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Intel Struggles to Escape 'Mud Hole'

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发表于 5-31-2023 15:20:47 | 显示全部楼层 |阅读模式
本帖最后由 choi 于 7-2-2023 11:22 编辑

Asa Fitch, Intel Struggles to Escape 'Mud Hole;' Rivals leave chip maker far behind; CEO pegs turnaround to vast factory expansion. Wall Street Journal, May 31, 2023, at page A1.
https://www.wsj.com/articles/int ... turnaround-30febac6

My comment:
(a) This is a lengthy article, about 60 % of which you may be familiar. So I put a bullet in front of  paragraphs you should read.
(b) "Gelsinger grew up in a small farming community in southeastern Pennsylvania, tinkering with televisions and radio and attending a nearby technical school. At 18, he moved to California to work for Intel. He worked his way up Intel's chip-design ranks, becoming the company's first chief technology officer in 2001."

Pat Gelsinger
https://en.wikipedia.org/wiki/Pat_Gelsinger
(1961- )

Quote: "In 1979, at age 18, he moved to Silicon Valley to work at Intel as a quality-control technician. While at Intel, he earned a bachelor's degree in electrical engineering, graduating magna cum laude from Santa Clara University in 1983, and then earned a master's degree in electrical engineering and computer science from Stanford University in 1985." (footnotes omitted)

I do not think a master's is enough in engineering.
(c) "On April 27, Intel posted the worst quarterly loss in its history, and it has projected another loss in the current quarter."

That is because OC demand is tumbling, sending Intel and AMD stocks down.
(d) "President Biden visited a site in Licking County, Ohio, where Intel is building what could become one of the world's biggest chip-manufacturing facilities."

Licking County, Ohio
https://en.wikipedia.org/wiki/Licking_County,_Ohio
("is named after the Licking River * * * is part of the Columbus, OH Metropolitan Statistical Area")
-------------------------------------
Pat Gelsinger is keenly aware he must act fast to stop Intel INTC 6.59%increase; green up pointing trianglefrom becoming yet another storied American technology company left in the dust by nimbler competitors.

Over the past decade, graphics-chip maker Nvidia leapfrogged Intel to become America’s most valuable semiconductor company, rivals overtook Intel in making the most advanced chips, and perennial also-ran Advanced Micro Devices has been stealing market share. Intel, by contrast, has faced repeated delays introducing new chips and frustration from would-be customers.

“We didn’t get into this mud hole because everything was going great,” said Gelsinger, who took over as CEO in 2021. “We had some serious issues in terms of leadership, people, methodology, et cetera that we needed to attack.”

As he sees it, Intel’s problems stem largely from how it botched a transition in how chips are made. Intel came to prominence by both designing circuits and making them in its own factories. Now, chip companies tend to specialize either in circuit design or manufacturing, and Intel hasn’t been able to pick up much business making chips designed by other people.

So far, the turnaround has been rough. Gelsinger, 62 years old and a devout Christian, said he takes inspiration from the biblical story of Nehemiah, who rebuilt the walls of Jerusalem under attack from his enemies. Last year, he told a Christian group in Singapore: “You’ll have your bad days, and you need to have a deep passion to rebuild.”

• Gelsinger’s plan is to invest as much as hundreds of billions of dollars into new factories that would make semiconductors for other companies alongside Intel’s own chips. Two years in, that contract-manufacturing operation, called a “foundry” business, is bogged down with problems.

• Mobile-phone chip giant Qualcomm and carmaker Tesla have explored having Intel produce chips for them, then backed off, according to executives involved in the discussions. Elon Musk’s Tesla passed because Intel couldn’t provide extensive chip-design services that other major foundries offer, one of those people said. Qualcomm dialed back after technical missteps by Intel, according to some of those involved in the interaction. Gelsinger declined to comment on Intel’s relationships with Qualcomm and Tesla.

• “Foundry is a service business,” Gelsinger said in an interview. “That isn’t the culture that Intel’s had.”  [Note that the previous paragraph says "technical missteps," whereas Gelsingersays "service" issues. Later paragraphs indicated technica; problems.]  

