In 1987, I became an Intel customer because my first computer: PC-XT was Intel inside with an 8088 CPU. In 2012, I approved Lava Xolo X900, the 1st Intel inside x86 smartphone is Android compatible, And later I closely observed Tag Heuer Intel Inside smartwatch comes & goes. Even at that time, I was a minority worrying about the suitability of Intel’s plan to abandon smartphones & focus on wearable. Today, let’s check how Intel may make consumer computing better for the next decade with the new CEO, the new IDM 2.0 strategy & the new business for smarter cars. Maybe Intel Inside 2.0 is different this time 😉.
The Return of the King
In Feb. 2021, Pat Gelsinger becomes Intel CEO. Lucky Intel as Gelsinger may be the best person to bring a renaissance to Intel. Even I don’t know him much personally, one big ➕ is Gelsinger’s first-hand experience to build great CPU products. Whenever you are on a battlefield, you will really appreciate decision-makers, who have actual combat experience. Especially for those who are back in the command center. It’s a hug bless. Because as an organization grows & matures, a lower ratio of people who know what it means to make a good product.
IDM 2.0 — A Necessary Reform
I’m not arguing many criticisms of Gelsinger’s IDM 2.0 strategy without good merits. Of cause outsourcing chip manufacture & providing foundry service (making chips as a service) are not something Intel good at for now. However, in my opinion, it’s a bet Intel has to take for 3 key reasons to be very relevant for the next decade.
- Stop leaving money on the table. Intel has been struggling to make enough chips since 2018. Which is one of the reasons AMD enjoying explosive growth. With the limitation on supply, Intel can not play the price war strategy against AMD anymore. Instead, AMD significantly demolishes Intel’s pricing power because of its good CPU design supported by TSMC’s great manufacturing capacity.
- A way back to a big lost business. Apple is doubling down on designing its own chips. So making chips for Apple may be the only opportunity left for Intel. Furthermore, there are more big potential customers, such as MS is also designing its own chips for servers & Surface.
- Staying as the №1 or at least 2 players is increasingly essential for the economy of scale, the bargaining power to key suppliers & to retain/attract talents. Because advanced material, fabrication & packaging technologies require huge investment & know-how. Just check Intel’s market cap is $235B with $44B gross profit. Whereas TSMC’s market cap is $557B with $25B gross profit. The market is not just telling a story, but also provides better ammunition support to the lead runner.
Not All Chips Are Created Equal
Remember, Intel is likely to focus on the high-end (<10nm) in-house & provide the foundry service to strategy customers. Which won’t directly conflict with outsourcing the low-end manufacture. If this is done right, it can even create positive competition between two houses in house: chip design vs manufacture. And Gelsinger has already made a first good move forward: creating a fully vertical, standalone foundry service business unit & equipping it with an experienced lead directly reporting to him, aka Reverse Mirroring Hypothesis, nice try 👏.
On this line, TSMC may win some business in the low-end & faces a strong new entry challenge on the high-end. Whereas Samsung is the 1st one to brace for the 1st shockwave on the high-end. Or, there could be other advanced strategies, e.g. a Longzhong plan opening the Three Kingdoms era 🤫.
A New Horizon
Intel has missed the big consumer computing innovations that matter for a while. With all due respect, Intel is not relevant in mobile nor wearable in reality. Even worse new SoC players are eating Intel’s main courses: personal computer & server. Don’t get me wrong, Intel can keep milking the cash cow for a long time. But if Intel does not change for the better, being disrupted is a matter of when not if as the disruptive innovation theory predicts.
So what is the new, high value & mass application Intel is not too late to pursue? As of Apr. 2021, Intel is already in talks to produce chips for automakers within 6–9 months. I bet Intel may do better than just making entry-level chips that automakers currently need. It’s better if Intel takes the opportunity to double down by developing a new brain for smarter cars to power infotainment & self-driving car. Besides the timing is right to win the political capital. Biden’s calling for $50B CHIPS act to invest in semiconductor manufacturing and research. And, Intel is asking $10B subsidies to build a fab in Europe.
The Best Defense Is a Good Offense
You can build a wall higher, or you can push the edge of the war into new territory. Intel almost has it all as timing is good, the leader is right, and strategies seem sound. Now they just need to execute properly. Best luck Intel.
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert.
