By Bill Vinck, Excendio Advisors

An M&A Play in Three Acts


Intel was a world leader in Memory Chip design, manufacture, and sales. It set the industry standard. They had little competition. They also began the design and manufacture of microprocessors. Life was good, very good as Intel had a dominating share of the market.

Act I: Noise or Signal?

The market changes all the time. Competitors, customers, and suppliers are always doing new things. What does it mean? The crucial question one must answer, albeit it with incomplete data, is: “Are we picking up a market signal or is it just noise?”  A signal suggests the market is at a Strategic Inflection Point (SIP) and an SIP means action is required. Noise is just noise.

The first glimpse that an SIP was in the offing was market intel from Hewlett Packard executives who reported that Japanese memory chips were consistently better than anything produced by Americans … and they were priced aggressively.

The Japanese entered the memory chip business in a massive way. They built huge manufacturing facilities and were extremely well capitalized. Rumors from the field were that Japanese sales teams were instructed to take Intel’s bid and cut theirs by 10%. They were to continue that approach until they got the deal.

Competing against the low-cost, high-quality Japanese product was quickly a money losing proposition. Japanese competition is clearly a market signal but how to respond? Should Intel sell their memory business? Should they buy a Japanese firm? Is M&A realistically an option?

New memory chip design, new manufacturing techniques, cost cutting, price cutting, and entering new memory niches were all pursued with intensity for years. Memory chips were the DNA of Intel senior management.

Act II: Once they fire us, what will the new guy do?

Nothing worked. At this time Gordon Moore was the Chairman and Andy Grove was the CEO of Intel. They met in Moore’s office on one occasion and acknowledged that the sea of memory business red ink was not career-enhancing. They asked one another the somewhat rhetorical question: “After they fire us, what will the new guy do?”

Moore immediately answered: “Get out of memory”.

They symbolically walked out of the office, turned, and walked backed in as the new guys. Intel began at that moment to get out of their legacy memory business. Easy to describe, excruciating to implement.

Intel at that time had manufacturing, intellectual capital, and management investments in computer memories of staggering size. Leaving it behind was a decision and an implementation with a massive impact. Many managers and employees had invested their career in this segment and leaving it was impossible for many to imagine. Grove acknowledged that it was difficult for him to look an employee in the eye and say clearly “…we are exiting the memory business…”

Cultural Aside

Grove spent time doing what he called listening “…to the periphery…”. The periphery are those people who are in the market daily as sales, customer service, or engineering people and they are in tune with what’s really happening. The periphery also included customers and some industry analysts. They would contact him with information they’ve heard or seen that he should know about, and he would listen because what they communicated could be noise but it could also be part of a signal and one has to listen to signals.

He called that practice “…listening to the periphery…” and he acknowledged that senior management was often and sadly the last to pick up signals and therefore the last to notice and act upon strategic inflection points (SIP’s). As it turns out, the periphery, aka Intel middle management, was closer to the reality of the market and acted on their own.


Act III: Listen to the periphery.

Middle Managers take Strategic Action

The senior management team spent three years agonizing over the memory business challenge. Should we exit the business? Acquire a niche memory business and focus on it? Sell the whole thing? Continue price cutting and cost savings efforts in a quest to compete with the Japanese? Debate continued for years.

Senior management and middle management were going in different directions. Grove described the situation as Strategic Dissonance. While senior management was debating middle management was acting on their own in an interesting fashion.

As a matter of practice, finance and production planning people met regularly to allocate silicon wafer production capacity across eight manufacturing facilities. During those meetings, these middle managers, largely on their own initiative, gradually moved production away from memory chip production to microprocessor chip production because the latter was a more profitable product.

They took strategic action because they too could “listen to the periphery” and the Intel culture encouraged such initiative. Their initiative played a major role in the survival and ultimate success of Intel in the microprocessor industry.

M&A Denouement

At the end of the three-year period, only one plant remained producing memory chips. The other seven had either been closed or converted to micro-processor chip production. No M&A action was needed.


You are or soon may be embarking on an M&A program. You have targets you are considering. They became targets for a reason.

Ask yourself: Is that reason a “Signal” or is it just “Noise”?

Answer carefully, as much depends on it.