e-dokumen.com

pg 5intellectual property. The heavy conceptual focus also means there is room to developnovel empirical analysis, especially at the dyad-level (Vanhaverbeke, 2006), and to gobeyond the software industry which has been heavily explored by scholars of openinnovation (e.g., Henkel, 2006; Graham and Mowery, 2006).So, while prior research offers valuable lessons, it sheds relatively little light onwhether smaller firms can successfully make use of external knowledge (including thatof larger rivals) in order to compete in the marketplace. Moreover, little is known abouthow competition and cooperation in the product market relate to strategies formanaging technology, including IP and patenting strategies. And while scholars havealso begun to explore the effects of open innovation on inter-organizational networks(Vanhaverbeke, 2006; Simard and West, 2006; Maula et al., 2006), competition andcooperation has yet to be made a central theme in that stream of work.In this paper, we examine how cooperative or competitive events in the productmarket relate to efforts by smaller rivals (Intel, AMD) to develop patentableinnovations and compete with a large incumbent firm, IBM. We use qualitativemethods to analyze how these firms competed or cooperated with each other overtime, and we use patent data to quantitatively analyze each firm’s IP portfolio andpatterns of knowledge interdependence.We draw upon models of co-opetition in strategy research (Brandenburger andStuart, 1996). In contrast to earlier work by Porter (1981) and others, Brandenburgerand Nalebuff (1996) argue that a firm can have multiple roles in its value net ofbusiness. It is possible for a firm to be another firm’s supplier, customer, competitorand complementor all at the same time. This is especially important in industries withrapid technological obsolescence, as it allows firms to be nimble.A key implication of this view is that competition and cooperation may varyalong the value chain. Thus the R&D strategies of firms are likely to depend uponwhether the innovation is in an area they compete head-on against each other, orwhether these investments are made upstream, downstream or in other areas, wherethere is greater opportunity for collaboration. In the models of Arora et al., (2001), andGans and Stern (2003), firms can buy and sell technologies in the upstreamtechnology market in addition to - or in lieu of - entry in the product market. Hence,such models end up with a richer set of outcomes than earlier models, in which thewinning firm captures the entire market.

pg 6Another important insight from the co-opetition literature is that timing isimportant. Firms involved in co-opetiting relationships may compete during certainperiods of time and cooperate during other periods (Brandenburger and Nalebuff,1996). By looking for transitions between eras of competition and cooperation among asmall number of firms (IBM, Intel, and AMD), we hope to better understand how theserelationships evolve and affect the firms’ R&D strategies.3. Competition and Openness in the Semiconductor IndustryIn this section, we describe the semiconductor industry and identify events thatcharacterize periods of cooperation and competition among IBM, Intel, and AMD.3.1 The Semiconductor IndustrySince the inception of the semiconductor industry, there has been a rapid rateof entry of new firms. Industry reports show that market concentration is much lowerthan than in a monopoly or duopoly. Gartner Dataquest (2006) estimates that marketshares of leading firms are quite low: Intel (12%), Samsung (7.9%), TexasInstruments (4.5%) and Infineon (4.0%). The Herfindahl index for semiconductorsales is only around 0.053.A second issue is the connection between the upstream market for technology(Arora, et al., 2001) and the downstream product market. We calculated the number ofpatents assigned to semiconductor firms by the US Patent Office and found that thetop ten firms hold less than 50% of semiconductor patents; the majority of patents areheld by other firms and institutions, such as universities, consortia, and evenindividuals who do not participate in the product market. Thus, the relationshipbetween upstream technology market and downstream product market is one of loosecoupling.A complex relationship exists between patenting and scientific publishing bysemiconductor firms (Lim, 2004). IBM leads the industry both in terms of the numberof basic scientific contributions its employees have authored or co-authored in scientificresearch journals, and in terms of the number of semiconductor-related patents it hasreceived. AT&T occupies a similar position to that of IBM, with many basic researcharticles and many patents, though it lags IBM on both dimensions. However, both IBMand AT&T are highly atypical. Intel and AMD are more similar to other industryparticipants. Intel’s employees author or co-author relatively few scientific researcharticles, yet Intel receives a fairly sizable number of patents.

