Short Take – Intel Made a Huge Mistake 10 Years Ago

Intel

Intel made a huge mistake 10 years ago. Now 12,000 workers are paying the price.

So, Intel is getting out of the low-powered processor market, shuttering its Atom chip business and laying off 12,000 people. It’s ironic that this happened to a company once run by Andy Grove, a disciple of Christensen’s theory of disruption from below. The Celeron processor was a direct outgrowth of Grove’s following Christensen’s take on disruption and what to do about it.

The Celeron shows that Intel was well aware of the Innovator’s Dilemma and had even developed internal mechanisms to overcome it. So what went wrong this time? Is this a case of disruption in the classic sense that Christensen described or is it something else, something subtler and more pernicious?

One of the primary mechanisms whereby companies go astray is by listening to their best customers who are telling them that new performance dimensions aren’t important. But Apple was one of Intel’s best customers!  They announced their switch to Intel processors in June 2005, making them one of Intel’s largest customers. There were telling Intel what they needed, and Intel didn’t listen.

You can imagine people within Intel, some at very high levels, virtually screaming at their colleagues that this is the future. It’s not that Intel ignored this future, it’s that they saw it coming and still couldn’t adapt.

The design flexibility aspect of the ARM processor is probably what Intel couldn’t adapt to. While low power is a feature, design flexibility (i.e. licensing the design to be embedded by others) is a fundamental change in mindset and behavior. Doing this would have required Intel to change its fundamental business model, not just processor features or pricing.

The disruption theory of innovation provides some important insights but it doesn’t tell the whole story. The closing of Intel’s Atom processor business is definitely a warning to other companies about the deficiencies of their ability to see the future and make sound decisions. But there is another side of this story – the ARM side and all of the companies who adopted that technology. They certainly were not disrupted, they were transformed.

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