Intel Pentium Chip Controversy

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Case Analysis: The Intel Pentium Chip Controversy (A)

Immediate Issue: As Andrew Grove, during my meeting of December 17,1994 with my internal team, Should I approve replacing the defective Intel chips of all concerned users with no-question asked? Also, should we also pay for the labor and other incidental costs? How should we integrate our decision into our financial books?

Basic Issues:

• Negative Publicity: Since Oct 30th, we have encountered a self-propelled negative publicity campaign against Pentium brand and it doesn’t seem to fade away if we don’t do anything.

• Business Ethics: We knew this problem since October, but tried to hide it with the hope that it will fade away. We will be scrutinized from an ethical perspective.
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To find out all available options and their pros and cons my team has put together the following analysis:

In one and half month the single word of one mathematician has turned into a worldwide campaign against us. AMD, Cyrix, and Nexgen are benefiting most from these events. They proved to have become quicker in manufacturing clones of our innovative products. Given this shorter time to market, they may jump on this opportunity to deliver Pentium clones any time. Our strategy to stop competitors copying our new products was heavy patent protection for the Pentium brand, however if our brand image is continually damaged to such extent, that protection would not give us the competitive advantage we expected. Although we have been the chips of choice for most of users, with the current negative publicity, the competitors may find their niche and expand their market share. Cost of switching from one type of processor to another (for example from Intel to AMD) is not significant for computer manufacturers due to the modular nature of this product. We know that this flaw would not affect any significant portion of the personal users (about 3.7 millions chips sold). The business users with heavy calculation needs such as engineering and specifically financial sectors would

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