Delay in the launch of the next generation of processing chips, raises questions about the future of the chip-maker that dominates the PC market.
Gordon Moore, the co-founder of chip-maker Intel Corporation, is best known for predicting that the number of transistors on computer chips will double every two years. For decades his observation, known as Moore’s law, remained valid. But now the company he helped found is violating the same ‘law’.
Last week Intel announced that its next generation of chips would be delayed by around a year as the world’s biggest chip maker struggles to sort out production and design issues.
The 7-nanometer based processor was originally planned to be launched in early 2022. Now, its launch may be delayed as late as 2023.
The Santa Clara-based company has indicated that it might have to rely on third-party manufacturers to bring the products to market at the right time and price.
What went wrong?
Intel remains the world’s leader when it comes to producing microprocessors for personal computers. A generation has grown up using Intel processors in their PCs.
It could easily lose its position as a leader in introducing cutting-edge processing speed. In the last two years, it has faced delays in rolling out products from its factories and has lagged behind competitors in the design of more advanced chips.
Asian competitors, such as Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung, are racing ahead with plans to launch sophisticated 5-nanometer versions. TSMC is already mass-producing this particular chip, which will be used in 5G iPhones.
The term nanometer is used for the size of the transistors - as the size gets smaller, more transistors can be squeezed together, adding to overall computing power.
Intel has mostly relied on in-house manufacturing in a bid to better control the process of squeezing more computing power into tiny spaces.
Its management had to face embarrassment two years back after repeated delays in bringing its current 10 nanometer generation chips to the market.
In an apparent show of urgency to reorganise the company, Intel removed its Chief Engineering Officer, Murthy Renduchintala, who was overseeing the company’s process technology transformation.
For Intel, the difficulty in meeting its 7-nanometer deadline narrows down to the question of yield, in essence a measure of how many defect-free chips it can manufacture in large quantities.
Intel has faced a host of issues recently. Earlier this year, Apple announced that its new Mac desktops and laptops will no longer rely on Intel processors. The iPhone maker will instead use its own designed chip manufactured at TSMC facilities.
Problems at Intel have naturally worked in favour of TSMC, which saw its stock market value increase while Intel’s shares took a hit.
The company faced other setbacks, too. This month, Intel lost the status as America’s most valuable chip-maker to Nvidia, known for catering to the gaming enthusiasts. TSMC’s market capitalisation is already more than Intel’s.
TSMC has basically placed itself as a factory for other tech companies such as Apple, who design their own chips but outsource the production to TSMC’s efficient Asian factories.
As Richard Waters noted in an op-ed for The Financial Times, just five years ago, Intel’s net worth was as much as the combined value of TSMC, Nvidia and another chip maker, Advanced Micro Devices (AMD). Now the combined value of the three competitors is twice as much as Intel’s.
The company was also slow to capture the smartphone processor market. ARM’s CPU architecture dominates that segment with little chance of Intel being able to make any sort of gain.
None of this means it has lost its leadership role. For while its market capitalisation might be trailing behind that of TSMC, when it comes to revenue and profit, no one comes close to beating it.
Intel’s annual revenue, at more than $72 billion and a profit that exceeds $21 billion, is almost double that of TSMC.
It is not that Intel is losing its existing market share - it is just that others seem to be growing and expanding faster. For a tech giant that has for years invested in fulfilling Moore's law, making a comeback should not prove too difficult.