In the annals of business success stories that few expected, Nvidia overtaking Microsoft to become the world's most valuable company is a story that goes down in the books. Last week, Nvidia, co-founded by Jensen Huang, overtook Microsoft as its market cap soared to $3.42 trillion. Yet it could have been otherwise. When business leaders marvel at Nvidia's rise, it's important to remember that another company – Intel – came very close to reaching Nvidia's current position.
Instead, Intel is making a valiant effort to regain its position as the world's leading manufacturer of leading edge chips. The story of how it lost that position is part of a recently published article. Luck Study the matter.
As detailed in In this article, a key moment came in the mid-2000s, when Intel's then-CEO Paul Otellini said a word to Steve Jobs he rarely heard: no.
It was 2006, and Intel, the global king of computer chips, was generating record revenues and profits by dominating the most sought-after chips for personal computers and data centers. Now Jobs wanted Intel to make a different kind of chip for a product that didn't even exist, called the iPhone.
Otellini knew that chips for phones and tablets would be the next big thing, but Intel had to commit substantial capital and its best minds to the spectacularly profitable business it already had. Plus, “nobody knew what the iPhone would do,” he pointed out the Atlantic Seven years later, just before he stepped down as CEO. “There was a chip they were interested in, for which they were willing to pay a certain price and not a penny more, and that price was below our forecasted cost. I couldn't see it.”
Otellini, who died in 2017, was in many ways a highly successful CEO. But if that decision had been made the other way, Intel could have become the chip titan of the post-PC era. Instead, it abandoned phone chips in 2016 after losing billions of dollars trying to become a significant player. When leaving the company, Otellini realized the significance of his decision: “The world would be very different if we had done that.”
Meanwhile, about 800 miles north, in Seattle, Microsoft was struggling to find its role in a technology world dominated by the Internet, mobile devices, social media and search. Investors were unimpressed by its efforts. No one could have predicted that years later, a few key decisions would establish the company as an AI powerhouse and send its shares soaring.
There was a time not so long ago when both Microsoft and Intel were at the top of the tech world. They were neither competitors nor important customers of each other, but Adam Brandenburger of New York University and Barry Nalebuff of Yale consider them “complementary.” Microsoft built its hugely profitable Windows operating system over the years to work on computers using Intel's chips, and Intel designed new chips to run Windows (hence “Wintel”). This system fueled the major tech product of the 1990s, the personal computer. Microsoft's Bill Gates became a celebrity wonk billionaire, and Intel's CEO Andy Grove a billionaire. TimeWon the 'Man of the Year 1997' award.
Ignoring Steve Jobs wasn't the only reason for Intel's downfall, but it was a significant one. Intel also tried and failed to develop GPUs (graphics processing units), which turned out to be the type of chip used in AI development and that Nvidia designs. What if Intel had succeeded? It was the sixth most valuable company in the world in 2000 and the largest semiconductor maker; today it ranks 69th by value and second by revenue in semiconductors, far behind No. 1 TSMC (and even behind Samsung in some years).
Fortune 500 CEOs make thousands of decisions in their careers, some of which prove crucial. In retrospect, it's easy to assume that Microsoft will be at the forefront of AI, Google will become a giant, Blockbuster will fade into obscurity – it's never a foregone conclusion. Often fateful decisions can only be recognized in retrospect. Nothing illustrates this more clearly than the parallel stories of Microsoft and Intel, and the subsequent failures that paved the way for Nvidia's rapid rise. Case studies of what went right and wrong at these giant corporations provide a master class in business strategy not just for today's leading companies like Nvidia, Google, Open AI, Amazon and others – but for any Fortune 500 leader hoping to survive and thrive in the decade ahead.
You can read the full case study here.