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Intel had difficulty maintaining dominance in the 1980s. Since the barrier to enter the microprocessor industry was remarkably high, the firms that did encroach on Intel's wildly profitable niche were major firms with deep pockets: Texas Instruments, Motorola, and, increasingly, Japanese firms. Due to the competition, the price of the chips kept falling, so that by 1985 Intel charged just $20 for the 8086 chip. This cut into the company's famously high profit margins. In fact, revenues declined in both 1985 and 1986, falling from $1.6 billion in 1984 to $1.2 billion in 1986. Grove responded with typical precision and speed. To save money, Intel announced in October 1985 that it would slash pay 10 percent and close operations for six days in late December. The company ultimately laid off 2,600 workers (or 30 percent of the workforce).
Intel's salvation came-as it always had-through the invention of
a new product that made its own previous standards, and those of rivals, seem logy. In October 1985 Intel introduced the 386 microprocessor, the development of which had cost more than $100 million. "A miracle of miniaturization, the microprocessor is 1/4-inch square, yet performs with the powerand speed of many full-size computers," Forbes reported in June 1986.
By the mid-1980s, Intel had come to realize that marketing was an
integral part of the business process. And so it set out to create a distinctive image for its new generation of products. The way that each new microprocessor rendered the previous one obsolete was highlighted in an advertising campaign for the 386 SX. The so-called Red X campaign featured two~page ads. One page showed the earlier "286" with a large red "X" through it. The other page had "386" with a large "sx" under it. "We were speaking directly to PC consumers for the first time, rather than marketing only to OEMs [manufacturers]," said Dennis Carter, an Intel marketing executive. Even though the company had been in business for fifteen years, it had never made a strong effort to introduce itself to the people who ultimately used its products; no semiconductor company had. As late as 1987, Grove told Barron's, "I really have no feel for enduse sales in the PC industry. We supply to the manufacturers . . . ." But when Intel noticed that sales of machines using the 386 began to pick up after the Red X campaign, the company changed its view. "What we learned from the Red X campaign was that we could communicate arcane technical ideas that, in fact, people wanted to hear them," said Dennis Carter.
The use of marketingrepresenteda new phase in Intel's maturity. And the company grew up in other ways as well. The founders began to take a less active role in its management. Robert Noyce devoted
more and more time to outside interests, including serving as a trustee at Grinnell College. In 1988 he left Intel altogether to head Sema, tech, a government-backed consortium of twelve semiconductor firms that banded together to conduct research. In 1990 he died of a heart attack.
Moore assumed the role of vice chairman, and later chairman, but still worked forty,five to fifty hours a week in his cubicle. One of the most respected executives in the country, he is known as a quiet man, whose words carry weight in the entire industry. "Gordon knows where to spend the money and allocate assets," Arthur Rock said of him. "He's the guy who said in a downturn we've got to build plants and mothball them and be ready when the business starts to turn up again. He's had that vision. . . . He's been willing to bet the company over and over."
In 1987, Andy Grove assumed the title of chief executive officer.
As such, he had the opportunity to implement high output management
from top to bottom at Intel. "We can get more output out of our existing organization," he said.
More output wasn't enough, however. Double the output was essen,
tial. In order to make an impact with a new product, Intel had to prove it was actually replacing the previous generation, not merely improving upon it. The case of the 386 chip neatly illustrates this shift in strategy. In 1988, when the company's revenues soared to $2.9 billion, about $1.1 billion came ftom the 386. Rather than continuing to milk the cash cow, however, Intel was already planning to put it out to pasture. In 1988 the company introduced a successor, the 486 microprocessor, devel, oped at a cost of $300 million. The transistors themselves were only about one micron thick, or one percent of the width of a human hair; one million of them fit on one 386 chip.
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