For many years, industry observers have thought Intel would split into two separate companies: one that designs chips, and another that manufactures them. The reasoning was that being both a designer and a maker of chips is extremely difficult as a singular business – due to the sheer complexity of each role, combined with the fact that manufacturing chips becomes exponentially expensive as chip nodes shrink in size, making managing both businesses successfully very challenging.
This idea has remained a pivotal one throughout the company’s history, as Intel has explored and expanded what its core competencies were – and were not. Fifty-three-year-old Intel has held onto both roles through an Integrated Device Maker model since the first days of the company.
Earlier this year, as Intel veteran Pat Gelsinger was appointed CEO of the company, this important question resurfaced. Gelsinger had to decide if Intel’s Integrated Device Maker model was the correct choice for the future of the business – namely if Intel’s core competencies would continue to include both roles. Was Intel better off focused solely on designing chips, with a separate company conducting fabrication? Or would Intel be better served, stronger, and establish more viable future growth through a fabrication core competency?
Gelsinger’s resounding answer came in March, when he announced Intel Foundry Services as a new business division reporting directly to him – stating that “The old Intel is the new Intel” – and by announcing $20 billion in new investments to build two Intel fabrication facilities in Arizona. Intel is once again committed to fabrication as a core competency and will be for the foreseeable future.
Intel clearly understands global chip supply as the semiconductor industry’s current inflection point, and that its future success as a chip designer is intrinsically tied to its ability to manufacture its own chips on its own terms, and vice versa. Intel’s ability to control future product features, protect product design freedom, and to drive long-term company innovation while maximizing company economics is tied directly to its ability to design, manufacture, and ultimately supply the vast number of chips needed to support a global computerized future.
By recommitting to fabrication as a core competency, Gelsinger showed enough vision to realize what this could mean for Intel – and did so in the midst of the Automotive industry’s biggest global historical chip shortage, and with massive pressure from Asian semiconductor manufacturers to completely own fabrication worldwide.
The situation Intel just faced is very similar to the one OEMs are currently facing, not in terms of deciding their core competencies – but also in understanding the future dynamics of the automotive industry’s potential Connected revenue streams and market growth potentials. Also, this inflection-driven automotive core competency shift for OEMs promises many of the same advantages as Intel’s core competency recommitment.