1: Intel president Andy Grove was nervous.
It was 1986. Andy had flown to Oregon to address Intel’s best developers, recognizing that the company stood at a crossroads, he writes in his book Only the Paranoid Survive.
Since the company’s inception, memory chips had been the company’s core business.
But now the company was exiting the memory chip business because Japanese competitors had entered the market with higher quality chips at significantly lower prices.
This marked a strategic inflection point: Intel would pivot away from memory chips and instead focus on microprocessors.
The Oregon group Andy was speaking to had led the development of memory chips.
“They were memory developers whose interest in and attachment to microprocessors was not very strong,”
The theme of Andy’s speech? “Welcome to the mainstream.”
“I said that Intel’s mainstream was going to be microprocessors,” he recalls. “By signing up to do microprocessor development, they would be bearing the flag for Intel’s mainline business.”
How did they respond?
“It actually went a lot better than I had expected,” he writes.
“These people, like our customers, had known what was inevitable before we in senior management faced up to it,” Andy notes.
“There was a measure of relief that they no longer had to work on something that the company wasn’t fully committed to.”
They quickly embraced microprocessor development and led Intel’s development efforts for years to come.
2: From its founding, Intel had spent most of its R&D dollars on memory chips. “Memories” were not only the company’s core business but also its identity.
Intel did, however, have a smaller team working on another chip the company had invented: Microprocessors.
“Microprocessors and memories are built with a similar silicon chip technology but microprocessors are designed differently than memories,” Andy notes.
“And because they represented a slower-growing, smaller-volume market than memory chips, we didn’t stress their technological development as heavily.”
Memory chips store data. Microprocessors calculate. They are the brains of the computer.
With IBM’s introduction of personal computers in 1981, microprocessors suddenly became much more important.
IBM designed its original IBM PC using Intel’s microprocessor chip. They “looked to us to help them ramp up production of the IBM PC,” Andy writes.
Around this time, Grove and Intel Chairman Gordon Moore had their famed meeting where Grove posed a pivotal question: “If we got kicked out and the board brought in a new CEO, what do you think they would do?”
“They would get us out of memories,” Gordon said without pause.
Then he said, “Why shouldn’t you and I walk out the door, come back and do it ourselves?”
“With that comment and with Gordon’s encouragement, we started on a very difficult journey,” Andy recalls.
At the time, Intel was suffering large losses quarter after quarter. “These were very hard times and we were losing a lot of money,” he explains.
Exiting the memory chip business meant they had to lay off thousands of employees.
Gut-wrenching. Agonizing.
Intel also had no use for the silicon fabrication plant where memories were made. So, it was shut down.
Difficult.
As well as the assembly plants and testing plants involved with the production of memories.
“These,” he writes, “also happened to be our oldest factories, situated in odd locations and too small for our business at this point anyway, so shutting them down gave us the opportunity to modernize our factory network.
“But that didn’t make it any less painful.”
3: This transformation of Intel’s business was also a turning point for Andy himself. Looking back on this experience, he says:
“I learned how small and helpless you feel when facing a force that’s “10X” larger than what you are accustomed to.
“I experienced the confusion that engulfs you when something fundamental changes in the business, and I felt the frustration that comes when the things that worked for you in the past no longer do any good.
“I learned how desperately you want to run from dealing with even describing a new reality to close associates.
“And I experienced the exhilaration that comes from a set-jawed commitment to a new direction, unsure as that may be.
“Painful as it has all been, it turned me into a better manager.
“I learned some basic principles, too. I learned that the word “point” in strategic inflection point is something of a misnomer. It’s not a point; it’s a long, torturous struggle.
“In this case, the Japanese started beating us in the memory business in the early eighties.
“Intel’s performance started to slump when the entire industry weakened in mid-1984. The conversation with Gordon Moore that I described occurred in mid-1985.
“It took until mid-1986 to implement our exit from memories. Then it took another year before we returned to profitability. Going through the whole strategic inflection point took us a total of three years.
“And while today, ten years later (at the time of the writing of his book), they now seem compressed to one short and intense period, at the time, those three years were long and arduous—and wasteful.
“While we were fighting the inevitable, trying out all sorts of clever marketing approaches, looking for a niche that couldn’t possibly exist in a commodity market, we were wasting time, getting deeper into red ink and ultimately forcing ourselves to take harsher actions to right things when we finally got around to taking action at all.
“While the realization of what we were facing was a flash of insight that took place in a single conversation, the work of implementing the consequences of that conversation went on for years.
“I also learned that strategic inflection points, painful as they are for all participants, provide an opportunity to break out of a plateau and catapult to a higher level of achievement.
“Had we not changed our business strategy, we would have been relegated to an immensely tough economic existence and, for sure, a relatively insignificant role in our industry.
“By making a forceful move, things turned out far better for us.”
The coda to the story is one of the great business successes of all time.
Andy reflects: Intel’s next microprocessor chip, the 386, “became very, very successful, by far our most successful microprocessor to that point. Its success was greatly enhanced by the work of the former memory group in Oregon.
“We were no longer a semiconductor memory company.
“As we started to search for a new identity for the corporation, we realized that all of our efforts now were devoted to the microprocessor business. We decided to characterize ourselves as a “microcomputer company.”
“This started first in our public statements, literature and advertising but over the years, as the 386 became a phenomenal success, it took hold of the hearts and minds of our management and most of our employees.
“Eventually, the outside world started to look at us that way, too. By 1992, mostly owing to our success with microprocessors, we became the largest semiconductor company in the world, larger even than the Japanese companies that had beaten us in memories.
“Yet had we dithered longer, we could have missed our chance at all this. We might have vacillated between a heroic effort to hang on to our dwindling share of the memory business and an effort that might have been too weak to project us into the exploding microprocessor market.
“Had we stayed indecisive, we might have lost both.”
More tomorrow.
________________________
Reflection: Where in my own life or leadership am I “dithering” at an inflection point—clinging to what used to work instead of committing, with set‑jawed resolve, to the new direction the facts are clearly pointing to?
Action: Name one area where I’ve been stuck between two paths and, inspired by Andy Grove’s example, decide this week which way I will go—then take a concrete step that makes that new direction real and harder to back away from.
What did you think of this post?
