As Intel’s interim CEO takes over as its new CEO, it will need new strategies to tackle ongoing issues of manufacturing, innovation and competition.
On January 31 the tech pioneer announced that Robert Swan, formerly Chief Financial Officer, will be its new Chief Executive Officer. Swan had been serving as interim CEO since June 2018, when Brian Krzanich resigned after five years in the top job. Overall, he is inheriting a healthy company: Intel’s PC and server chips continue to dominate the market, powering 84% of desktop computers. It also has nearly 100% of the market for high-powered computer chips used in data centres and cloud computing farms.
Intel’s financials are strong, with results released in late January showing robust growth. Its annual revenue of $70.8 billion set a record, and its operating income of $23.3 billion was up 29% from the same period in 2017. In addition to the proliferation of connected gadgets, cars and medical devices, there is once again growth in the PC market – all of which bodes well for Intel.
Under Krzanich, Intel made several acquisitions to reinforce its position in cloud computing through diversification. In 2015 it bought Altera, a maker of field-programmable gate arrays (FPGAs) or chips that can be programmed for specialised uses, such as accelerators for data centres. In 2016 Intel acquired Nervana, which makes machine learning chips. These moves took it deeper into more competitive spaces; for example it now competes with Nvidia in customised silicon for certain data-centre workloads like AI. The spree continued in 2017, when Intel acquired Mobileye, a maker of vision chips for cars.
Meanwhile, the picture in Intel’s core business isn’t completely rosy. One of the keys to Intel’s success has been its mastery in ultra-high-tech chip manufacturing, used to progressively shrink chip components. Each time components get smaller, chips get faster, cheaper and more energy-efficient. Intel has released product updates with renowned regularity. But this record has been blemished by an unprecedented delay: Intel’s new “10-nanometre” factories, due to start production in 2016, will not be ready until 2020. That has allowed two rivals, Taiwan Semiconductor Manufacturing Company and Samsung, to catch up.
One problem is that the cost of component-shrinking is rising sharply, making Intel’s rigorous product release schedule unsustainable. In addition, The Economist points out, “the physics of how electronic components behave at near-atomic scales means that each new round of shrinkage offers fewer benefits than it used to.” And while Intel invests heavily in R&D, many of its newer ideas are still at an experimental stage.
There is concern that with its diversification, Intel risks a misallocation of its resources – including its engineering talent. Joseph Moore of Morgan Stanley says that Intel has always struggled outside its core business of server and desktop computer chips, the success of which hinges on manufacturing efficiency. In an email to employees after officially becoming the new CEO, Swan addressed the matter of chip manufacturing directly, asserting that “our execution must improve”.
