1: “We had lost our bearings. We were wandering in the valley of death,” Andy Grove writes in his book Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company.
The year was 1984, a pivotal moment for Intel.
The company had been founded 16 years earlier. “Every start-up has some kind of a core idea,” Andy notes.
“Ours was simple. Semiconductor technology had grown capable of being able to put an ever larger number of transistors on a single silicon chip. We saw this as having some promising implications.”
True that.
“We started modestly,” he recalls. “Our first product was a 64-bit memory. No, this is not a typo. It could store 64 digits—numbers.”
[Note: Today, some chips have 5,000,000,000 digits.]
Intel specialized in memory chips, and “as the first mover, we had practically 100 percent share,” Andy recalls.
Competitors entered the rapidly growing market, but Intel held its own.
“By the end of the seventies there were maybe a dozen players in the business,” he writes, “each of us competing to beat the others with the latest technological innovations.”
2: Fast forward to the early 1980s: Japanese competitors entered the market. In a big way.
“The Japanese producers were building large and modern factories, amassing a capacity base that was awesome from our perspective,” he remembers.
“Riding the memory wave, the Japanese producers were taking over the world semiconductor market in front of our eyes.”
Intel fought back, improving quality and reducing costs. But so did the Japanese. “Their principal weapon was the availability of high-quality product priced astonishingly low,” Andy writes.
At one point, an Intel executive got hold of a memo distributed to the sales force of a large Japanese company: “Win with the 10% rule…. Quote 10% below their price… If they requote, go 10% AGAIN…. Don’t quit till you WIN!”
Andy recalls: “This kind of thing was clearly discouraging but we fought on.”
Things got worse. Managers at Hewlett-Packard reported that “quality levels of Japanese memories were consistently and substantially better than those produced by the American companies,” he writes.
“In fact, the quality levels attributed to Japanese memories were beyond what we thought were possible.”
Faced with this new crisis, how did Andy and his team react?
Denial. “This had to be wrong,” he writes.
“As people often do in this kind of situation, we vigorously attacked the ominous data. Only when we confirmed for ourselves that the claims were roughly right did we start to go to work on the quality of our product.
“But we were clearly behind.”
Next up? A worldwide slowdown in chip demand.
All of a sudden, “it seemed that nobody wanted to buy chips anymore,” Andy explains. “Our order backlog evaporated like spring snow.
“After a period of disbelief, we started cutting back production.
“But after the long period of buildup,” he notes, “we couldn’t wind down fast enough to match the market slide. We were still building inventory even as our business headed south.”
Intel had been losing money battling the Japanese producers’ “high-quality, low-priced, mass-produced parts,” he notes. The company could afford to do so because of its prior successes.
“However, once business slowed down across the board and our other products couldn’t take up the slack, the losses really started to hurt,” Andy observes.
3: Welcome to the wandering in the valley of death.
Intel saw itself as a memory chip company. After all, they had invented the industry.
“Our priorities were formed by our identity,” he remembers, “after all, memories were us.”
Their focus remained on finding a way to battle the Japanese manufacturers and emerge victorious.
“The need for a different memory strategy, one that would stop the hemorrhage, was growing urgent,” Andy writes. “We had meetings and more meetings, bickering and arguments, resulting in nothing but conflicting proposals.”
Inside Intel, there were different camps, each with strong views.
- Camp #1: “There were those,” he explains, “who proposed what they called a ‘go for it’ strategy: Let’s build a gigantic factory dedicated to producing memories and nothing but memories, and let’s take on the Japanese.”
- Camp #2: “Others proposed that we should get really clever and use an avant-garde technology, ‘go for it’ but in a technological rather than a manufacturing sense and build something the Japanese producers couldn’t build.”
- Camp #3: “Others,” Andy writes, “were still clinging to the idea that we could come up with special-purpose memories, an increasingly unlikely possibility as memories became a uniform worldwide commodity.”
The bottom line?
“As the debates raged,” he recollects, “we just went on losing more and more money.
“It was a grim and frustrating year. During that time we worked hard without a clear notion of how things were ever going to get better.”
So, what eventually turned things around for Intel?
More tomorrow!
_______________________
Reflection: When my identity is tied too tightly to “how we’ve always done it,” how open am I to seeing that the very thing I’m clinging to might be what’s dragging me into my own valley of death?
Action: Identify one area of my work or life where the world has clearly changed but my strategy hasn’t, and take a concrete step this week to question my assumptions and explore a new path forward.