Intel and Pat are under great pressure

On January 13, 2021, Intel announced that Pat Gelsinger (Pat Gelsinger) will serve as Intel’s CEO, and the appointment will take effect on February 15, 2021. On January 14, Pat sent a letter to all Intel employees. In this letter, Pat expressed his expectations for Intel’s future prospects: As the world’s leading semiconductor manufacturer, we have unprecedented opportunities!

Part of Pat’s confidence may come from a former Intel technician’s respect for Intel technology, and another part comes from a business manager’s research and judgment on the future trend of the entire market environment. However, for Intel, in the current unfavorable market environment, in order to return to the glory of the peak era, it must achieve: first, in the market, ahead of competitors in the industry; second, technically, return to the pioneer Absolutely leading position.

Obviously, it is quite challenging for Intel to achieve these two goals. Now, this challenging thing is handed over to Pat to practice.

So, can Pat reshape today’s Intel and lead it back to the top?

Externally, drastic changes in the market
In September 2009, after 30 years of work at Intel, Pat Gelsinger, the first chief technology officer, left Intel and joined EMC. In September 2012, Pat became the CEO of VMware.

As a technology flow manager, Pat’s greatest contribution to VMware is to help VMware get rid of the “magic curse” hindered by cloud computing, and firmly adjusted the VMware market business plan-in short, Pat did not Leading VMware to enter the public cloud business market, but choosing to develop new software, so that enterprise customers can make full use of different cloud platforms to realize resource sharing, so as to achieve the connection business between private cloud and public cloud. “We have proven that while not changing our business model, we are tame them, and even adjust them to adapt to the new reality.” Pat said at the time.

From the perspective of the 2020 financial report: VMware has achieved historical revenue of more than 10 billion U.S. dollars for the first time in the entire fiscal year of 2020 (actually the financial income reported in 2020), and maintained a double-digit revenue growth trend. The market value of VMware to date is 57.207 billion U.S. dollars.

In fact, today’s Intel has encountered very similar problems with Vmware back then: how to break the business problem under the megatrend and the adjustment problem of the entire framework. This means that Pat, who has a close relationship with Intel, will not only lead Intel out of the “quagmire” of manufacturing process and stock price, but also look for new and appropriate integration points in the new chip market.

To put it simply, the sudden appearance of the M1 chip has divided a clear division of labor between the boundaries of the computer architecture. In addition to Apple, Microsoft and Amazon and other Intel customers, they are also developing their own internal chip solutions and handing these designs to East Asia for manufacturing. . For example, in 2018 Amazon Graviton2 is on the road to be released soon; Microsoft’s chip development is later than Amazon, and it is still in the development stage of the internal ARM processor.

The constant loss of customer resources, in the chip industry where “mastering the chip can control the technology trend”, on the one hand, Intel’s business share is constantly being “cannibalized”; on the other hand, it has also aggravated the gradual backwardness of Intel’s chip manufacturing technology capabilities. .

Fund giant Third Point CEO Daniel Loeb wrote to Intel Chairman Omar Ishrak (Omar Ishrak), calling for immediate action to improve the company’s position as a major provider of processor chips for personal computers and data centers . The letter mentioned that Intel not only lost its leading position in the field of microprocessor manufacturing, but also lost its core PC and data center market share to AMD. He believes: “Intel cannot be changed immediately. We are worried that the United States’ access to leading semiconductor supplies will be eroded, forcing the United States to rely more on East Asia for powering everything from PCs to data centers to critical infrastructure.”

At this time, Intel’s market value is 227.812 billion (as of January 28, 2021, at 4 pm Eastern Time).

Internally, Intel’s decision on technology solutions
From a technical point of view, manufacturing computer chips is a very complicated process. For example, light is used to imprint microscopic patterns and then the surrounding materials are etched away. For each chip, this is a laborious and rigorous process that needs to be carried out in multiple steps, and even the smallest error can destroy the entire product.

In recent years, Intel’s inability to control the defect rate of its latest chips has affected its position as a technology leader in the industry-Intel’s 7nm process problem may be a sign that Intel has lost its leading position in the field of microprocessor manufacturing.

In the chip industry, defects in the early prototypes of new products are common, but they can usually be controlled during the mass production stage. But in the 7nm process, Intel’s early prototypes had too many defects, so that it took more time than ever to reduce the number of defects to an acceptable level in the refined manufacturing process.

Therefore, on the one hand, Intel insists not to outsource chip manufacturing; on the other hand, it has to admit that the “golden age” of early Moore’s Law has ended, and the “new generation of processors” launched can only be achieved by keeping the manufacturing process unchanged, Enhance the new performance or function to achieve-such as the 10th generation Sunny Cove architecture, the 11th generation of integrated display enhancements.

This even led to the emergence of two “factions” within Intel-insisting on not outsourcing the chip manufacturing business and supporting the outsourcing of the chip manufacturing business-as we all know, the chip industry has about 60% of the gross profit margin, with or without outsourcing. A simple business perspective is actually to use the immediate business to exchange future market competitiveness.

