I think their main error was short-termism. They were addicted to high margin (workstation/server) devices. They had no interest in the low margins of mobile devices. They could not imagine how low-power devices would take over the world.
Only a few companies can buck the Innovator's Dilemma, usually only founder led enterprises with significant control.
The Innovator's Dilemma isn't about missing quarterly guidance. The dilemma is that it's perfectly rational and profit maximizing to continue focusing on your cash cow even when obsolescence is a foregone conclusion. It wouldn't be a true dilemma, otherwise.
The incumbent is the only player that can maximally squeeze the very considerable remaining profits from old technology, and they should do so with gusto. Moreover, switching to new technologies comes with more risk, even when it seems obvious what the new market will look like because the old market has almost zero risk--it's completely proven.
All the "solutions" to avoid the dilemma, like selling the old technology to take future profits and then pivoting to the new market, are just corporate branding shell games. They might even be in fact sub-optimal, but in any event the fundamental dynamics remain the same.
There are transaction costs to creating and building a corporation, but do those offset the clear costs of leaving money on the table, especially in the modern world of highly liquid capital, and particularly in markets with clear technological breaks. The lesson of the Innovator's Dilemma is that very often the perfectly, unqualifiedly rational decision is to press your advantage to the very end. And importantly it not only maximizes short-term profits, but implicitly it maximizes long-term profits globally by most efficiently allocating resources. Why waste energy swimming upstream when there are endless fish spawning and starting their journey upstream already along with ample resources of their own.
This is reported in a profile of Otellini:
> "We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we'd done it," Otellini told me in a two-hour conversation during his last month at Intel. "The thing you have to remember is that this was before the iPhone was introduced and no one knew what the iPhone would do... At the end of the day, there was a chip that they were interested in that they wanted to pay a certain price for and not a nickel more and that price was below our forecasted cost. I couldn't see it. It wasn't one of these things you can make up on volume. And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought."
https://www.theatlantic.com/technology/archive/2013/05/paul-...
So a deal based on any price wasn't a realistic avenue for iPhone. The fact that Intel was actually considered was itself a radical move on behalf of Steve (absent the technical obstacles that emerged later).
Is there any evidence that mobile chip makers who do not also create/own the device and are in a race to the bottom on price actually get decent returns?