Intel’s Breakthrough under the Financial Crisis

By Jody Lu and Tommy Zhang, China IP,[Comprehensive Reports]

As the first large manufacturing enterprise set up as early as in 1994 in Pudong Waigaoqiao Bonded Zone, Intel Shanghai Pudong Packaging & Testing Factory, the once splendid historic monument for the development of scientific and technological industries in the Pudong Area and even the entire Yangtze River Delta region, was suddenly declared to be closed within one year from February 5, 2009.

A public uproar was triggered. All media seemed to weep for this legendary enterprise that ended its 22-year long profiting legend as a sacrifice to the sweeping global financial tsunami.  

However, Jun Ge, the Managing Director of Intel China, explained the closure in a broader context: “There are misunderstandings in the market. The closedown does not mean contraction of the enterprise pressurized by the financial crisis. In fact, the capacity of Pudong Factory will be retained in China. We will simply re-adjust the business distribution, segment it and expand it.”  

Intel entered China in the 1980s. Different from other international enterprises that simply wanted to sell products in the Chinese market, Intel associated scientific and technological development with industrial and trade development. “Location is very important for us. After we select a place, we consider it not only a market, but also a place for continuing our technology and fulfilling our commitment. We will take root in the place and develop with local enterprises,” said Jun Ge.

In retrospect of Intel’s business journey in China, we can clearly see that it is closely following China’s industrial guideline: When the Pudong New Area was under development, Intel set up its packaging & testing factory there; when the development of the west regions was initiated, Intel set up its second packaging & testing factory in Chengdu; when the government revitalized the old industrial bases in northeast China, Intel selected Dalian as the wafer production base.

In the beginning of 2009, when the crisis came to its critical point, Intel, despite public pressure, decided to shut down its Shanghai Factory and integrate it with its Chengdu packaging and testing factory. Jun Ge explained: “Chengdu is the big heartland of China. The Chengdu Factory shares a similar business model with the Shanghai Factory. Their integration will help improve production efficiency and achieve economies of scale.” 

Through relocation and industrial integration, Intel survived the crisis and even made a big step forward. Now it has an R&D center in Shanghai, a wafer production base in Dalian and a packaging & testing base in Chengdu.

Besides that, Intel made an additional investment of more than USD 100 million in its holding companies. The Chengdu Factory was granted USD 75 million to enhance its operational capacity. The construction of the USD 2.5 billion invested Dalian Wafer Factory was in full swing. The Intel China Research Center, established on October 12, further showed the company’s firm resolve in increasing R&D investment to combat the crisis. 

“Intel’s experience tells us that the more menacing the environment becomes, the more effort we shall put in investment and innovation. This has been historically demonstrated. Saving money won’t walk you out of a crisis,” said Ge.

Innovation - the only solution

“Innovation runs through the whole process of Intel’s development. Intel’s history is a history of innovation. ‘Moore’s Law’ is a lighthouse guiding us in the direction of innovation,” said Jun Ge.

In 2006, Intel was standing on the top of media waves. 
  
AMD first invented the dual-core technology and the 64-bit concept and soon occupied the vast amount of market shares. Before Intel Core was formally launched, AMD rejected and criticized it. However, Intel released the “Dual-Core Intel Xeon processor 5100”, “Core 2 Duo processor” and “Core 2 Duo mobile processor” respectively on June 18, July 27 and August 26 of 2006 and achieved great success. Some commentaries pointed out that if it were not for Intel Core, Intel would have become the most tragic IT pioneer in 2006. Thanks to the Core architecture, Intel overcame the situation and surpassed its competitor once again. 
  
Jun Ge stated that, “In fact, Intel had already developed this product and had put it in the product roadmap. The only problem was its late marketing.” He drew two lessons from this experience; “Firstly, in an intensively competitive market, if you don’t take the initiative, you will miss the boat. This is the importance of quick innovation; Secondly, the semi-conductive market is a market of heated competition where you can easily be replaced by others. So never stand easy or relax. Always be cautious and alert – this is the only way to survive.” 
   
In the 2006 crisis, Intel changed the label from “Intel inside” to “Leap ahead,” which symbolizes its new innovation from a processor manufacturer to a core software and hardware provider. “Computer was the main platform for computation. But now, cell phones, net books, palm computers and wireless communicators can all provide that function. Products are diversified, so is the market. This is a great challenge to Intel. If our products fail to match up with the newly emerging computing models, we will soon be eliminated from the market.” 
  
