Industry Analysis for Intel

This study analyses the economic and financial performance as well as present and future trends of the U.S. semiconductor industry, with a focus on Intel Corporation. The U.S. semiconductor industry is growing greener and faster, with emerging markets offering expansion opportunities. The study discusses the industry's dominant economic characteristics, competitive forces, and trends and driving factors. Despite challenges such as high start-up costs and security concerns, the industry is expected to continue growing and providing opportunities for companies and investors.

Running head: INDUSTRY ANALYSIS FOR INTEL
Industry Analysis for Intel
Name
Institution

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1. Introduction
Intel Corporation operates in the Standard Industrial Classification (SIC) code 3674
listed as the Semiconductor and related devices and The North American Industry
Classification System (NAICS) code 334413 listed as the Semiconductor and related device
manufacturing. Companies operating in the U.S. Semiconductor and related device industry
primarily engage in manufacturing semiconductors and other related solid devices. Some of
the products manufactured in the industry include integrated circuits, diodes, solar cells,
optoelectronic devices, memory chips, transistors, and microprocessors among other
electronic devices (Boyd, 2011).
The U.S semiconductors industry is growing greener and faster. Companies are
providing smarter and innovative solutions to the customers. Technological aspects have
ensured that companies can manufacture devices that offer optimal performance at lower
production costs. Emerging markets in China, Brazil, India and Africa offer expansion
opportunities for companies operating in this industry. The market is changing, and
consumers are going for eco-friendly products; companies are now manufacturing products
with recyclable accessories (Chen & Lo, 2016).
This study seeks to analyse the economic and financial performance as well as present
and the future trends of the U.S. semiconductor industry. The study focuses on different
aspects of the industry which often influence the decision making by concerned stakeholders.
In particular, the findings will be of help to companies and investors in determining the
market dynamics and making financial decisions.
2. Industry’s Dominant Economic Characteristics
The key characteristics of the U.S. semiconductor industry include significant players
and competition level, industry growth rate, revenue growth rate in the industry, Expenses,
financial performance and the entry and exit barriers.
2.1. Competition and competitors

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The U.S semiconductor industry is at the maturity stage of the business life cycle.
Companies focus more on innovation for growth and expansion. Over 800 companies are
operating in the industry (Brown & Linden, 2011). However, the leading manufacturers and
suppliers of semiconductor products in the industry, based on Market Cap, are;
Company Name Market Cap (U.S
Billions)
Percentage (%)
Samsung Group 241.88 27.1
Intel Corporation 193.37 21.7
NVIDIA Corporation 152.88 17.1
Texas Instruments Incorporated 113.83 12.7
Micron Technology, Inc. 63.52 7.1
Analog Devices, Inc. 36.39 4.1
Microchip Technology Incorporated 22.31 2.5
Skyworks Solutions, Inc. 18.56 2.1
Maxim Integrated Products, Inc. 17.22 1.9
Xilinx, Inc. 17.22 1.9
Advanced Micro Devices, Inc. 16.35 1.8
2.2. Industry growth rate
The industry has approximately 900 players with a growth of 1.7% per annum.
Moreover, the semiconductor and related device industry are among the best performing
export industries in America. The industry provides over 99,000 direct jobs and
approximately 500,000 indirect jobs to Americans.
2.3. Revenue Growth Rate
The U.S semiconductor industry is very competitive. The average growth rate in the
industry is 12.4% per annum. The industry is expected to generate US$ 463.41 billion in

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revenue based on the past trend. In 2017, Samsung Group, the most significant player in the
industry, generated the highest revenue of US$ 59.88 billion. The revenue growth rate in the
industry between 2013 and 2018 is as shown below;
2.4. Significant Expenses
The significant expenses in the U.S. semiconductor industry arise from the acquisition
of raw materials, labour, outsourcing and transportation and logistics. The industrial
expenditure increases at an average of 6.1% per annum. The overall expenditure is expected
to reach US$ 102 billion in 2018. The expenses growth rate in the industry between 2013 and
2018 is as shown below;