Whether he succeeds will help determine whether Intel will have to settle for a role as just one chip maker among many, akin to what happened to International Business Machines in the personal-computing business. It also has ramifications beyond the company. Taiwan Semiconductor Manufacturing Co., or TSMC, and South Korea’s Samsung Electronics are now the world’s most advanced chip makers, and Chinese companies have been gaining ground. The U.S. has been trying to bolster the domestic chip-making industry after Covid interfered with Asian supply chains and U.S.-China political tensions grew.

Intel became a Silicon Valley colossus in the 1980s and 1990s by making the central processing units that powered the PC revolution. Under Gelsinger’s mentor, former CEO Andy Grove, Intel chips ran Microsoft’s operating-system software, and IBM used Intel-branded processors in the machines that became ubiquitous in homes and offices.

In the 2000s, Intel tried and failed to make inroads into producing chips for cellphones and high-end computer graphics. In recent years, TSMC and Samsung surpassed Intel in the high-stakes race to make chips with the smallest, fastest transistors.

The global chip market is expected to surpass $1 trillion by the end of the decade. Becoming a world-leading contract chip maker, Gelsinger said, is “not optional.”

• Gelsinger grew up in a small farming community in southeastern Pennsylvania, tinkering with televisions and radio and attending a nearby technical school. At 18, he moved to California to work for Intel. He worked his way up Intel’s chip-design ranks, becoming the company’s first chief technology officer in 2001. He was ousted later that decade amid the failure of a computer-graphics chip project. He eventually landed at datacenter-software company VMware, where he was CEO for eight years.

He returned to Intel in February 2021 knowing a turnaround wouldn’t be easy. His plan included vastly expanding Intel’s factories and creating a foundry business to boost orders. Before taking the CEO job, he spoke to each board member via Zoom about his plan. They voiced their support.

His return coincided with a chip shortage induced by a pandemic-era boom in PC sales. Industry profits temporarily soared, before an easing of the pandemic and office reopenings led to a glut in the chip market. That has complicated Gelsinger’s plans.

Cutting costs

• On April 27, Intel posted the worst quarterly loss in its history, and it has projected another loss in the current quarter. It cut its dividend, began a new round of cost-cutting that could include layoffs, trimmed executive pay and is aiming to slash up to $10 billion in annual costs by 2025.

• It is slowing installation of multimillion-dollar chip-making equipment in new factories to match chip demand. A $200 million research center in Haifa, Israel—the first major project Gelsinger announced after taking over—was scrapped. So was a $700 million lab planned in Oregon. A jet service that shuttled employees between manufacturing hubs in Oregon and Arizona and Intel headquarters in Silicon Valley was put on hold.

• Intel’s stock is down about 30% since Gelsinger was named CEO, underperforming the PHLX Semiconductor index, which has advanced about 10%. TSMC’s market value is more than four times Intel’s, and Nvidia’s is about eight times.

Gelsinger has said he is confident Intel can deliver on his pledge to achieve five advances in chip technology within four years, and that it will be making the most advanced processors in the world within the next couple of years.

“There are a lot of challenges and a lot of execution risk, and it’s going to take a long time to roll out that multiyear strategy,” said Andrew Boyd, a portfolio manager at Gibraltar Capital Management in Tulsa, Okla. He said his firm decided to liquidate nearly its entire position in Intel in January after roughly 15 years of having it as a core holding.

Gelsinger said he is bullish that Intel can become one of the world’s two biggest contract chip makers. “Is TSMC going to keep growing between now and the end of the decade?” he asked. “Yes. Will Samsung grow? Yes. Will Intel grow? I hope a lot faster than either of those two.”

Intel executives have set a goal of becoming No. 2 by 2030, after Taiwan’s TSMC. Luring a few flagship customers could bring in between $20 billion and $25 billion in sales a year by the end of the decade, according to internal Intel estimates.
An image of a semiconductor wafer produced by Taiwan’s TSMC, one of the Intel competitors now making the world’s most

Before each meeting of the board of directors, Gelsinger takes its members to dinner and asks them to reaffirm their support. “Are we still aligned? Is the strategy still good? Are you all still on board?” he said about the discussions. “It is a challenging journey that we’re on, and we need to be on it together.”

