Taking the helm of the world’s biggest chipmaker by sales, CEO Pat Gelsinger will have to navigate the forces of change while building on the company’s legacy.
Pat Gelsinger was appointed in January to replace Bob Swan, who was ousted after only two years. He stepped into the top job on February 15, and is starting with a solid foundation: Intel has a 93% market share in the powerful chips used in data centre computers, an 81% share in desktop PCs, and very respectable operating margins of about 30%. The company earned $78 billion in revenue in 2020. But the tides have been shifting in the semiconductor industry.
The competitive landscape is diversifying, with more specialty chipmakers and firms from other corners of the tech industry entering the field. This is having a negative impact on Intel’s share price, which has lagged those of rivals like Nvidia. Once a specialty chip designer, Nvidia has grown into a bona fide giant. It now has a market capitalisation of $370 billion, besting Intel’s $250 billion market cap by a mile, despite having only one-seventh of Intel’s revenues.
Gelsinger will likely move Intel further away from its traditional core business of general-purpose chips as the industry’s specialisation trend grows. Technology giants like Apple and Amazon are designing chips to suit their own purposes. Apple stopped using Intel’s chips in its laptops last year, swapping them for its own custom chips. Amazon’s specialised “Graviton” chips for cloud computing are designed in-house and produced by Taiwan Semiconductor Manufacturing Company (TSMC).
Competing in semiconductors demands staying in the vanguard of manufacturing technology. And while chip manufacturing has advanced rapidly to enable technologies like AI and machine learning, the goal remains the same: to make the components in integrated circuits smaller. In the race to make the smallest chips, Intel has had some setbacks. It was late to deliver its 10-nanometre chips, and its 7-nanometre chips have also been delayed. Consequently Intel has lost business to AMD, which outsources its production to TSMC, whose technology is ahead of Intel’s, according to The Economist.
Breathing new life into Intel’s manufacturing division is a top priority for Gelsinger. Some of the company’s chip manufacturing is already outsourced to TSMC, and this could increase. Activist investor Daniel Loeb, who owns a significant stake in Intel, has urged it to quit manufacturing altogether and focus on chip design, as AMD did in 2009. Nvidia has always outsourced manufacturing, which exacts heavy capital expenditures.
At least for now, Gelsinger is not interested. While he concedes that Intel will likely expand its outsourcing for certain products, he wants to return the company to its legacy position of leadership in chip-making and also diversity its product mix. “Our opportunity as a world-leading semiconductor manufacturer is greater than it’s ever been,” he wrote.