Among them, the party that insists on not outsourcing business believes that the combination of chip architecture and manufacturing can bring more advantages to the company; the party that supports outsourcing believes that the foundry should be able to solve process problems in a relatively short time and lead Intel Return to the chip manufacturing track.

Jim McGregor, an Intel observer who has been cooperating with TIRIAS Research for a long time, is one of the supporters who once supported Intel’s split architecture and manufacturing business. He believes that Intel is currently in a solid position, because despite manufacturing setbacks, Intel is still able to provide strong financial performance. “The company hasn’t done anything radical, at least not yet.”

McGregor said that Intel is still ahead of TSMC and other contract manufacturers in transistor design and material technology, and the company can use this advancement to regain competition. But if it does affect financial performance, then some difficult decisions will be made.

Take the first step towards change
In my opinion, Pat wants to maintain Intel’s lead, there are two issues to consider.

One is to break Intel’s traditional internal concepts and outsource part of its chip business to restore its “fame” in the chip market. This dimension puts more emphasis on Pat’s corresponding coordination ability, and how to coordinate the gap between the two with the support of Intel’s executives and opinions, which even involves 2100 workers in Oregon.

Second, with the emergence of a new round of more representative technologies such as intelligent driving and 5G, Pat is facing how to implement technology applications and services on the existing basis, and finally truly achieve digital transformation. Intel has indeed adjusted its position as a chip manufacturer to data center solutions, Internet of Things and computer innovation early on. From this perspective, Intel’s overall situation is set in cloud, 5G, AI, autonomous driving, 3D NAND (sold to SK Hynix for $9 billion), and Optane (to be discontinued).

The former reflects how Intel breaks the gap in the internal organizational structure and the pressure of the external market; the latter, the new round of technology application, represents the management’s understanding of the market.

As a technician, Pat, 59, joined Intel as early as 18 years old. He is also the chief architect of the widely used 80486 microprocessor and managed the development of 14 chip projects. Since then, at Intel, he hosted many annual meetings of hardware and software personnel, and even learned management skills from the famous Intel former CEO Andrew Grove.

Pat once led VMware out of the predicament, but coming to Intel, perhaps the purpose of the entire business operation has changed. So in the face of market coercion, Intel must make a choice. Raymond James analyst Chris Caso said in a report to clients after hiring Pat that Intel did not have time to consider this matter. So how to protect market value and protect basic investment interests may become Pat’s current “urgent priority.”

In a speech to employees on January 15, 2021, Pat insisted that he would return to a “promising” company. He will be responsible for rebuilding a company that has lost its advantages in several ways:

Competition: Intel’s competitors AMD and NVIDIA use TSMC’s factories and Taiwan’s technological advancement to surpass Intel in key areas. At the same time, startups such as Ampere, headed by former Intel president Renée James, are developing new chips for data centers to open up new frontiers of competition.

·Customer: Apple started to abandon Intel chips last year in favor of a processor designed by Apple itself. Although Apple’s share of Intel’s revenue is relatively small, the performance of its M1 chip easily surpassed the Intel processor they replaced. This means that other companies may be able to achieve the same goals, or they may go their own way.

· Culture: Intel’s manufacturing dilemma is accompanied by high-level drastic changes and the departure of respected engineers, from Intel’s veterans to highly touted newcomers.

Investors: Intel’s market value shrank by $42 billion on the day when Intel disclosed that its 7nm chip was behind schedule in August. Under the leadership of outgoing CEO Swan, Intel’s stock price has barely fluctuated, while the composite index of semiconductor stocks has doubled.

To put it simply, the information involved is: to make market differences; emphasize the importance of technology; implant fresh “blood”; try not to disappoint investors.

Pat also emphasized that Intel’s factories are “power and soul.” Obviously his ideas overlap with Intel’s “not outsourcing” ideas, but Pat also hopes to outsource its most advanced chips, so that struggling factories have time to catch up and learn how to manufacture new technologies on their own. .

In the past few days, Intel’s outsourcing company has become a hot topic. TSMC and Samsung have their own advantages, but no matter who it is, Intel has stepped out of its own circle and began to seek foreign aid. This is a good phenomenon. Even if it cannot achieve results in the market within a short period of time, it protects the value of Intel’s business. It also relieved part of the pressure for Intel in disguise, so that it can focus more on business expansion.

Write at the end
Intel has taken the first step to “relieve pressure”. And Pat only pointed out the current problem of Intel, what will happen next, Pat did not give a clear direction.

To be sure, if Intel’s 7nm chip no longer bounces, it may meet with users in 2023. But in these three years, how will the entire market change? Is Intel a chip manufacturer under the name of “data transformation”? How will its AI business and intelligent driving business change? At this stage, no one can give an accurate judgment. However, if Pat can’t lead the “disordered” Intel out of the lost area, then what will be sold next may not only be the 3D NAND business.

Pat’s next task is really heavy.