Thanks to this creative innovation, Intel restructured its business model and put a resolute end to some uncompetitive operations. In the financial crisis two years later, when many enterprises met salary by cutting or layoff workers, Intel increased R&D investment. According to Jun Ge, the first three quarters of 2009 turned out to be fairly profitable. Especially in the third quarter, the year-on-year growth rate of profit reached a record high over the previous three decades.

Moore’s Law extended by innovation

Intel’s co-founder Gordon Moore put forward the famous “Moore’s Law,” which is summarized as, “at the fixed rate, the number of transistors on a chip and the performance of transistors double every 18 months. Economically, the price of transistors decreases with the increase of the integration level. That is to say, the performance of microprocessor doubles every 18 months, whereas the price halves.”  

Moore’s Law enlightened the semiconductor industry. It’s not a physical law, but a commercial law and used to predict the development of the semiconductor industry. Aiming at bringing higher performance products at lower costs, Intel invests USD 6 billion in R&D every year, and doubles the number of integrated transistors on microprocessors every two years. Even the global crisis hasn’t slowed down its R&D pace. 

In 1971, Intel’s first-generation microprocessor could only accommodate 2,300 transistors. But in 2007, a 45-nanometer processor could integrate more than 800M transistors, and the price of one transistor was one millionth of the price in 1968.

However, the past few decades cast doubts on Moore’s Law. People believed that the law would soon come to the end. According to the law, chip manufacturers should halve the size of internal components of chips every two years, which is physically impossible, since the size could never become infinitely small. However, when people predicted this infinitely small distance between two transistors to be 90 nanometers, Intel reached this value in 2003 and exceeded it to 65 nanometers in 2005. 
 
With the shortening distance between transistors, electric leakage became a bottleneck. People then believed that this problem would bring Moore’s Law to an end. However, the innovative Intel created another miracle. In 2007, the company used the high K gate dielectrics and metal gate to accomplish a new technical breakthrough. When people set the minimum value to be 45 nanometers, Intel used the new materials and successfully equaled this record in 2007 and set a new record of 32 nanometers in 2009.

“A Product’s physical characteristics are suddenly improved with the introduction of new metals. It’s like a renaissance, the opening of a door to a brand new world. We believe Moore’s Law will continue its magic for at least three to four more decades.” Talking about this achievement, Jun Ge was very excited: “Many technical breakthroughs are inspired from daily research and development. Some strange ideas can turn into a new product.”       

Every time, the doubts regarding Moore’s law were dispelled by Intel’s epoch-making innovations. The life of the law has been prolonged again and again.

Innovation not confined to products

Every product release conference of Intel is a technological shock to the market. Being the leader in the computer world, Intel never feels complacent.
 
Jun Ge disclosed that every year Intel would invest USD 5-6 billion in R&D and innovation. He said Intel’s innovation was not limited to the R&D department, but permeated the daily work of every department.

“Innovation does not always mean the invention of a new product. It can be the change of a commercial model, or the improvement of working efficiency. When a new idea comes up and is transformed to the company’s culture or productivity, it can then be called a process of innovation.”

Intel has established an innovation system, which requires every department to put innovation as the theme of the development plans for next two to three years, and are required to use innovation projects as the yardstick of their achievements every year. “Even for functional departments, such as financial departments or H.R. department, the change of working method can also be considered an innovation as long as it improves the operation mode or working efficiency,” said Jun Ge.

Jun Ge introduced the idea that a vital portion of the Intel employees are engineers, and they may come up with good ideas during everyday work. Intel has an idea-collection team which encourages employees to write down these good ideas and report them to the company. In exchange, they may get a bonus. If the idea becomes a patent in application, the bonus can be huge. Once the application is granted, the employee will be awarded a medal and the honor of dining with the top managers of the company. Intel uses this system to encourage innovation and to cultivate an innovative culture, and it has proven that the system works very well.

Talking about some middle and small enterprises in China that have been consistently calling for “innovation,” Ge expressed his own opinion: “They should not confine innovation to product R&D. They can also make breakthroughs in other aspects, say, in commercial mode. Alibaba owes its success to its special commercial mode. It provided consumers a brand new buying and selling platform. Some enterprises do have good products, but they don’t sell them well, because of the defects in their commercial mode, operation mode or service mode. Therefore these enterprises should look for innovations of their distribution mode, market targets or advertising. Product innovation is not easy for any enterprise, but the innovation of daily work is!”        

The long-term talent program 

Besides innovation, Intel places great stress on the association of production with education and research. 

Intel holds an Intel China Education Forum every year, and has established cooperation relationships with more than 100 Chinese universities. Talking about the significance of Intel’s education investment, Ge said, “We provide a platform for professors, entrepreneurs and students to communicate opinions. We hold the Forums to promote curriculum reforms in the universities and to train students to be more adaptive to industrial development. Via this platform, we can also study the development trends of the industry both from the theoretical side and the industrial angle. Through communications, professors can obtain first hand materials on industrial development and technological trends, and share them with their students.” 

What’s more, Intel has set up multi-core labs in many universities in China and provided all the necessary lab equipments. In the labs, students can access to the latest technologies and make further innovations.

“After the Intel Atom processor was developed, we set up labs in 26 universities to enable students to understand this technology and to design more new products, including household appliances, electronic products, industry control products and PDAs. We mean to synchronize students’ knowledge with the market needs. What students learn about computers in the universities are often principles and technologies that are decades old, which could hardly meet the drastic technological progress. Therefore, we think the association of production with education and research is very important,” said Jun Ge.   

Jun Ge stated that Intel’s engineers often go to universities to communicate with professors and to give free lectures. This has become a convention of the company. Intel Shanghai Research & Development Center is right next to Shanghai Jiao Tong University, and has more than 500 students from Jiao Tong University working under internships in it. 

The green “core”

“Green innovation” is an old topic. But for Intel, it never goes out of date. It is Intel’s resolute and unshakeable faith.  

“Green innovation urges an enterprise to pursue long-term development on the basis of sustainable development. Intel is an enterprise aimed at sustainable development,” said Jun Ge.

The Atom processor, released on March 3, 2008, marked the smallest sized and lowest power consumption processor in Intel’s history. The low emission and low power consumption featured in the Atom chip is the typical fruit of Intel’s green innovations, and soon became the focus of market attention. “After we provide the green product, equipment suppliers and designers have to lower power consumption of their products to match ours, and accordingly, the entire industrial chain becomes energy-saving and environmentally friendly.”

The “green innovation” conception is implemented in Intel’s product design, R&D, selection of suppliers, selection of plant designs and everyday business operations. Intel has set up its eighth chip factory in Dalian, and will use the most advanced technology to construct it to a green enterprise benchmark for Intel worldwide. All designs are governed by the “green innovation” concept: reduction of emission, water saving and the recycling of resources.  
 
“The water circulation rate of the Dalian Wafer Factory reaches 80%, which claims to be a big innovation in this industry,” said Jun Ge.

Future innovations

“We are a company dedicated to the chip industry and dabbling in some other fields. We are also specialized in software and service industries. Many people equated Intel with a hardware company. Actually, Intel is the third largest software enterprise in the world,” said Jun Ge. Intel will fulfill a commitment called “total solution providing.” Evidence proves that Intel is a “dancing elephant.”
 
Intel also pays much attention to the construction of new rural areas, which echoes its market policy of following with the country’s industrial guideline. The company is now working with GE to realize distance medical treatment, i.e., to receive medical treatment at home. Electronic medical clinics will be set up in rural areas, so that people there need not take a long trip to see a doctor. Meanwhile, with the distance education technology, students in remote mountain villages need not tramp over mountains to receive education. 

“Intel has solutions in realizing distance medical treatment and distance education. However, it’s too hard for the company to do it on its own. We look for cooperation of the industrial circle and the government,” said Jun Ge. 

The coming of the 3rd Generation also brings the era of consumer electronics. Although it is outside the computer industry, Intel puts much energy into it. “It is an industry with a promising future. Intel is now designing some household electronic products and online games, and is about to make new innovations in the use of cell phones,” revealed Jun Ge.    

In China, the construction of the longest and the largest number of railways in the world is underway. Intel sees the opportunity and expects to contribute its technology to help improve the entire operating efficiency.


(Translated by Hu Xiaoying)

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