Board Chairman Frank Yeary said that the board is closely aligned with Gelsinger and that “real progress is happening,” but that there is plenty of work left to do.

To jump-start the contract chip-making business, Intel agreed last year to buy an Israeli foundry, Tower Semiconductor, in a deal valued at around $6 billion, although that deal faces problems in China. Gelsinger traveled to Beijing in April to meet with Intel’s local staff and try to salvage the transaction. Intel earlier this year pushed back its expectation for the timing of the deal’s closing, though it still expects it to go through.

• Qualcomm, which designs chips and outsources manufacturing, wanted to work with Intel, and assigned a team of engineers to work toward making mobile-phone chips at Intel’s factories. It was particularly interested in a cutting-edge chip-making technology that Intel hopes will be the most advanced in the world by late next year.

• In early 2022, Intel’s foundry arm sent a delegation to Qualcomm’s San Diego headquarters, where they met with CEO Cristiano Amon. Then Intel missed a June performance milestone toward producing those chips commercially. It missed another in December.

• Qualcomm executives concluded Intel would struggle making the kind of cellphone chips they wanted, even if it succeeded in making high-performance processors. Qualcomm told Intel it was pausing work while it waits for Intel to show progress, according to people involved in the discussions.

New skills

• He said Intel has been more focused on chip-making technology that works in high-performance processors like those used in PCs. Making chips for mobile phones with limited battery lives requires new skills and new circuit designs. Intel said recently it is collaborating with Arm, a chip-design company that specializes in cellphone circuits.

• Tesla in late 2021 began considering Intel for making chips to process data and images that help cars drive autonomously. Tesla has long been a customer of Samsung’s foundry business, and also has begun using TSMC. Tesla designs the chips, but needs foundries to help get them ready for production—something Intel wasn’t able to offer.

• Gelsinger declined to discuss talks with Tesla. He said handling such work is a new area for Intel, which isn’t “naive about the challenges.”

• Gelsinger has said the foundry business has landed more than $4 billion of potential business. Thus far, its flagship customer has been Taiwanese mobile-phone chip company MediaTek, for which Intel will produce less-advanced chips for smart TVs and Wi-Fi modules. It also signed up Seagate, a hard-drive maker, to produce more-sophisticated chips.

• Intel has yet to sign any of the world’s largest foundry customers, such as Apple, Nvidia and Qualcomm, although Nvidia is testing having Intel make its chips as part of a government-funded program. Many potential customers have supply agreements with TSMC and Samsung and are wary of working with an unproven foundry, industry officials said.

• Last year, Intel reported $895 million in revenue for the foundry business, less than 2% of its total sales.

In meetings last year, Gelsinger told the chip-production staff that he had staked his career on the foundry succeeding and would stop at nothing to make it work, according to some of those in attendance.

The U.S. government, too, wants to revive domestic chip making after much of the business migrated to Asia, which offered lower labor costs and generous incentives.

Gelsinger has pushed for greater government investment in chip production. At one point, he complained to government representatives that it looked as though Intel would get euros to build plants overseas before receiving dollars to build in the U.S.
Washington later enacted the so-called Chips Act, which allocated $53 billion worth of funding, loan guarantees and other incentives for domestic chip making.

Afterward, President Biden visited a site in Licking County, Ohio, where Intel is building what could become one of the world’s biggest chip-manufacturing facilities. Intel also is building a new plant in Arizona and has plans to build in Germany and other locations around the world, costing potentially hundreds of billions of dollars if fully built out.

Gelsinger’s growth plan is rooted in the expectation that chip demand will come roaring back. When Intel disclosed quarterly results in late April, he predicted the rebound would start before year-end.

• While he acknowledges that some of the chip plants Intel is building now have no committed customers other than Intel itself, that’s a gamble he’s ready to take.

“If you don’t have a little bit of boldness,” he said, “you shouldn’t be in the semi industry.”

Write to Asa Fitch at asa.fitch@wsj.com
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