Thursday, December 5, 1996
Intel -- A 10X Change
or
They Must Think Everyone's Out to Get Them
by MF Runkle

After writing a couple of Fribbles on the personal computer industry, I realized that I had to write about Intel. My first reference on all of these Fribbles was the book Fire In The Valley by Paul Freiberger and Michael Swaine. I also checked out the web sites from the companies I was writing about. From there, research got a little more difficult, checking out stuff in the library, which can be boring and time consuming. I started the same process with Intel, until I got to the library stage.

Intel's web site promotes this book by Andrew Grove, the president and CEO of Intel. It's titled Only The Paranoid Survive. This book is phenomenal. It is about Intel, but more than that, it is about change. Grove talks about how things seem to be going along normally, and all of a sudden you realize that "something changed." You don't know exactly when or how, but it did. He talks extensively about a 10X change, which is when "things happen to your business that didn't happen before, your business no longer responds to your actions as it used to." This is a change that is ten times greater than "what it was recently."

There is no more appropriate way to write about Intel than to say, "something changed." I'll go about this in my favorite way, and we'll go in reverse to 1968 and personalize this a little. In 1968, there were three IBM executives living in my neighborhood. They were men (of course, at that time), and were the kind of men that you were happy to have as neighbors. They went to church on Sunday, didn't drink too much (most of the time), and wore gray suits with white shirts. They were guys whom you trusted to watch your house while you were on vacation, and generally were the type of men you would love to have your daughter marry. This was IBM. Reliable, conservative, and all around trustworthy. A company that was vertically integrated. It made everything in the computers, assembled the computers, wrote the operating systems and much of the software, and sold the computers with men like the guys in my neighborhood. Its competitors, Control Data and Sperry, did the same things. In 1968, however, something changed.

In 1968, my cousin, Clarence the Farmer, had a daughter who went to work for IBM as a mechanical engineer. That was a change, but not like the one that was coming on in California. A few young engineers who worked for Fairchild were disgusted with the company, and decided to go out on their own. They found a venture capitalist who had previously funded Fairchild, and obtained funding for this new outfit. The name was a combination of two words, Integrated Electronics, or Intel. This wasn't a big deal in itself; engineers always get mad at their employers and start competing companies. Some fail, others thrive, usually most just chug along until some bigger firm buys them, or the engineers get tired of it and close up shop. Intel could have gone this way if it weren't for a Japanese electronics company.

This outfit wanted Intel to provide some chips for a calculator that it was developing. Intel talked the company into combining all the chips into one which could take software instructions. This became the 4004, the first microprocessor. This evolved into the 8086/8088 family, and ultimately today's Pentium. This was a change. There was also something else that was different from IBM. Intel only made processors and memory chips. (It later dropped the memory chips.) It didn't make the computers, it didn't sell to the consumers, it didn't write the software or operating system.

Intel became part of a market that was horizontally integrated. By the 1980s, the computer market became a free-for-all, with different companies making the computers, writing the software, and making the chips. Intel dominated the microprocessor market, and Microsoft dominated the operating system and software market. Sure, there was (and still is) Apple, which is vertically integrated for the most part, just like IBM and its mainframes. In the words of Andrew Grove, this was a 10X change. The world those IBM executives lived in is no longer with us. One of those guys died in 1969, the others I believe are retired now. As for Clarence the Farmer's daughter, she runs the farm now, and works as an engineer in Indiana. Something changed.

Andrew Grove talks about "signals" which indicate change is coming. He also talks about "noise" which seems to indicate change, but is really just, well ... noise. Whether we like it or not, change can hit us, and radically disrupt our lives. Those IBM executives probably didn't like what happened to their comfortable computer business by 1988. The steelworkers who lost their jobs here in Pittsburgh weren't happy with the changes in the steel business in the late 70s and early 80s either. Likewise, the investors in companies that couldn't keep up with changes weren't happy to see their stock prices go down the toilet.

After reading Andrew Grove's book, I believe it is critical to keep up with change in all facets of my life. As an investor, I have to realize that things will never stay the same. The company I invest in may not be able to keep up with the changes happening around it. It may die. I may think I'm investing in a company that is on the ground floor of a 10X change, but it may just be noise. I need to be aware that I need to be aware for the signal, and watch out for the noise. I need to understand that the company I invest in today will always have somebody out to knock it off its feet. I always have to be aware that I have to adapt to the changes, and always be ready for them. You see, as Andrew would say, "only the paranoid survive."