Intel Corp was legendary for decades as it pursued its strategy of designing microprocessors and manufacturing them in-house, with no space for allowing others to use its manufacturing facilities. That integration served well and Intel became the category-king, winning over competitors like AMD. But Intel has faced a double whammy: losing the edge on design to Nvidia (and Qualcomm, AMD, etc) on GPU and mobile chipsets, and lagging on manufacturing to TSMC and Samsung. There was a frontal attack from TSMC when its contract chip making was bent to disintermediate Intel.
Today, anyone with access to a credit card can design chips and send them to TSMC to fabricate (yes, TSMC is the equivalent of Amazon Web Services (AWS) of chipmaking; AWS is a leader in public cloud computing). Intel’s moat on manufacturing has been challenged and its castle lays bay. The ability to fabricate via TSMC without investing in foundries is a new level of disruption for Intel.
The Business Model of Today
In our contemporary technology business world, one business model has emerged to become very dominant: aggregation construct. Indeed, if you check the top 20 technology companies in the world, more than 80% run an element of aggregation construct. So, when the news flew that Intel was planning to acquire GlobalFoundries, a contract semiconductor manufacturer, for $30 billion, I felt it was the right playbook. (GlobalFoundries has noted that Intel did not speak with it for an acquisition.)
Intel may buy an unsuspecting chipmaker. The rumor mill is churning that Intel is considering a deal to buy semiconductor manufacturer GlobalFoundries, valuing the company at $30 billion. When reached by the Wall Street Journal for comment, a spokesperson for GlobalFoundries said they weren’t in discussions with Intel at all. If the deal were to happen it could have huge impact on the industry; the manufacturer is one of the biggest suppliers for AMD, Intel’s biggest competitor. (Fortune newsletter)
That aside, Intel picking GlobalFoundries would have been a good move. The reason is this: Intel has continued to lag behind on the global chip manufacturing business. Samsung has some of the most advanced foundries in the world, serving its ace enemies like Apple. TSMC fabs for some of the finest chip designers in the world in an open contract-model. The implication is this: their foundries are always busy because they do not just rely on getting internal hits, unlike Intel which kept all inside, making asset utilization challenging in cases where their brands are not moving well.
So, for TSMC, for example, it has a statistical advantage that by servicing hundreds of customers, one of those will have great products that will give it confidence to keep investing in its foundries. That virtuoso circle has enabled it to accelerate and to a large extent that it is now better than Intel foundries.
With GlobalFoundries as part of Intel, Intel can provide a huge challenge to TSMC, running the same contract business it does while making sure that it can modernize its foundries and support its product lines. Yet, there is also a challenge: not many companies will like to send their designs to GlobalFoundries knowing that it will be both a designer and a fab provider under Intel since IPs can leak or be stolen.
But I do think since Samsung makes chips for Apple, Intel can handle those concerns easily. In the industry, I worked on many chip fabrications, and it was night and day at the foundry, making sure IPs are not violated.
So, Intel needs to be a fabrication aggregator to have the capacity to bring in resources to actually help it build products of the future with the right process technologies. Working with others is a strategic thing today and I recommend Intel to pursue the purchase of GlobalFoundries.---
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