pg 7Another feature of the semiconductor industry is the complex and cumulativenature of its technology (Brusoni et al., 2001). This leads to a high rate of patenttrading among firms (Hall and Ziedonis, 2001), which is consistent with the possibilityin this case that the product market is sufficiently decoupled from the market fortechnology (e.g., see Gans and Stern, 2003).3.2 Mapping Cooperation and Competition over TimeWe qualitatively analyze the relationships between IBM, Intel and AMD toidentify periods of competition and cooperation among them. We focus on these firmsbecause they have been the most active competing and/or cooperating in a welldefined area of work: the design and manufacture of microprocessor chips for personalcomputers. Hence, we are able to observe relatively clearly the patterns of cooperationand competition among these firms over time.Case histories of each firm were obtained by collecting news reports and annualreports, as well as through interviews with industry sources. Figures 1 and 2 presentchronologies of the key events. We have classified each event as either "cooperative"or "competitive" based on the way in which it affected the relationship between eachpair of firms.[Figures 1 and 2 about here]IBM’s relationship with Intel in the semiconductor product market began in thelate 1970s, when it selected Intel’s 8088 microprocessor to be the processor for itsupcoming line of personal computers, which IBM launched in 1981. Gordon Moore, thefounder of Intel, would later recall that his firm did not view being selected by IBM asbeing all that important at the time (Moore, 1996). By 1983, IBM had overtaken Appleas the largest company in the PC industry, and IBM contributed to an increasingly largeportion of Intel’s revenue and profit. However, Intel struggled in other parts of itsbusiness, particularly the DRAM market, such that its financial health was in aprecarious state. Since IBM depended upon Intel as the primary vendor of themicroprocessor for its PCs, IBM decided to invest 250 million to acquire 12% of Intel’sstock in 1983. IBM made this investment to help Intel weather its financial difficulties,and to assure itself of a continued supply of microprocessor chips for its PC business.When Intel’s financial condition began to improve in 1986, IBM sold off its stake.This pattern of cooperation was reinforced by the contractual relations between

pg 8the two firms. In 1982, IBM forced Intel to second source its 80X86 architecture toAMD1, and also to grant IBM a manufacturing license for the device family, as acondition of being the key chip supplier for the IBM PC. Intel honored this arrangementwith both the 8088 and 80286 microprocessor, but began to drift towards a morecombative stance with its 80386 (around 1986). It continued to license IBM formanufacture of the chip, but discontinued the second-sourcing agreement allowingAMD to act as a second source for IBM. This led to litigation between Intel and AMD,but Intel continued to license IBM with the 80486 chip as well.The climate of cooperation between IBM and Intel further worsened as IBM’sposition in the PC market evolved. As the PC industry expanded, IBM progressively lostcontrol over the PC architecture (Langlois, 1992; Ferguson and Morris, 1993;Chesbrough and Teece, 1996). In 1986, Intel launched its 80386 microprocessor, andCompaq (not IBM) became the first PC manufacturer to ship the 80386. At the sametime, Microsoft began to develop its Windows operating system, which would graduallydiverge from IBM’s OS/2 architecture. IBM’s MicroChannel bus architecture that wasintroduced in 1987 also failed to take hold, and Intel’s rival PC-Bus architecturebecame established by 1990 as the next successful platform for personal computers(Cusumano and Gawer, 2002). On each of these critical elements of the PCarchitecture, IBM lost its ability to lead the industry. PC-compatible manufacturersbegan to gain market share from IBM, and IBM’s PC business became less and lessprofitable. While IBM’s power in the PC market diminished, Intel grew from strength tostrength. In line with this growth, Intel began to invest significantly in its own R&Dcapabilities (see Figure 3), spending practically nothing in the 1980s but almost US 4billion by the year 2000.[Figure 3 about here]The relative fortunes of IBM and Intel changed in the 1990s. IBM’ssemiconductor sales were overtaken by those of Intel in 1991, and IBM’s spending onsemiconductor R&D was overtaken by that of Intel in 1995. 2 Yet, while Intel overtookIBM in absolute spending on semiconductor R&D, the intensity of its investmentcontinued to lag behind IBM. “Historically, IBM did its own research, and Intel1See http://www.amd.com/us-en/Weblets/0,,7832 12670 12686,00.html2Source: Dataquest reports and Intel Labs (A) Case (Chesbrough, 1999).

