Faced with deep-seated technical issues that have hampered its long ascent in the chipset industry, Intel this week looked outside for a new CEO with an impeccable technical background. But despite strong support for the move to Wall Street and Silicon Valley, the new boss still faces one of the toughest comebacks in tech history.
Pat Gelsinger, the former head of software company VMware, had often been seen as an Intel CEO on hold. After a career with the US chipmaker that culminated in the role of chief technology officer, he left in 2009 after being dropped for the top position. He was also considered for the job in 2013, and then again in 2018, the second time stepping out of the race.
Mr. Gelsinger had been named this week to replace Bob Swan, a financial executive who joined over four years ago and took the helm in 2019. Mr. Swan “had a tough hand” but still “accomplished a lot,” Pat said Moorhead, an American chip analyst. This involved refining Intel’s strategy, pulling it out of markets like communications and NAND flash memory chips where it was underperforming and delivering strong financial performance.
However, it was unable to address the technical issues that have clouded Intel’s future product plans, and the company’s stock price malaise during a strong rally in chip shares has caused it. finally caught up this week. “I think this is due to pressure and impatience from investors,” Mr Moorhead said of the change at the top.
The most striking shift has been Intel’s loss of leadership in advanced chip manufacturing to TSMC, the Taiwanese foundry that manufactures chips for many of Intel’s competitors.
Some of these rivals – like AMD and Nvidia – have taken advantage of their TSMC relationship to leap forward with new designs that in many cases offer better performance than Intel chips. Intel’s recent loss of its chip manufacturing contract for Apple’s Macs – with Apple itself design new processors – also highlighted how the world has changed, with big tech companies move to its territory.
Mr. Gelsinger faces three complex and interrelated challenges in getting Intel back on track.
The first is to prove that the company can master new ways of doing business as it expands into chip markets beyond its traditional stronghold of manufacturing microprocessors for PCs and servers. New chips are often manufactured at the facilities of other companies rather than by Intel itself, said Alan Priestley, analyst at Gartner. He adds that Intel has already shown that it can adapt to this design-only, or “factory-less” model used by many of its competitors. But going beyond its core markets – and the vertically integrated business model that has long been the source of its success – has left it fighting in uncharted territory.
A second, deeper technical problem came from slips in its in-house manufacturing. Intel’s former dominance relied heavily on being the first to perfect each new generation of process technology – essentially, the manufacturing recipe used to make its processors – as chipmakers piled up more and more. of transistors in the same space. But slips over several years, culminating in the shock news last year of the latest delay in switching to 7-nanometer process technology, saw it fall about a year behind TSMC for the first time.
The company’s manufacturing crisis resonates beyond the financial world, potentially leaving the United States without a company on the cutting edge of semiconductor manufacturing – the top tier of technology. The national security implications were highlighted last month by Third Point, the activist investor, who took a $ 1 billion stake in Intel and started agitating for change.
Third Point called on Intel rethink if he should even be involved in manufacturing. But this suggestion received little support among analysts and investors who have long followed the company, or within Intel itself. The integration of design and manufacturing is embedded in the company’s processes and business model, supporting its margins. Insiders say it also gives Intel an edge when growing demand leaves rivals struggling to find sufficient manufacturing capacity, as happened last year.
#techFT brings you news, commentary and analysis on the big companies, technologies and issues shaping this fastest moving sectors from specialists based around the world. Click here to get #techFT to your inbox.
A third technical challenge for the new CEO will be mastering a new modular approach to chip design. Breaking down the semiconductor design into discrete units makes it easier to update designs and outsource parts of the products to other manufacturers. AMD, long an outsider in major Intel markets, took seven years to perfect a modular design that recently saw it outperform Intel in performance, chip analyst Moorhead said. Intel has moved in the same direction, but has yet to show that it can match AMD’s capabilities, he added.
Mr. Gelsinger doesn’t have long to make his first important call. Long delivery times for new products mean it has to decide soon how to make key chips for PCs and servers in 2023.
He will have little room for maneuver. Intel said on Wednesday it had made progress on its delayed 7nm technology, promising to say more next week. But Mr Swan had previously admitted that Intel would still need to look outward for at least part of its manufacturing for its commodities.
The decision to outsource will not be easy. TSMC’s most advanced manufacturing capability was already heavily committed to Apple, said Gartner’s Priestley. With other high-volume customers like AMD and Qualcomm, the Taiwanese company had little capacity to resell and was unlikely to want to build a new semiconductor manufacturing plant just to serve Intel, he added. Intel has also discussed a manufacturing partnership with Samsung.
Turning to other companies to make its chips – or parts of them – will also force Intel to design products so that they can be built in those companies’ manufacturing plants, using their different “recipes.” process. For a company whose dominance relied on the close connection between its internal design and its manufacturing processes, this will be a bitter pill to swallow.
Mr Gelsinger’s track record puts him at least in a stronger position than his predecessor when it comes to such decisions, some analysts say. He “has the history, credibility, technical authority and the respect of the company to make these difficult decisions and not be questioned and underestimated by employees,” said Ben Bajarin, analyst at Techpinions.
His credentials should also help attract engineers to the company at a time when it was starting to scare away talent, Moorhead said.
Wall Street applauded the meeting half-heartedly, lifting Intel’s shares by 7% on Wednesday. But the scale of the challenge Mr. Gelsinger faces is evident from the huge value shift that has taken place in the chip industry.
Five years ago, at around $ 120 billion, Intel was worth about as much as TSMC, Nvidia, and AMD combined. Since then, the value of its rivals has climbed to nearly $ 1 billion, four times what Intel is currently worth. For the future leader of Intel, there could be no clearer sign of the challenge that awaits him.