The loss of the iPhone contract was the cause of Intel's current problems

 The loss of the iPhone contract

 was the cause of Intel's current problems

The loss of the iPhone contract was the cause of Intel's current problems

Apple's commitment to the ARM architecture to motorize its mobile phones meant the loss of the iPhone contract for Intel, was key in the subsequent evolution of the industry and a source of the current problems of the chip giant.

It is recounted by Michael Bruck, once the chief of staff to Intel CEO Andrew Grove, and later Intel China CEO before leaving the company in an interesting article published in SCMP whose headline says it all: "How a 15 years ago it contributed to Intel's fall from grace today. '

Problems at Intel

Intel presented financial results last month beating analyst estimates with strong revenue and earnings momentum and a good outlook for the rest of the year. Despite this, Intel lost 50 $ billion on the stock market that day. Investors punished the announcement of a further delay in the transition to 7nm production technology processes.

Intel has a contingency plan in place that involves increasing its own manufacturing capacity for 14nm wafers and using third-party manufacturers to meet demand and the repeated delays in the supply of CPUs for PCs for which the company apologized at the end of 2019. It is the first time that the American giant has turned to outside companies to manufacture its main processors.

The market is unforgiving. Its main rival in CPUs, AMD, has gained ground to Intel in all market segments with the successful Ryzen and has managed to enter an OEM channel dominated by Intel. Worse still, competition in data center chips that Intel had monopolized in the past has increased and NVIDIA is now a major threat as it extends its business model to the enterprise segment.

Meanwhile, its rival in process technology, TSMC, saw it's market valuation increase by more than 50%. Most investment bank analysts covering the semiconductor industry downgraded Intel to "sell" and upgraded TSMC and AMD to "buy." NVIDIA sells itself and has surpassed Intel in market capitalization for the first time in history. Another big rival in chipmaking, Samsung, has come to surpass Intel for two years in revenue from the sale of semiconductors.

The iPhone contract

Intel has been "stuck" in the transition to 10nm manufacturing technology for years, and this is probably where many of today's problems stem from. To put the situation in perspective, the initial plans announced in 2014 were to bring 10nm chips to the market in 2015 and 7nm chips in 2017. The former is only available in some series and the latter will not arrive until 2022, at least.

Michael Bruck, a former Intel executive, explains the loss of the iPhone contract as the primary source of the current problems.

Michael Bruck, a former Intel executive

Intel's transformation from a memory chip company in the 1970s to a microprocessor company in the 1980s launched the era of PCs. Intel completely transformed the technology industry to become the standard computing platform in all market segments. Intel not only supplied the key components but also set the standards. Like a conductor, Intel set the pace for the entire industry.

The key question, says Bruck, is "how did Intel, which for decades was the undisputed leader in manufacturing process technology, enabling it to deliver the highest performance and highest margin CPUs for PCs and servers lost its leadership so dramatically, What was it about that delay that caused such a negative feeling about the future of Intel? "

Apple's decision in 2005 to use the ARM architecture instead of Intel's x86 gave TSMC, the foundry of choice to make chipsets for the iPhone, "the learning curve advantage that over time allowed it to stay ahead of the game. Intel in manufacturing process technologies, ” says Bruck.

"Intel's embedded model, its competitive advantage for decades, became its vulnerability. " TSMC and ARM created a tectonic shift in the semiconductor industry by allowing the presence of a large number of "factory-less" chip companies, including Apple, AMD, NVIDIA, and Qualcomm.

These companies began to out-design Intel from the mobile phone industry and accelerated TSMC's leadership over Intel in high-volume manufacturing of the most advanced chips. Samsung, which also operates a foundry business, has been another major beneficiary of this trend.

Interesting article. Not because of unknown arguments, but because it comes from who comes, the right hand of the former CEO of Intel (who died in 2016), and one of the first employees of the company. The loss of the iPhone contract was key to understanding the current situation and ARMs on Macs with Apple silicon may be momentous for the future. Of course, as we said, Intel has the cash, technology, staff, and capacity to overcome the current situation. And it is on the way to update its entire catalog with important news that will be presented on  September 2.

No comments