The Chip Industries Changing of the Guard

There was an interesting milestone passed last week in the semiconductor industry when NVidia’s shares rose 2.3% in afternoon trading to a record of $404 that put their market valuation at $248 billion. This is $2 billion more than Intel’s market value was on the same day at $246 billion. While this is more of a symbolic achievement, it represents an amazing rise in NVidia’s overall market value and their commitment to innovation in vertical markets.

Ben wrote about the significance of Nvidia passing Intel in valuation last Friday in Think Tank. As he points out, Nvidia’s shift from client to the cloud was one of the reasons for their rise in value, but they have also developed major technologies for self-driving cars and ultra-high-performance computing. Nvidia’s CEO, Jensen Huang’s vision for Nvidia has been on the money and he has been vindicated for his decisions to take Nvidia into these high end and profitable markets.

Around the middle of this decade, there were various rumors suggesting that Intel might have been interested in buying Nvidia. It is unclear whether Intel had any interest in Nvidia, but if they had, it would have allowed them to get into the high-end graphics processor business and save them money and time developing their own GPU processors.

Even if Intel’s leadership had any interest in Nvidia then, I suspect that Intel’s strong not-invented-here mentality would have nixed that idea before it could ever go to the board for discussion.

Intel, like many other engineering-driven companies, often make decisions based on what they believe they can do themselves instead of buying or licensing from the outside. Sometimes that works and other times it does not. One good example was Intel’s decision to sell its ARM processor business just before the smartphone revolution took place.

At an event at Intel in January of 2007, I asked Craig Barrett, Intel’s Chairman at this time, about why Intel decided to sell their ARM business since they had a low voltage processor that Intel could have been utilized for use in PCs. He pointed out that Intel’s R&D center in Israel had been working on their own low voltage processor for PCs and had assured him that they could have one at a similar ARM low voltage level within two years.

Before Intel sold its ARM business, Apple had decided to switch the Mac’s to Intel architecture. During the negotiations with Steve Jobs and then CEO Paul Otellini in 2005, Jobs confided that Apple was working on a phone and asked Intel tp provide the chip for it. Intel turned them down. Intel declined the offer, believing that Apple was unlikely to sell enough of them to justify development costs.

Apparently, Intel had already had internal discussions about selling their XScale ARM business and in 2006 it was sold off.

The problem for Intel was that Intel Israel over-promised and under-delivered those lower voltage processors in a timely manner. And Intel missed the smartphone revolution completely.

It is fun to Imagine how big Intel could be today if it owned Nvidia’s technology and used their Arm processor cores to help Apple build the iPhone?

Intel has survived and even thrived by also shifting a heavy emphasis to servers and the cloud, which now accounts for the majority of where their profit comes from today. They also accelerated their work in AI and did develop their own graphics and lower voltage processors to meet the needs of the PC market that is still healthy but not growing.

However, Intel’s competition from AMD and Nvidia, as well as Samsung and even Apple now, are keeping the pressure on Intel to innovate and perform. Intel hasn’t always made perfect decisions, and often their “not invented here” mentality has hurt them in growth opportunities. The big question now is if Intel can regain some leadership in the categories that matter and if their conviction to being fully vertically integrated designing and manufacturing all their processors can continue to pay off in ways it has historically.

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Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

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