Out of the Box Thinking for Intel

on February 5, 2021

Over the last year, there have been many stories about how Intel has lost market leadership in process technology and has had trouble meeting some of the demand for PC and server chips as both markets heated up in 2020.

Intel is still at least two years away from moving to 7 nm while TSMC and Samsung are already at 7nm and working on 5 nm for 2023. At the same time, demand for processors is rocketing due to higher demand for chips beyond PCs and servers for use in the auto industry that is moving rapidly to electric cars, IoT, and edge computing devices, and high interest in digitizing just about everything we use in our daily lives.

Intel is investing in upgrading their current fabs and expanding their current fab in Viet Nam, but my good friend, Jim McGregor, a Principal at Trias Research, wrote a piece for EE Times this week that theorizes a way for Intel to expand their fab strategies faster.

The entire article is worth a read but here is the crux of his theory:

The Plan (in theory)
“Now, everything I said until now indicates that it’s a bad time and a huge challenge to spin-off Intel’s manufacturing, so I propose going the other way. Rather than spinning off its manufacturing group, Intel should instead acquire GlobalFoundries.

This would give Intel instant access to more fab capacity for some of the product lines that are already outsourced and even some Intel products that can be manufactured on older process nodes. GlobalFoundries has fabs in Germany, Singapore, and the US. And although GlobalFoundries has stepped away from competing with TSMC and Samsung on the latest process node, it is still one of the top three semiconductor foundries in the world and the most geographically dispersed.

For GlobalFoundries’ largest investor, the Abu Dhabi Government through the Advanced Technology Investment Company (ATIC), the company’s progress to success has been slow and any hopes of building semiconductor fabs in Abu Dhabi appear to be gone. Now that GlobalFoundries is profitable, it can no longer be purchased at a bargain price, but I am sure the Abu Dhabi government would be interested in investing in other industries more likely to diversify the region’s economic base.

Through the acquisition, Intel would gain a management team that understands how to be successful as a foundry, and personnel accustomed to working with outside semiconductor customers. So, I would propose that the GlobalFoundries team lead the integration and eventual transition to being a foundry. Intel could continue to invest in more capacity, including at GlobalFoundries’ newest site in Malta, New York, which has the infrastructure and land for additional fab capacity.

Then, when Intel is in a good position competitively and has extra capacity, it could spin off the manufacturing group while maintaining an interest as both an investor and its largest customer. This would free Intel from the financial and capital overhead of being a semiconductor manufacturer while assuring that it has ample fab capacity for at least the foreseeable future. Intel would still have the option of leveraging TSMC as a manufacturing partner as well as providing the company with a dual foundry capacity with what would likely be the two largest foundries in the world.”

In the article, Jim did point out that the Intel and Global Foundries cultures would likely clash but that this could be managed. More importantly, Intel could gain, in the short and long term, more capacity to meet the increasing demand for processors needed to power our future digital world.

As I read Jim’s article, which I agree in theory could be an interesting strategy for Intel to at least explore, I could not get a sense of how incoming Intel CEO Pat Gelsinger would view this idea.

Pat Gelsinger is one of the smartest people I know. I got to know him when he was Andy Grove’s technical assistant and as he rose through the ranks at Intel until he left 11 years ago to EDS and then become CEO of VMWare.

He does not start in the CEO role until Feb 15th but I am sure he has been in discussions on how to move Intel forward at a time when they have lost ground to AMD and the competition for chips of all kind are accelerating.

Knowing how much Gelsinger is loved inside Intel, his transition to becoming their new CEO should be seamless. However, he will inherit one of the biggest challenges in Intel’s history and he may need to consider many non-traditional ways of doing business if he is to set Intel back on solid ground and moving forward again.

Perhaps acquiring Global Foundries could be one of those out-of-the-box ideas worth serious consideration.