Intel’s Challenge in the Post PC World
Let’s start with some comments on “Post PC.” If we take a step back and look at the global computing landscape, we realize two things. First, there is a “PC plus” market (people who use a PC and other devices like tablets and smartphones together) and a non-PC market where the only computer people use are smartphones. Understanding the PC plus segment is how I predicted 2014 would see some rebound of the PC market. Microsoft says 1.5 billion people use Windows every day. This does not mean there are 1.5 billion unique PC owners though. That number is much lower. Between corporate, small business, consumer, internet cafes, and point of service (retail) use of PCs, there is a healthy installed base and many of those are not going away. However, the market for the PC is also not growing and, in fact, may be on the decline. Servers remains a bright spot and a overall growth opportunity for Intel. However, a great deal of the volume in computing chipset demand is in smartphones. Intel’s lack of relevance in the massive market of smartphones, and even tablets to a degree, lies at the root of their greatest struggle.
Understanding Their Business
Intel’s business is to manufacture semiconductors. They are one of a handful of companies who own the physical space and equipment to make the millions upon millions of microprocessors necessary to bring about our wonderful computing future. The rub is Intel currently only manufactures chips it designs for the x86 architecture. Right now, those chips are only positioned well in the market for PCs and servers. The challenge as a manufacturer of silicon is you need to keep your semiconductor manufacturing facilities full in order to profit on the initial investment in psychical space and equipment. By only being relevant in PCs and servers, keeping semiconductor fabs full has posed a challenge. A question I like to pose is this: every single major semiconductor manufacturer is at or near 100% capacity except for one. Guess who it is?
The answer is Intel.
Betting on Moore’s Law
Intel has a lot riding on Moore’s Law. Intel is committed to x86 and, for server and most PC use cases, this is the right architecture. x86 has always had an advantage over competing architectures in performance. It struggles to have an advantage in power consumption. Thanks to Moore’s Law, x86 has been making strides in bringing the performance of x86 to lower powered solutions. Intel’s current processor technology is 14nm and it is the first process where we can truly have desktop class x86 “core I” chipsets that don’t require a fan. Even with the benefits of 14nm, Intel will be challenged to fill their fabs, making it tough to monetize the eleven plus billion dollars they invested in the 14nm process technology. Yet they will still need to spend double digit billions of dollars to invest in the next process node which will be 10nm.
There is good reason to keep Moore’s Law alive. But to bet so heavily on it means the economics need to be there. In fact, it is possible following Moore’s Law for Intel is more of an economic challenge than a technical one.
Investing in Moore’s Law requires investing in new process technology every few years. Currently, Intel is shipping semiconductors at a range of process technologies, but a couple of the main ones are 28nm and 22nm. Intel has also recently begun mass producing chips at 14nm. Intel’s next step in pursuit of Moore’s Law is to invest in and start mass producing 10nm chipsets. After that, they will go to 7nm. The cost to do this in CapEx is massive. To visualize this, here is a chart Intel showed regarding how they outspend competitors to keep a lead in process technology.
This is Intel’s process technology advantage but the economics to keep it going is also their challenge. Intel mush keep those fabs filled, recoup their investment, and continue investing going forward to maintain a lead. This is what being absent in the high growth and high scale area of mobile phones, tablets, and, to a degree, the Internet of Things is costing Intel. Intel needs the scale of markets like smartphones to keep Moore’s Law working for them.
Why I’m Optimistic
Among the many benefits of advancing process technology is an increase or an approximate doubling of the number of transistors you can pack onto the silicon. Which means designers of said chips have an increased number of transistors at their disposal they can spend their “transistor budget” on in valuable ways.
I believe the future of the semiconductor industry is in the hands of those who have in-house capabilities to design semiconductors. A handful of companies have this capability. Among them are Apple, AMD, Qualcomm, Broadcomm, Nvidia, a few others and, of course, Intel. Intel sets themselves apart from the pack because they design and manufacture. While it is debatable whether they are the best chipset designers out there, they are at least in a position to make a run competing on chipset design. I feel this is exactly what they need to do if they are to compete with ARM chipset designers as well.
The other benefit of Moore’s Law is the decrease in the cost of the transistors. This is not always true but, in theory, this is the goal. Which means Intel should be in a position to offer powerful, very low energy consumption and low cost chipsets for the applications for which they are designed.
In theory, Moore’s Law IS an advantage for Intel. The problem is Intel has always told us “just wait for the next node.” After a while we get tired of waiting. Those of us who follow Intel know it is not their current 14nm chip where we will know if they are truly performance, power, and cost competitive with their ARM rivals. It is at 10nm we will know if this is true or not. For the time being, I’ll buy the pitch that 10nm is the big difference maker for them when they actually have a solution contesting the high scale/high demand mobile market. But if Moore’s Law doesn’t deliver for Intel by then, it is time to execute plan B,C, or D.