pg 9historically did not,” said David Tennenhouse 3, former Vice President of Research atIntel. “And much of the research we did do was intended to help us understand theother research out there, whereas IBM was trying to commercialize its own research.”IBM did not passively cede control over the architecture it created toIntel. While IBM continued to purchase Intel microprocessors for use in its PC systems,IBM also initiated new projects that changed the character of its relationship with Intel.IBM exercised its manufacturing license on the Intel 486 to begin its own manufactureof Intel compatible microprocessors 4, reducing Intel’s revenues at IBM. IBM also beganto sell these microprocessors to other computer makers, putting it in direct competitionwith Intel. IBM even began working with Intel rivals, trying to help them compete asalternate sources of Intel-compatible microprocessors. In 1990, for example, Intelsued Cyrix, which worked with IBM to create an Intel-compatible microprocessor, andin 1994 IBM started to produce Cyrix chips for internal use and for sale on the openmarket. In 1996, IBM began to use AMD’s chips for notebook computers and its Aptivadesktop computers, and ever since then, IBM has chosen AMD chips for use in itscomputers.IBM also tried to compete with Intel by collaborating with Motorola and Applestarting in 1991 to create an alternative architecture for the personal computer – thePowerPC – which was used in supercomputers, numerous embedded applications, aswell as the Apple Macintosh (until 2005). 5 In turn, Intel terminated IBM’smanufacturing license to its technologies with the introduction of its Pentiumgeneration microprocessors in the early 1990s, making Intel the sole source of thechip. IBM’s PC business was now just another customer of the Intel Pentium processor.Towards the end of the 1990s, Intel and IBM began to diversify their activities.New applications emerged for semiconductor chips in computer networking,telecommunications, and consumer products, so that the chip market had evolvedfrom a single battlefield into several profitable segments. Competition between Inteland IBM continued to intensify. For example, In 2002 IBM and Intel began to compete3Personal interview with one of the authors, November 23, 2006.4IBM had a technology cross-licensing agreement with Intel that precluded Intel from suing IBM for itsactions.5IBM also purchased Metaphor Computer in 1991, and formed Patriot Partners, to develop a rival operatingsystem to Microsoft Windows, and formed a second company, Kaleida, to create new graphics standards forthe PC. These initiatives, though, also proved unsuccessful. They do, however, illustrate the broad intent andscope of IBM’s response to its loss of effective control over the PC, a response that changed the character ofits relations with Intel, as well as with other firms like Microsoft.

pg 10aggressively in the network chip (NPU) segment, along with Motorola. Both firms hadbeen anticipating the growth of this market segment: in 1999, IBM had formed astrategic alliance with network equipment leader Cisco Systems, while Intel acquiredNetboost, a network services tools supplier, as part of its bid to get into the networkingchip market. In the telecommunications chip market, Intel had a much strongerposition than IBM. By the year 2000, Intel had signed long-term contracts with someof the cellphone industry's biggest players (e.g. Ericsson) that brought it a big share ofthe market. AMD meanwhile signed a 400 million supply agreement with Samsung.Opportunities also began to emerge for new semiconductor applications inconsumer electronics. In 2003, IBM joined Sony and Toshiba to create a video gamechip, the Cell Processor, for the Sony PlayStation3. While IBM was willing to adapt itstechnology to satisfy the needs of consumer-product firms, Intel struggled with theshort life-cycles and constant redesigns needed in this industry. As a result, Intel didnot appear in Dataquest's 2003 rankings of the top 20 consumer chip makers, eventhough it tried a number of times to launch consumer product-oriented chips andsystems. In 2005, IBM won further contracts with two other major consumerelectronics products, Nintendo and Microsoft. The latter was a blow to Intel, forMicrosoft had long been a strong ally of Intel’s in both the personal computer marketas well as for the Xbox. Quite recently, Apple and switched to using Intel chips insteadof the PowerPC (a joint project of IBM and Motorola), and so the competitive battlecontinues.While they competed aggressively, from the late 1990s Intel and IBM alsobegan cooperating in several areas. Around 1998, they began joint development workon Unix along with SCO. Then, around 2002, Intel and IBM, began collaborating on thedevelopment of highly compact and efficient computer servers known as “bladeservers”. A key feature of IBM’s blade servers is that they are based on Linux softwareand utilize Intel microprocessors. The degree of commitment to Intel is underscored byIBM’s Vice President of Linux Servers, who is reported to have said in 2002 that “wewere in this game early, and we've benefited by working very closely with Intel. Infact, we've substantially contributed to optimizing Linux on the 64-bit Intelarchitecture. And we're leveraging IBM research and the many technologies that we'vedeveloped over the years, and applying them in the Intel server space to givecustomers compelling reasons to prefer IBM's Intel solutions”. 6 Interestingly,6“Linux on Intel: A Battle IBM Will Win”, June 2002. Available from http://www-03.ibm.com/linux/news/michos.shtml.

