PC OEMs - combined with IBMs growth in the PC space (with Intel microprocessors) – Intel was able to successfully eliminate all second-source suppliers and capture significant margin that it had previously been losing to second-source suppliers. By leveraging its negotiating power and by realizing the value it added to PC OEMs, Intel was able to capture that added value as increased profits.