Last month, Intel CEO Pat Gelsinger stepped to a podium on a hazy, wind-whipped day just outside Phoenix. “Isn’t this awesome!” Gelsinger exclaimed, gesturing over his shoulder. Behind him, two large pieces of construction equipment posed theatrically atop the ocher Arizona soil, framing an organized tangle of pipes, steel, and fencing at the company’s Ocotillo campus. “If this doesn’t get you excited, check your pulse,” he said with a chuckle. A handful of executives and government officials applauded at the appropriate points.
Despite the gathering dust storm, Gelsinger genuinely seemed to enjoy himself. He was in Arizona to announce not one but two new fabs that, when finished, will form a $20 billion bet that Intel can return to the leading edge of semiconductor manufacturing, one of the world’s most profitable, challenging, and cutthroat businesses.
“Semiconductors are a hot topic these days,” Gelsinger continued. “What aspect of your life is not being increasingly driven by digital transformation? If there was any question on that, COVID eliminated it.”
Over the last year and a half, as the pandemic has everyone turned to their screens, demand has surged for devices (phones and laptops) and cloud services (Netflix and Zoom), all powered by a range of advanced semiconductors. Manufacturers have raced to squeeze more chips out of their fabs, but many were running near their limits before the pandemic. Still, Intel and its competitors didn’t rush to build new fabs—fabs are startlingly expensive, and without continued demand, semiconductor firms are loath to build more.
But now, as the global pandemic continues to disrupt supply chains, chipmakers have decided that the current spike in demand isn’t going away. Intel’s $20 billion investment is only one example. Samsung announced in May that it would spend $151 billion over the next decade to boost its semiconductor capacity. TSMC made a similar announcement in April, pledging to invest $100 billion in the next three years alone.
The investments required to stay at the leading edge—where the most advanced chips are made—has whittled down the number of semiconductor competitors from more than 20 in 2001 to just two today. “There’s really only so much room at the leading edge, just because of the huge capital costs involved,” said Will Hunt, a research analyst at Georgetown University’s Center for Security and Emerging Technology.
That cost is driven by the price of the equipment that’s required to etch ever-smaller features onto chips. A few years ago, the industry began to use extreme ultraviolet lithography (EUV) to shrink transistor sizes. EUV machines are marvels of physics and engineering, and one tool costs upwards of $120 million. To stay relevant, companies will need to buy a dozen or more annually for the next several years.
For those sorts of investments to make sense, semiconductor manufacturers must produce and sell an enormous volume of chips. “When you have volume orders, then you can do yield experiments, you can improve your yield, and yield is everything because that’s how you cover your costs,” said Willy Shih, a professor of management at Harvard Business School.
Which is why Intel, under Gelsinger, is doing something now that it historically has shunned. “We are now a foundry,” Gelsinger said at the Arizona groundbreaking. In the coming years, he said, Intel will “open the doors of our fab wide for the community at large to serve the foundry needs of our customers—many of them US companies that are dependent on solely having foreign supply sources today.”
Real Life. Real News. Real Action
Zillion Things Mobile!Read More-Visit US
But becoming a leading-edge foundry isn’t just about building fabs and telling customers you’ve got space to make their chips. Gelsinger will have to change Intel’s culture and, to some extent, its technology, both of which are deep-seated. “He has to turn a huge ship around,” said Robert Maire, president of Semiconductor Advisors.
In the coming years, Intel has several challenges to master at once. As the company rolls out a new business model, it also needs to redouble its R&D efforts while still being careful with cash flow. (Intel has fallen so far behind that it now plans to outsource production of its most advanced chips—and a portion of the profits that accompany them—to TSMC.) The transition will demand intense focus. “The foundry business could be a distraction,” Shih said.
At the same time, he added, Apple, Google, Amazon, and other companies are moving away from Intel’s standardized chips toward their own customized designs. If Intel doesn’t change with the times, it risks being left behind. “There will be many challenges, and there will be tests that will face them,” Shih said. “It’s going to be hard.”
Subscribe to the newsletter news
We hate SPAM and promise to keep your email address safe