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2.5. Most significant financial ratios in the industry
Financial ratio refers to a quantitative analysis technique used to evaluate different
aspects of company performance during a given period. Ratio analysis investigates financial
and financial aspects such as liquidity, efficiency, profitability and solvency. Profitability
ratios analyse the ability of a company to generate revenue. Examples of profitability ratios
include Return on assets and Return on equity (English, 2011). Liquidity ratios evaluate the
ability of a company to meet its short-term financial obligations. Examples of liquidity ratios
include the current ratio and quick acid test ratio. Lastly, efficiency ratio evaluates the ability
of a company to generate income using its assets. Example of efficiency ratios is asset
turnover, account receivable, working capital, inventory turnover among others (Deegan,
2013).
This section discusses the liquidity, efficiency, and profitability ratios for the U.S.
semiconductor industry using the 2018 financial statements. Samsung Electronics and Intel
Corporation have been chosen for comparative analysis. The information has been
summarised as shown in the table below;
Ratio Intel Samsung Industry

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Return on Asset 9.95 5.56 1.06
Return on Equity 12.93 10.11 1.88
Current Ratio 2.54 1.52 2.19
Quick Ratio 1.33 0.99 0.61
Receivable Turnover ratio 17.53 10.47 5.03
Inventory Turnover ratio 4.71 10.28 3.79
Asset Turnover Ratio 0.71 1.22 0.27
a) Return on Asset
Return on asset evaluates the profitability level of a company compared to its average
total assets ability. Return on asset of Intel Corporation is 9.95 which higher than the
Samsung's 5.56. The industry's return on asset is 1.06. Therefore, Intel is the most profitable
while the industry is least profitable (Kaplan, 2012).
b) Return on Equity
Return on equity evaluates the ability of a company to generate revenue using the
shareholders' equity. Return on equity of Intel Corporation is 12.93 which higher than the
Intel's 10.11. The industry's return on asset is 1.88. Therefore, Intel is the most profitable
while the industry is least profitable (Kaplan, 2012).
c) Current Ratio
Current ratio evaluates the ability of a company to meet its short financial obligations
using its current assets. The analysis shows that the current ratio of Intel was 2.54 which was
highest than Samsung's 1.52 and industry's 2.19. Thus, Intel maintains most liquidity (Tracy,
2012).
d) Quick Ratio

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Quick Ratio evaluates the ability of a company to meet its short financial obligations
using its most liquid current asset. Therefore, quick ratio is calculated after deducting
inventories and prepaid expenses from the current currents. The analysis shows that the
current ratio of Intel was 1.33 which was highest than Samsung's 0.99 and industry's 0.61.
Thus, Intel maintains most liquidity (English, 2011).
e) Receivable Turnover
Receivable Turnover evaluates the number of times a company can turn its
receivables into cash. The analysis shows that Intel had the highest receivable turnover of
17.53 followed by Samsung 10.47 while the industry came last at 5.03. Thus, Intel had the
highest efficiency level among the three.
f) Inventory Turnover
Inventory Turnover evaluates the number of times a company can turn its inventory
into cash. The analysis shows that Samsung had the highest inventory turnover of 10.28
followed Intel by 4.71 while the industry came last at 3.79. Thus, Samsung had the highest
efficiency level of the three.
g) Asset Turnover
Asset Turnover evaluates the number of times a company can turn its asset into cash.
The analysis shows that Samsung had the highest asset turnover of 1.22 followed Intel by 0.7
while the industry came last at 0.27. Thus, Samsung had the highest efficiency level among
the three (English, 2011).
2.6. The entry and exit barriers for the industry.
It is for new entries to successfully penetrate and succeed in the semiconductor industry
because of the required high start-up expenditure. Large can protect the market against
small and new companies using economies of scale. However, small companies are
investing in technology, research and development. Besides high start-up cost, high
technology and software requirements also hinder new companies from entering the
industry. However, it is easier to exit the industry as far as a company has fulfilled the legal
obligation (Okada, 2012).

