Intel’s new CEO: comments from media and analysts

Comments abound on last week’s Intel news announcing the appointment of Pat Gelsinger as the company’s new chief executive officer, effective Feb. 15, 2021. The official press release is quick to underline that the announcement “is unrelated to Intel’s 2020 financial performance” and that “the company has made strong progress on its 7nm process technology”, implicitly dismissing the notion of a reaction to a problem. But all observers are obviously interpreting this sudden CEO change as a move aimed at recovering competitiveness after a lackluster period that was becoming worrisome for the investor community.

For example, EDACafe last week briefly reported about a letter sent to Intel by Third Point, complaining not only about Intel’s well-known delay in moving to the 7-nanometer node, but also about its loss of many talented employees, certain questionable acquisitions, and more. Observers unanimously express positive judgements on Gelsinger – see, for example, the article from Tirias Research’s Jim McGregor on EETimes. Gelsinger has an engineering background and spent thirty years of his career at Intel, which he left in 2009 to join EMC as President and COO. From 2012 to present, he served as CEO of virtualization leader VMware. More bio details about him can be found in this note to all Intel employees. So, Gelsinger sounds like a great choice; but what about his new strategy?

Pat Gelsinger. Credit: Intel

Staying IDM versus going fabless

Given the difficulties that Intel is currently experiencing in keeping pace with foundries, a key point that Gelsinger will need to address is the choice between retaining Intel’s IDM identity – in other words, keeping the fabs – or embracing the fabless model, which would basically mean outsourcing the manufacturing to TSMC. The obvious parallel is with what AMD did back in 2008-2009, when it sold its fabs to the entity that later became GlobalFoundries.

On this point, Robert Maire from Semiconductor Advisors wrote some interesting comments on SemiWiki. According to Maire, AMD’s example is not a good one: “We think that this is not a good comparison. AMD did not have the minimum critical mass needed to support a fab and all the R&D that goes along with it. Intel has the size, scope and market needed to support the associated spend. The basis of the problem is not economic as it was with AMD; it is an execution/technical problem that Intel has encountered.”

Pitfalls of a manufacturing duopoly

Another point raised by Maire is the importance of a healthy competitive environment in advanced chip manufacturing – not just for the benefit of Intel as a prospective fabless company, but also for system companies such as Apple: “If both Intel and AMD outsource to TSMC without Samsung as a viable alternative, they will both lose as TSMC will be in the driver’s seat and will be able to determine winners and losers and pricing. AMD being at TSMC has worked because the real competition has been TSMC versus Intel. We would also point out” – Maire continues – “that Apple is an even more vulnerable position than Intel with TSMC now that it has decided to move all its laptop/desktop CPU business away from Intel and put all its eggs in TSMC’s basket.” Additionally, according to Maire a fabless Intel would weaken the position of semiconductor equipment suppliers, which would face a powerful TSMC-Samsung manufacturing duopoly.

As for Apple vulnerability, however, it should be noted that the other side of the coin is the immediate benefit the company has gained through its new Arm-based M1 chip manufactured by TSMC. According to technology analysis firm The Linley Group, the Apple’s M1 silicon in the new Mac Minis and MacBooks is “much more efficient than x86 designs, doubling MacBook battery life relative to older Intel-based products. (…) The M1 is the industry’s first 5nm PC chip—a full process node ahead of Intel’s best offerings. (…) Relative to previous MacBooks based on Intel’s Ice Lake processor, the new systems deliver 40% better performance for native applications and 70% longer battery life.”

A third way: partial production outsourcing

The appointment of Pat Gelsinger as new Intel CEO was announced on January 13. The same day, a press release from market research firm TrendForce reported that “Intel has outsourced the production of about 15-20% of its non-CPU chips, with most of the wafer starts for these products assigned to TSMC and UMC. (…) While the company is planning to kick off mass production of Core i3 CPUs at TSMC’s 5nm node in 2H21, Intel’s mid-range and high-end CPUs are projected to enter mass production using TSMC’s 3nm node in 2H22.” According to TrendForce, “increased outsourcing of its product lines will allow Intel to not only continue its existence as a major IDM, but also maintain in-house production lines for chips with high margins, while more effectively spending CAPEX on advanced R&D. In addition, TSMC offers a diverse range of solutions that Intel can use during product development (e.g., chiplets, CoWoS, InFO, and SoIC). All in all, Intel will be more flexible in its planning and have access to various value-added opportunities by employing TSMC’s production lines. At the same time, Intel now has a chance to be on the same level as AMD with respect to manufacturing CPUs with advanced process technologies.”

The coincidence of dates suggests that the above outsourcing news – based on “TrendForce’s latest investigations” – might actually reflect the new Intel strategy. If this is the case, then a potentially sensitive issue would be its impact on profitability and therefore, the reactions of the investor community. As Maire observes in his article on SemiWiki, in this case “Intel would have to outsource to TSMC while at the same time also spending to fix and improve their existing process and technologies. This larger incremental cost would likely not sit well with investors as the additional costs would squeeze profitability in the short run (likely a number of years).”

Shakeups ahead?

The appointment of Gelsinger as the new CEO is expected to have an impact on other aspects of the current Intel strategy, too. Among them, some of the above-mentioned observers expect or even suggest Intel to get rid of certain companies it has acquired over the past few years. It will be interesting to see if Intel will undertake a process of re-defining its core business.

Other aspects to be factored in are purely managerial and “internal” in nature, potentially leading to some changes in Intel’s organization chart. As Junko Yoshida notes on EETimes, “Gelsinger never publicly explained why he left in 2009. He must have had his reasons. Further, as Jim McGregor, principal analyst at Tirias Research tells us, Intel did ask Gelsinger to come back after Brian Krzanich blew up his Intel career in 2018. Gelsinger reportedly turned down the offer. We don’t know why he didn’t return to Intel then, and why he is coming back now.”

An exciting time for the industry

The CEO change at Intel happens in a special moment for the semiconductor industry, right after a record year for acquisitions – including the AMD-Xilinx deal – and in the middle of a pandemic that contributed to an unexpected growth of the PC market: according to market research firm IDC, the fourth quarter of 2020 saw global PC shipments grow 26.1% year over year to 91.6 million units. Also, the acquisition of Israeli companies Mobileye in 2017 and Habana Labs in 2019 provided Intel with a significant presence in two emerging markets – autonomous vehicles and AI acceleration, respectively. As for Mobileye – arguably the most advanced specialist in the autonomous vehicle landscape – last week at CES the company’s CEO Amnon Shashua explained his approach, preannouncing a “lidar SoC” that will be produced by Intel’s specialized silicon photonics fab which is able to put active and passive laser elements on a silicon chip.

In summary, the appointment of a new CEO at Intel adds to an already exciting time for the semiconductor industry. Undoubtedly, all eyes will be on Pat Gelsinger over the next few months.

This entry was posted on Monday, January 18th, 2021 at 7:44 pm. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.