By 1985, Intel Corporation was already a major player in the emerging computer technology industry. Founded in 1968, Intel had grown to become one of the world’s largest producers of computer memory chips. The company was responsible for many of the technological advances that had been made in memory chips and was acknowledged to be an industry leader. Despite this record of success, all was far from well in Intel’s executive offices as 1985 began. Chairman and CEO Gordon Moore and President Andrew Grove were facing a challenge quite unlike anything Intel had faced before.

Japanese firms began to enter the memory chip market in the late 1970’s. At first, Intel and other U.S. memory producers did not view the Japanese companies as competitive threats. In the early 1980’s, however, the picture changed dramatically. The Japanese entered the market in force, offering extremely high quality memory chips at astonishingly low prices. Intel fought back. It improved its quality and brought its costs down, but the Japanese simply lowered prices even further. Intel tried to focus on a niche of the memory market, it tried to invent special purpose memories, and the company introduced more advanced technologies, all in the hope of earning a premium price for its products. But nothing worked. By the end of 1984, Intel had been losing money on memory chips for several years, and the losses were really starting to hurt. In the middle of 1985, Moore and Grove made an almost unthinkable decision — they decided to abandon the memory chip business completely and focus the company’s efforts on its much smaller microprocessor business. Intel gave up the business on which it was founded and started to build a presence in an entirely different business. And it began this effort in the midst of a crisis of huge proportions.

In his best selling book, Only the Paranoid Survive, Andrew Grove describes the crisis that Intel faced in the mid-1980’s as a strategic inflection point. In mathematics, an inflection point is the point at which the rate of change of the slope of a curve changes sign, from positive to negative, or negative to positive. Grove contends that strategic inflection points occur in virtually all industries and always mean dramatic change. He describes the power of strategic inflection points with the following language: