Inside Intel: A Look at the Mega Chip Maker

Never has an organization accomplished a lot with so little. Founded in Mountain View, Calif. on July 18, 1968, by Robert Noyce and Gordon Moore, Intel Corp. (INTC) has been the world’s main producer of microprocessors and chipsets virtually since its inception. Based on its 2020 income of $77.9 billion, Intel is the largest semiconductor firm in the world.

Intel’s closest competitor, Samsung Electronics, recorded $57.7 billion in semiconductor gross sales in 2020, whereas Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), got here in third with $45.5 billion in income.

In this text, we’ll have a look at Intel’s strengths which have stored it at the high of the semiconductor industry for therefore lengthy. Plus, we’ll additionally assessment challenges the firm might want to deal with in the years to return as competitors to dethrone the mega chip maker intensifies.

In-House Fabrication

What separates Intel from most different semiconductor companies is that it fabricates its merchandise in-house. The bulk of semiconductor “manufacturers” farm the precise work of making the merchandise out to foundries in China. Intel even fabricates chips for different firms—for the most half, ones too small to be thought of true rivals. Is {that a} battle of curiosity? Not actually. Fabrication vegetation can value a number of billion {dollars} to construct, and it is sensible for Intel to maintain its vegetation busy.

Intel does certainly assemble chipsets in China, however at Intel-owned amenities. It is obtained knowledge amongst some American doomsayers that low labor prices make China the world’s factory and the default base of producing operations for U.S. companies that need to save a couple of pennies per unit and “ship jobs overseas.” That declare is usually extra accusatory than it’s true.

At the finish of 2020, Intel had a multitudinous workforce of 110,600, roughly half of whom have been employed in the United States. Almost half of Intel’s chipsets and microprocessors are manufactured at residence, at amenities in the suburbs of Phoenix, Albuquerque, and Portland. Outside of China, most of the remaining Intel merchandise are developed in Israel.

The Competitive World of Chip-Sourcing

Given that Intel fabricates different firms’ chips at its amenities, the enterprise of working with firms that in some settings is perhaps your rivals is extra frequent than you would possibly suppose. For occasion, in 2007 Apple Inc. (AAPL) started utilizing Intel chips solely in its Macs, supplanting the PowerPC CPUs that Apple itself helped develop as a part of a consortium.

But that long-term partnership with Intel got here to an finish in 2020 when Apple introduced its new laptops and desktops would not use Intel processors. Instead, their machines can be powered by Apple’s new M1 chip, which the firm developed as a part of its “Apple silicon” plan to personal and management the main applied sciences behind their merchandise.

This lack of a valued (and profitable) buyer got here as a big blow to Intel. In its 2020 annual report, the firm mentioned that one in all its greatest challenges going ahead can be in coping with the lack of income from clients like Apple that determine to interrupt ties and develop their very own semiconductor designs.

Moore’s Law

Intel’s co-founder, Gordon Moore, lends his identify to the most well-known commentary in all of expertise. Formulated in 1965, Moore’s Law states that transistor density doubles each two years. Not solely has the commentary held ever since, however Intel has formally integrated the legislation into its firm technique. In 2020, the firm introduced it had doubled its mixed 14nm and 10nm manufacturing capability in only a few years. This enabled Intel to increase its line of 10nm merchandise and launch its subsequent technology of cellular PC processors.

So who’s shopping for all these Intel chips?

In 2020, Intel had three main clients that have been answerable for 39% of the firm’s internet income. Dell Inc. accounted for 17%, Lenovo Group Limited accounted for 12%, and HP Inc. accounted for 10%. These three clients generated 43% of Intel’s accounts receivable as of Dec. 26, 2020.

The Changing Market

Capitalizing on the leverage of its market-leading place, Intel has over the years shifted a few of its focus to smaller gadgets and embedded techniques. The latter refers to chips positioned in one thing apart from stand-alone computer systems, which may embody all the pieces from vehicles and planes, to site visitors indicators and manufacturing facility meeting traces.

Like any company of its measurement ($234.1 billion market capitalization as of April 27, 2021), Intel has an elaborate enterprise group. The firm has 5 main divisions or teams:

• The Client Computing Group contains Intel’s core processor techniques for desktop computer systems, notebooks, and tablets. 
• The Data Center Group contains merchandise for cloud communications and infrastructure.
• The Internet of Things Group contains merchandise designed for Internet connectivity in areas like retail, transportation, industrial, video, buildings, and good cities.
• The Non-Volatile Memory Solutions Group creates reminiscence and storage merchandise with modern type components primarily based on Intel Optane expertise and Intel 3D NAND expertise.
• The Programmable Solutions Group presents programmable semiconductors for the firm’s cloud and enterprise market segments.

Intel Faces Criticism

While Intel’s enterprise teams have loved a status for cutting-edge innovation, that status got here underneath shut scrutiny by activist hedge fund Third Point LLC in Dec. 2020. Third Point criticized Intel’s administration for shedding market share to its rivals, noting, specifically, the lack of clients like Apple, Microsoft, and Amazon that have been creating their very own semiconductor options and sending their designs to Asia for manufacturing. Additionally, Intel was rebuked for not retaining a few of its high chip designers and leaders, who have been steadily leaving the firm.

Third Point Chief Executive Daniel Loeb requested Intel to contemplate strategic alternate options, akin to divesting itself of failed acquisitions and deciding whether or not it ought to stay an built-in system producer. Bowing to the stress, Intel’s board of administrators introduced that CEO Bob Swan would get replaced by VMware CEO Pat Gelsinger in Feb. 2021.

The Bottom Line

Some firms dominate an business, fail to innovate, and fall into irrelevance (e.g., Howard Johnson and Kodak). Others have nice concepts however by no means handle to capitalize on them. The firm that may leverage mental firepower with commanding market share is the firm that may keep each highly effective and related for many years. While Intel has loved over 50 years of dominance in the semiconductor business, it faces fierce competitors from rivals—akin to Taiwan Semiconductor Manufacturing Co, Advanced Micro Devices Inc., and Samsung Electronics—that would put Intel’s future dominance in the semiconductor business in query.