Faced with technological and competitive challenges, the US chipmaker is repositioning, writes former Engineers Ireland president Chris Horn.
If you’ve owned a PC sometime over the past 30 years, you will be familiar with the blue and silver 'Intel Inside' sticker. Even if you have not, you will almost certainly recognise the five-note iconic Intel 'chimes', first launched in 1994 and now arguably one of the world’s best-known marketing jingles.
Intel has been remarkably successful as a globally dominant silicon chip manufacturer, not least because of its brand recognition worldwide with consumers.
'Only the paranoid survive'
In Ireland, Intel first established operations in 1989 in Leixlip, now one of its eight chip-fabrication sites worldwide. In the very highly competitive industry of chip design and manufacturing, which underpins the entire computer and high-technology sector, Intel has thrived in part due to the mantra of “only the paranoid survive” advocated by a former chief executive, Andy Grove.
Intel’s eminence has been due largely to the vertical integration of its chip design, with manufacture, assembly and test. Competitive products have resulted because of the tight collaboration between Intel’s design engineers and their manufacturing colleagues.
However, this tightly coupled strategy can be vulnerable to commoditisation. Computer memory chips are relatively simple to design compared to the complex central processing unit (CPU) at the heart of a computer system.
In 1974, Intel had an 83% global market share for memory chips. But by 1984, facing Japanese competition, its share had fallen to a paltry 1%.
Memory business
In 1985, Grove decided to instead focus on high-profit, patent-protected CPU designs that power machines. Last month, Intel announced its decision to divest its remaining memory business to South Korea’s Hynix, in a $9 billion deal.
Grove’s strategy successfully led Intel to dominance in the PC and larger server machine market, collaborating with Microsoft for PC software in the 'Wintel' partnership. However Intel has been overtaken in the market for low-power devices.
Intel Inside? Well, actually, probably not, when it comes to what’s inside most smartphones, tablets and smart watches. These devices now guide our lives, and a key consumer requirement is a long battery life.
A car analogy: do you want a really powerful gas-guzzler that can do 0-120km per hour in just a few seconds? Or would you prefer a more modest electric vehicle whose battery lasts at least 750km between charges?
If you’re only browsing the internet, do some social media, and occasionally watching streamed films and box sets, do you really want a high-performance computer engine? Or is the time between battery recharges more important?
And then there’s Apple. Apple designs its own chips for its consumer iPhone, iPad and smart watch ranges. The chips themselves are manufactured under contract for Apple, originally by Samsung, and now chiefly by Taiwan Semiconductor Manufacturing Company (TSMC).
For Apple’s Macintosh (now, just Mac) range of computers and laptops, Apple originally used Motorola chips from 1984. In 1994, it swapped to chips jointly specified with IBM, and finally switched to Intel chips in 2005.
However, earlier this month Apple unveiled a series of Mac products that no longer use Intel chips, but rather Apple’s own chip designs similar to those already used in its consumer offerings.
Although chip sales to Apple account for less than 5% of Intel’s revenues, any paranoid executive at Intel will be alarmed at some industry reports that Apple’s latest chip design (the A14) is more powerful than Intel’s best desktop chips.
Apple is an industry bellwether and its decision to abandon Intel may encourage other PC manufacturers to consider switching to Intel’s rivals such as AMD, or even (like Apple) to design their own chip sets and then use contract foundries.
A part of the motivation for Apple moving away from Intel chips has been a perception that Intel’s manufacturing has fallen behind its Asian competitors. One design metric is the nanometre width of the transistors inside a chip.
The width of a human hair is approximately 1/20th of a millimetre, or 50,000 nanometres. Intel’s new seven-nanometre manufacturing has experienced some embarrassing delays. Meanwhile Apple’s latest chips can already exploit a five-nanometre process available at TSMC.
Vertical integration strategy
Intel’s current chief executive, Bob Swan, raised eyebrows last July when he indicated that Intel is now actively considering complementing its long-held vertical integration strategy to 'disaggregate' its designs and to partner with contract manufacturers such as TSMC, Samsung and others. This introduces risk in the chip design process, since it may sacrifice performance for compatibility with third-party manufacturing norms.
Meanwhile, there is a deepening concern in Washington DC over the substitution of domestic chip manufacturing capacity by Asian alternatives.
China’s rising military assertiveness in the South China Sea is further increasing geopolitical pressure, not least on Taiwan. Last May, TSMC announced its intention to invest $12 billion in a new five-nanometre chip foundry, in Arizona. Nevertheless that prospective capacity is dwarfed by TSMC’s own domestic plants.
Intel has just unveiled a new corporate branding, a revamped five-note chime, and Tiger Lake: its latest generation of flagship chips. The US company is actively repositioning itself, and much more fundamentally than just its branding. And Leixlip’s location may become increasingly strategically important.
This article first appeared in The Irish Times on November 19, 2020.
Author: Dr Chris Horn, former president of Engineers Ireland, is the co-founder, CEO and chairman of IONA Technologies, industry expert on Irish technology development, trends, and business. As an honorary Doctor of Science from Trinity College Dublin and former TCD lecturer in computer science, Dr Horn is at the forefront of the Irish high-tech debate.