pg 11cooperation between Intel and IBM occurred not in the semiconductor space wherethey are direct rivals, but in complementary areas such as software and serverapplications.Starting in the late 1990s, IBM also stepped up the degree to which itcollaborated with AMD. During the late 1990s to the early 2000s, IBM announced aseries of innovations intended to define the future direction of semiconductortechnology: Silicon on Insulator (SOI) technology, copper interconnects on chips,electron beam lithography, and double gate transistors. As part of this trajectory, in2001 IBM officially ended its technology agreement with Intel, and instead signed a10-year agreement with AMD to jointly develop high-end semiconductor manufacturingtechnology. To date, IBM and AMD have developed 65-nanometer and 45-nanometerprocess technologies for 300-mm semiconductor wafers, as well as other techniques toimprove microprocessor speed and power efficiency.Since the turn of the century, IBM has also started to cooperate with both Inteland AMD (along with other partners) to promote Linux and other open source softwareinnovations. It has shifted its strategy towards being more of a service and solutionprovider, and away from being a hardware vendor. From 1997 to 2004, IBM acquiredmore than ten software companies, three data management companies, and four EService companies. This included the 3.5 billion purchase of PwC Consulting, whichhad strengths in “planning and installing high-end software for corporate accounting,dealing with customers, and managing corporate supplies”.7To summarize, in the early 1980s, Intel cooperated with IBM as a vendor ofmicroprocessor chips, an important component in the IBM PC. At that time it was asystem designed and controlled by IBM. By the 1990s, Intel (along with Microsoft) hadusurped control of the PC architecture, and had become more profitable and morepowerful in the PC market than its initial benefactor and customer, IBM. This led to aperiod of attrition during the 1990s between Intel and IBM. IBM began teaming up withother chip vendors – including AMD – and successfully disengaging itself from Intel. Inthe 2000s, IBM withdrew from the PC market and re-focused on its mainframebusiness, semiconductor R&D, and new downstream applications. Meanwhile, Intel hadbuilt up its own R&D strength throughout the 1990s, and by 2000 was beginning tocompete with IBM in applying semiconductor technology to consumer electronics andcomputer networking. While they remained highly competitive, Intel and IBM began to7c net News, 30 July 2002.

pg 12collaborate on blade servers and Unix and Linux systems. These patterns are reflectedin Figure 1. We can see a shift from cooperation during the early 1980s to competitionbetween IBM and Intel thereafter. We also observe that around the turn of the century,IBM and Intel began to cooperate in some areas while remaining rivals in the coresemiconductor business.AMD’s relationship with the other two firms is easier to characterize. With Intel,it was consistently a direct rival, except for an early truce imposed by IBM through thesecond-sourcing agreement between AMD and Intel. Over time, Intel has facedincreasingly intensive competitive pressure from AMD, as the latter has expanded itscustomer base among sellers of personal computers and leveraged on IBM’s strengthas a process technology partner. In contrast to Intel, AMD’s relationship with IBM(Figure 2) shows an initial period of cooperation, followed by a period during whichthere were no major competitive or cooperative events in the 1980s and early 1990s(a stark contrast to Figure 1 during this period), and finally a period of renewedinterest in the late 1990s, when IBM began collaborating again with AMD.In the following section, we investigate how these events relate to the patentingbehavior of the three firms. Do changes in the level of cooperation and competitionhave an effect on the patenting intensity at these firms? And is there a correspondingchange in the patterns of knowledge flow among the three firms over time?4. Patent AnalysisWe identified all US patents awarded to IBM, Intel and AMD between 1976 and2004. Patent data has been used as a proxy for innovation in many studies (e.g., Ahujaand Katila, 2001, Hall and Ziedonis, 2001), while patent citation data has be used totrace knowledge flows (e.g. Jaffe et al., 1993, Rosenkopf and Almeida, 2003). Usingpatent citations for this purpose has many deficiencies. It does not capture theorganizational knowledge gained from “learning by doing” (Rosenberg, 1982) or theorganizational capital created on the shop floor (Lazonick, 1990).

IBM has a long history of pursuing a research-driven strategy, which resulted in the greatest number of patents, and the broadest range of patents, among the three firms. By the late 1980s, even as IBM’s semiconductor sales fell relative to those of Intel and AMD, IBM’s patenting behavior persisted. I