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3. Competitive Forces Facing Industry
The key factors that influence competition in the semiconductor industry are buyers and
suppliers bargaining power, rivalry among key players in the industry, and the threat of
substitutes.
Suppliers bargaining power: Suppliers have average bargaining power. Large players in
the semiconductor industry enjoy the power of choosing their suppliers among thousands.
Such companies can quickly minimise the power of suppliers by having several suppliers.
However, suppliers have formed several groups as a mechanism of increasing their power of
bargaining (Leitão, 2018).
Buyers bargaining power: There are millions of buyers in the semiconductor industry.
The switching cost from one company to another is insignificant therefore buyers can buy
from any company. Buyers are price sensitive therefore companies are manufacturing
products at lower costs to increase their competitive advantage (Chen L., 2015).
Threats of substitute products: The industry is flexible to market changes. Therefore,
companies can easily take away opportunities from substitute companies. However, the lower
the threats from substitute, the higher the cost involved in research and development. The
industry is competitive and volatile (Geng, 2017).
Internal rivalry among existing players: The industry is competitive. Companies in the
industry engage in an aggressive competition to manufacture cheaper, faster and smaller
products. Technology profoundly influences changes in the industry. Technology force
competitors in the industry to develop new products before other companies do. Therefore, a
high competition put pressure on companies to develop better and sustainable products. There
is less differentiation among products produced by different players. Therefore, companies
use technology to create differentiation (Geng, 2017).

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Lastly, the company have many companies with almost the same market share which
are regarded as significant players. Therefore, no single company can brag to have a high
level of competitive advantage. The principal products in the industry are integrated circuit,
complex SOC, microprocessors and memory chips. Lastly top companies in the industry are
Samsung Group, Intel Corporation, NVIDIA Corporation, Texas Instruments Incorporated,
Micron Technology, Inc., Analog Devices, Inc., Microchip Technology Incorporated,
Skyworks Solutions, Inc., Maxim Integrated Products, Inc., Xilinx, Inc., and Advanced Micro
Devices, Inc. (Park & Hong, 2016).
4. Trends and Driving factors
With increasing technological advancement, the semiconductor industry is expected to
grow tremendously. The industry is expected to grow by 21.6% in the next five years.
Demand for semiconductor products is expected to rise from the Internet of Things (IoT), AI
programs, and AI driving electronics. As mentioned earlier, the current trend is projected to
push the market growth by 9.5% in 2018 (Nenni, 2014).
Semiconductor products are used in the production of electronic devices, LED and flat-
screen TVs, military systems and civil aerospace. Customers are demand for extended battery
life, biometric surge and AI capabilities which provide growth opportunities for
semiconductor companies. Likewise, the industry is expected to benefit from the innovation
of data centres, connectivity, automotive, advanced software and communication. Other
opportunities will arise from increasing demand for electronic devices used in infotainment,
navigation and safety sectors (PCAST, 2017).
However, the growth opportunities are facing several challenges. For example, their
security concerns surrounding connectivity of semiconductor products. Therefore there is the
need to develop secure chips especially for semiconductor products used in industrial
automation and medical electronics. Therefore, semiconductor companies should
continuously innovate new products that address security issues and increasing demand
(Porter, 2011) With increasing technological advancement, semiconductor industry is
expected to grow tremendously. The industry is expected to grow by 21.6% in the next five
years. Demand for semiconductor products is expected to rise from Internet of Things (IoT),
AI programs, and AI driven electronics. As mentioned earlier, the current trend are projected
to push the market growth by 9.5% in 2018 (Nenni, 2014).

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Semiconductor products are used in the production of electronic devices, LED and flat
screen TVs, military systems and civil aerospace. Customers are demand for long battery life,
biometric surge and AI capabilities which provide growth opportunities for semiconductor
companies. Likewise, the industry is expected to benefit from innovation of data centers,
connectivity, automotive, advanced software and communication. Other opportunities will
arise from increasing demand for electronic devices used in infotainment, navigation and
safety sectors (PCAST, 2017).
However, the growth opportunities are facing several challenges. For example, there
security concerns surrounding connectivity of semiconductor products. Therefore there is the
need to develop secure chips especially for semiconductor products used in industrial
automation and medical electronics. Therefore, semiconductor companies should constantly
innovate new products that address security issues and increasing demand (Porter, 2011).
Key trends in the semiconductor industry are;
a) Reduction in Corporate tax: The U.S government reduced corporate tax for companies
operating in the semiconductor industry from 35% to 21%. Therefore, a reduction in
corporate tax has created a favourable business environment to operate. Companies
are encouraged to invest the funds that would have been used in tax on research and
development (Grant, 2008).
b) Artificial intelligence: Many countries across the US and globally are now demanding
for AI-based products. The new demand is likely to create new growth in new
opportunities for semiconductor manufacturers and suppliers. Likewise, AI
contributes improved production of semiconductor products by reducing production
cost, increase output, and increase chip performance (Fleisher & Bensoussan, 2007).
c) Transition to the 10nm node: Manufacturers of electronics are shifting to smaller
10nm nodes. This is an opportunity for semiconductor companies to offer nodes with
increased performance and power. However, the new development is likely to come
with an increase in cost and required resources.
d) Autonomous vehicles: The increasing growth of electric vehicles also present a
growth opportunity for the semiconductor industry. The demand for enhanced

