Intel ‘Stunning Failure’ Heralds End
of Era for U.S. Chip Sector
of Era for U.S. Chip Sector
By Ian King
World’s largest
chipmaker considers outsourcing manufacturing
chipmaker considers outsourcing manufacturing
Crucial technology
expertise is shifting overseas, to TSMC
expertise is shifting overseas, to TSMC
Intel Corp.’s decision to consider outsourcing manufacturing
heralds the end of an era in which the company, and the U.S., dominated the
semiconductor industry. The move could reverberate well beyond Silicon Valley,
influencing global trade and geopolitics.
heralds the end of an era in which the company, and the U.S., dominated the
semiconductor industry. The move could reverberate well beyond Silicon Valley,
influencing global trade and geopolitics.
The Santa Clara, California-based company has been the
largest chipmaker for most of the past 30 years by combining the best designs
with cutting-edge factories, several of which are still based in the U.S.
largest chipmaker for most of the past 30 years by combining the best designs
with cutting-edge factories, several of which are still based in the U.S.
Most other U.S. chip companies shut or sold domestic plants
years ago, and had other firms make the components, mostly in Asia. Intel held
out, arguing that doing both improved each side of its operation and created
better semiconductors. That strategy is in tatters now, with the company’s
factories struggling to keep up with the latest
7-nanometer production process.
years ago, and had other firms make the components, mostly in Asia. Intel held
out, arguing that doing both improved each side of its operation and created
better semiconductors. That strategy is in tatters now, with the company’s
factories struggling to keep up with the latest
7-nanometer production process.
After Chief Executive Officer Bob Swan said Intel is
considering outsourcing, the company’s shares slumped 16% on Friday, the
most since March, when the stock market plummeted in the early days of the
Covid-19 pandemic.
considering outsourcing, the company’s shares slumped 16% on Friday, the
most since March, when the stock market plummeted in the early days of the
Covid-19 pandemic.
“We view the roadmap missteps to be a stunning failure for a
company once known for flawless execution, and could well represent the end of
Intel’s computing dominance,” Chris Caso, an analyst at Raymond James, wrote in
a research note on Friday.
company once known for flawless execution, and could well represent the end of
Intel’s computing dominance,” Chris Caso, an analyst at Raymond James, wrote in
a research note on Friday.
Swan says where a semiconductor is made isn’t that
important. However, domestic chip
production has become a national priority for China, and some U.S.
politicians and national-security experts consider sending this technical
knowhow overseas to be a potentially dangerous mistake.
important. However, domestic chip
production has become a national priority for China, and some U.S.
politicians and national-security experts consider sending this technical
knowhow overseas to be a potentially dangerous mistake.
“We’ve seen how vulnerable we are,” John Cornyn, a top
Senate Republican, said in June when U.S. lawmakers proposed an estimated $25
billion in funding and tax credits to strengthen domestic semiconductor
production.
Senate Republican, said in June when U.S. lawmakers proposed an estimated $25
billion in funding and tax credits to strengthen domestic semiconductor
production.
Intel’s Xeon chips run computers and data centers that
support the design of nuclear power stations, spacecraft and jets, while
helping governments quickly understand intelligence and other crucial
information.
support the design of nuclear power stations, spacecraft and jets, while
helping governments quickly understand intelligence and other crucial
information.
Many of these processors are made at facilities in Oregon,
Arizona and New Mexico. If Intel outsources this work, it would likely be done
by Taiwan Semiconductor Manufacturing Co.,
which focuses on production and is currently the world leader. It’s based in
Hsinchu, one of the closest Taiwanese cities to China, which considers the
Asian island a rogue province rather than an independent country.
Arizona and New Mexico. If Intel outsources this work, it would likely be done
by Taiwan Semiconductor Manufacturing Co.,
which focuses on production and is currently the world leader. It’s based in
Hsinchu, one of the closest Taiwanese cities to China, which considers the
Asian island a rogue province rather than an independent country.
“With the latest push out of process technology, we believe
that Intel has zero-to-no chance of catching or surpassing TSMC at least for
the next half decade, if not ever,” Susquehanna analyst Chris Rolland wrote in
a research note. He thinks Intel should sell its plants to TSMC, although he
says that’s unlikely.
that Intel has zero-to-no chance of catching or surpassing TSMC at least for
the next half decade, if not ever,” Susquehanna analyst Chris Rolland wrote in
a research note. He thinks Intel should sell its plants to TSMC, although he
says that’s unlikely.
Investors Have
Deserted Intel, Piled Into TSMC
Deserted Intel, Piled Into TSMC
Over the years, Intel has spent tens of billions of dollars
updating its factories, and all of Swan’s predecessors touted them as a crucial
advantage that kept the company ahead of the rest of the industry. As the
largest chip producer, Intel benefited from economies of scale and attracted
the most experienced engineers and scientists.
updating its factories, and all of Swan’s predecessors touted them as a crucial
advantage that kept the company ahead of the rest of the industry. As the
largest chip producer, Intel benefited from economies of scale and attracted
the most experienced engineers and scientists.
The rise of smartphones
and other mobile devices changed all that. Intel dabbled in mobile
chips, but never committed its best production and design to the area,
preferring to prioritize its existing PC and server chip businesses. When
smartphone sales took off, phone makers used other processors from companies
like Qualcomm Inc. or they designed their own, like Apple Inc. And TSMC factories churned these components out.
and other mobile devices changed all that. Intel dabbled in mobile
chips, but never committed its best production and design to the area,
preferring to prioritize its existing PC and server chip businesses. When
smartphone sales took off, phone makers used other processors from companies
like Qualcomm Inc. or they designed their own, like Apple Inc. And TSMC factories churned these components out.
While Intel makes hundreds of millions of chips a
year now, TSMC produces more than a billion annually. That’s given the Taiwanese company more
experience to improve its factories, helping TSMC’s engineers overtake
their Intel counterparts in technical
execution.
year now, TSMC produces more than a billion annually. That’s given the Taiwanese company more
experience to improve its factories, helping TSMC’s engineers overtake
their Intel counterparts in technical
execution.
Swan said on Friday that Intel’s products are still the
best, despite the manufacturing delays. But by opening the door to outsourcing,
the CEO endangers one of the last bastions of U.S. technology leadership.
best, despite the manufacturing delays. But by opening the door to outsourcing,
the CEO endangers one of the last bastions of U.S. technology leadership.
“By outsourcing
leading edge technology, presumably to TSMC, Intel would give up what has been
its main source of competitive advantage for 50 years,” Caso of Raymond
James said.
leading edge technology, presumably to TSMC, Intel would give up what has been
its main source of competitive advantage for 50 years,” Caso of Raymond
James said.
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