In the mid-1980s, Intel underwent the worst recession in its history — and the company would emerge from it transformed.
When the recession hit, Intel was both a microprocessor and a memory company. While the former business was thriving, the latter was becoming nearly impossible to maintain. In addition to the crowded memory market, Japanese companies were flooding the market with underpriced chips that the Japanese government subsidized with the goal of driving down prices and pushing American companies out of the business.
Intel was a chief target, and by 1985 the tactic was working — over the course of the final eight months of that year, Intel saw the cost of one memory product fall from $17 to $4.50. The first line of the company’s 1985 annual report read simply: “It was a miserable year for Intel and the rest of the electronics industry.” The following year was even worse, with the 1986 report opening, “We’re pleased to report 1986 is over. It was, without question, the toughest year in Intel’s history.” That year, the company lost money for the first time since it had gone public in 1971: $173 million. Several competitors went out of business.
However, as tough as the recession was, it prompted company leaders to refocus operations that would leave it stronger. Andy Grove, who became CEO in 1987, explained: “The severity of the business climate forced us to scrutinize the businesses we were in. We got out of those that no longer fit in with our long-range goals, and entered new ones that [did].”
Intel had made billions in dynamic random-access memory (DRAM) following its release of the first commercial DRAM in 1970. But the industry had been boom and bust for years. This latest recession led the company to exit the memory market and focus on microprocessors.
The company closed eight of its older, smaller plants and laid off a large share of its workforce between 1984 and 1986. At the same time, however, the company invested heavily in manufacturing equipment, doubling its production capacity, and maintained its research and development budget. By the time recovery began, Intel was primed to dominate the microprocessor business.
In early 1987, the market turned around. The company celebrated its first profitable quarter since the recession with “back in the black” parties at facilities around the world. By the end of the fiscal year, the company’s revenues would be a 51 percent improvement over 1986 and set a new company record, $1.9 billion. And beyond the immediate victory, the company had made the strategic adjustments necessary to thrive in a changing industry, and its culture had emerged the better for it.
Grove would say in 1988, “Intel has renewed itself in the last few years. We had to fight to prevail, and we’ve proven we can do it.”
Intel’s resurgence in 1987 would prove to be the beginning of 11 years of record-setting revenues. By the last year of the streak, 1997, revenues exceeded $25 billion, and Intel was the undisputed industry leader in its field.
This story is among a series running to celebrate Intel’s 50th anniversary in 2018.