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sensors, increased connectivity and battery performance present more growth
opportunities for the industry (Magretta, 2012).
5. Expected Strategic Moves by Rivals
The dominance of the U.S. semiconductor companies in the market is facing a threat
from companies such as Taiwan from China. The changes are as a result of customers and
preferring portable devices. For example, Intel Company has a long time dominated the
market due to the high demand of its PC chips. However, with the emergence of tablets and
mobile phones, the dynamics in the industry has shifted significantly. Companies such as
Taiwan and Samsung have become dominant in the global semiconductor market. Taiwan is
dominating the mobile chip segment because of its manufacturing capabilities.
Between 2000 and 2013, Intel maintained its competitive edge in the semiconductor at
a 20% market share and a revenue of US$ 48 billion annually flowed by Samsung at the US $
32 billion. On the other hand, Taiwan was dominant in the pure-play foundries at a 46%
market share. Likewise, Intel's growth has declined in the last five years while Taiwan's has
improved because of the latter's capability to manufacture ARM. For a long period, Intel has
dominated in the manufacture of now shrinking node technologies. Customers prefer to use
the ARM in mobile devices because of the low power requirement. The development makes
it difficult for Intel to compete with Taiwan using production cost (Magretta, 2012).
The scenario shows that industrial dynamics such as a change in consumers taste and
preferences are forcing companies to focus more on cost reduction and investment in
technology. To counter competition from Taiwan, Intel and Samsung have ventured into the
manufacture of the mobile chip and other ARM devices. Semiconductor companies are now
licencing for their mobile chips to be designed elsewhere as a way of reducing operating cost.
In 2014, semiconductor companies were manufacturing 28nm node. However, the demand
for improved performance and reduce power consumption forced the companies to shift to
22nm and 20nm. Today, the companies are producing 10nm node to conform to the market
demands (Raghunath & Rose, 2017).

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Companies are trying to take advantage of technological development to gain a
competitive advantage. Others are shifting into middle and low earners market by
manufacturing devices that are compatible with the market. The fight for dominance in the
market is expected to intensify due to influence by customers taste and preferences.
6. Key Factors for Future Competitive Success
The semiconductor industry is highly competitive. Companies rely on their production
capabilities and economies of scale to reduce the production cost. Customer prefers devices
which are faster, cheaper and smaller. Therefore companies compete in manufacturing the
cheapest, fastest and smallest devices. Companies are under continual pressure to upgrade
their products. For example, customers pressure mobile devices with fastest processors,
bigger memories yet offered at lower prices. Any company that wants a competitive
advantage in the industry must put the factors mentioned above into consideration.
The industry is being shaped by technological advancement. The semiconductor
industry is forced to innovate products for the future. With fierce competition in the industry,
a company's success is based on its ability to manufacture products with superior advantage.
Second, a company that seeks to be successful should take advantage of advancement in
virtual reality, automated cars, big data, drones and augmented reality. This technology will
changes who people interact globally hence present growth opportunities to the
semiconductor industry. For instance, a company like Intel to diversify its market strategy by
incorporating the manufacturer and supplier of mobile chips as well (Mazzucato, 2002).
Lastly, the ability of a company to apply economies of scale highly influence its
performance in the industry. The revenue in the industry is expected to grow to the US $
463.61 in 2018. The expenditure is also expected to increase to US$ 102 billion during the
same period. The success of a company depends on how effective it is in research and
development which means incurring extra cost. However, with the reduction of corporate tax
from 35% to 21% by the government, companies can use such funds to invest more in
technology and innovation (Boyd, 2011).
7. Conclusion

