Intel’s strategy in DRAMs was to focus on product design and to be the first to market with the newest devices and DRAM technology. This allowed them to be a leader and charge significant price premiums, and proved to be a successful strategy for the first four generations of DRAMS. However, over time this became less effective as product life cycles shrank, so the time for competitors to offer a competing product became faster and once the competition “caught up” then prices would fall dramatically. In this industry, patents were ineffective at blocking competition.
In addition to product design, Intel established itself as a leader in process technology. Because cutting edge product design ultimately meant more complex semiconductor technology, Intel needed to invest large amounts of capital to keep its manufacturing capabilities at a level that could support new innovations and complex production. It also took time for Intel to become comfortable with new production technologies, during which yields (a key driver to manufacturing costs) would fall as they worked out new problems and optimized the processes.
There are several factors that led to Intel’s dramatic decline in DRAM market share between 1974 and 1984, the ultimate reason being that Japanese competitors were able to introduce new products more rapidly which reduced Intel’s position as a leader in the market since competitive offerings would follow so quickly after introduction of a new Intel device. Because of the high capital investments needed to produce new DRAMs, it was necessary to be first to market to be able to take advantage of higher prices as a market leader before competitors introduced similar technologies. One reason Japanese firms could introduce products more quickly is that they strategically invested heavily in manufacturing capabilities. By comparison, Japanese firms invested 40% of their sales revenue into plant and manufacturing equipment while U.S. firms invested...
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