In 2015, the combined market value of the world’s semiconductor firms was $1T+. Today, the total value is $4T+, according to The Economist.
Unfortunately for Intel — the $230B American semiconductor giant founded in 1968 — much of this value has accrued to other industry players.
Intel powered the PC revolution in the ’80s and ’90s…
… by creating industry-leading chips.
However, Intel’s integrated approach (design + manufacturing) floundered in recent decades as the industry moved toward fabless production, in which companies specialize in design and outsource the manufacturing.
Taiwan Semiconductor Manufacturing Co. (TSMC) capitalized on this opportunity and is widely used as the 3rd-party parts manufacturer of choice, including for 2 trends that Intel missed:
- Mobile: Intel passed on Apple’s iPhone business.
- Artificial Intelligence: Nvidia created graphics processing units (GPUs) in the 1990s, which provide the brute computing power for AI computing. Now, Facebook, Google, and Amazon are all designing their own AI chips.
So Intel shook things up…
… by hiring Pat Gelsinger, a 3-decade Intel vet who is currently CEO of software firm VMWare. He will take the reins at Intel on Feb. 15.
During an earnings call last week, Gelsinger said Intel will start having “other chip companies make more of its products,” per the Wall Street Journal.
That “other” chip company is almost certainly TSMC, which announced it would spend $28B on CAPEX in 2021 and is already in talks with Intel to manufacture GPU chips.
Meanwhile, competitors are nipping at Intel’s core business
Nvidia (which acquired design firm Arm for $40B) and AMD (which acquired Xilinx for $35B) are encroaching on Intel’s server and PC turf.
All this is happening against the backdrop of a US-China tech war. The security of chip manufacturing — notably, in Taiwan (TSMC) and South Korea (Samsung) — is comparable to oil security in the Middle East from decades past.
Gelsinger describes Intel as a “national asset,” and — in a move that would help Intel capture more value moving forward — Congress is considering major incentives for domestic chip manufacturing.