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The U.S semiconductors industry is growing greener and faster. The market is
changing, and consumers are going for eco-friendly products. Companies are using
technological advancement to manufacture smarter and innovative solutions to the customers.
Some of the products manufactured in the industry include integrated circuits, diodes, solar
cells, optoelectronic devices, memory chips, transistors, and microprocessors among other
electronic devices. The study has established that the U.S semiconductor industry is at the
maturity stage of the business life cycle and companies focus more on innovation for growth
and expansion. There are approximately 900 players with an increase of 1.7% per annum.
Moreover, the semiconductor industry is among the best performing export industries in
America. The industry provides over 600,000 jobs to Americans.
The U.S semiconductor industry is very competitive. The average revenue growth rate
in the industry is 12.4% per annum. The industry is expected to generate US$ 463.41 billion
in revenue based on the past trend. Financial ratio analysis has shown that the industry can
meet its financial liquidity obligations. However, the analysis established that the industry is
dominated by a few top companies with excelled financial performance and many small
companies with poor financial performance.
Large players in the semiconductor industry enjoy the power of choosing their suppliers
among thousands which easily minimise the power of suppliers. Likewise, there are millions
of buyers in the semiconductor industry. With insignificant switching cost from one company
to another, buyers enjoy high bargaining power. The industry is flexible to market changes
making it easier to take away opportunities from substitute companies. Lastly, companies in
the industry engage in an aggressive competition to manufacture cheaper, faster and smaller
products. The high competition put pressure on companies to develop better and sustainable
products. The success of a company in the semiconductor industry lies in its ability to apply
technological advancement, use economies of scale to its advantage and be flexible to the
changing customer preferences and market dynamics.

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8. References
Boyd, S. B. (2011). Life-Cycle Assessment of Semiconductors. New York: Springer Science
& Business Media.
Brown, C., & Linden, G. (2011). Chips and Change: How Crisis Reshapes the
Semiconductor Industry. London: MIT Press.
Chen, A., & Lo, R. H.-Y. (2016). Semiconductor Packaging: Materials Interaction and
Reliability. New York: CRC Press.
Chen, L. (2015). Sustainability and company performance: Evidence from the manufacturing
industry. Linköping, Sweden: Linköping University Electronic Pres.
Deegan, C. (2013). Financial accounting theory (4th Edition ed.). North Ryde, N.S.W:
McGraw-Hill Education.
English, P. (2011). Capital Budgeting Valuation: Financial Analysis for Today's Investment
Projects (1 ed.). New York: John Wiley & Sons.

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Fleisher, C. S., & Bensoussan, B. E. (2007). Business and Competitive Analysis: Effective
Application of New and Classic Methods. FT Press: London.
Geng, H. (2017). Semiconductor Manufacturing Handbook. California: McGraw-Hill
Education.
Grant, R. M. (2008). Contemporary Strategy Analysis. New York: Blackwell Pub.
Kaplan, D. (2012). Introduction To Financial Statement Analysis. New Delhi: The Kaplan
Group.
Leitão, J. (2018). Entrepreneurial, Innovative and Sustainable Ecosystems: Best Practices
and Implications for Quality of Life. London: Springer.
Magretta, J. (2012). Understanding Michael Porter: The Essential Guide to Competition and
Strategy. Chicago: Harvard Business Press.
Mazzucato, M. (2002). Strategy for Business (1 ed.). London: SAGE Publications Ltd .
Nenni, D. (2014). Fabless: the Transformation of the Semiconductor Industry. Washington,
DC: Independent Publisher.
Okada, Y. (2012). Competitive-cum-Cooperative Interfirm Relations and Dynamics in the
Japanese Semiconductor Industry. New York: Springer Science & Business Media.
Park, Y. W., & Hong, P. (2016). Building Network Capabilities in Turbulent Competitive
Environments: Practices of Global Firms from Korea and Japan. New York: CRC
Press.
PCAST. (2017). Ensuring Long-Term U. S. Leadership in Semiconductors - 2017 Report,
Influencing China, Improving U. S. Business Climate, Moonshots for Computing,
Bioelectronics, Electric Grid, Weather Forecasting. Washington, DC: Independently
Published.
Porter, M. E. (2011). Competitive Advantage of Nations: Creating and Sustaining Superior
Performance. New York: Simon and Schuster.
Raghunath, S., & Rose, E. L. (2017). International Business Strategy (1 ed.). London,UK:
Palgrave Macmillan.

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Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to
Analyse Any Business on the Planet. London, UK: Bidi Capital Pty Ltd.