Intel is considering outsourcing chip manufacturing. The move marks the end of a chapter for the semiconductor sector. American chip foundries no longer dominate.
It matters for the PC sector. Yet the implications go much further and could affect international trade, even politics.
Intel was the world largest chip maker for decades. Although it didn’t always have the best designs, it had the best sellers and the key relationships. The company’s ‘Wintel’ partnership with Microsoft defined the PC.
When Apple switched from PowerPC to Intel, the dominance looked complete. That relationship lasted 20 years. Now Apple is moving back to its own processor designs. This means Apple can build faster computers and lighter laptops. Devices will be slimmer or have a longer battery life.
Intel was one of America’s key industrial giants. It continued to make chips in the United States long after other manufacturers, including high tech companies, moved their factories off-shore or outsourced to Asian factories.
In its prime the chip giant seemed incapable of making an error. It was relentless.
Economies of scale
One reason for Intel’s might was the economies of scale. The first of a new line of processors would cost hundreds of millions of dollars to build. Towards the end of the run, it could measure the cost per-chip in pennies.
Scale meant it got the best engineers, the best scientists.
And then it all stopped. Apple’s iPhone was the turning point. Intel missed out on making chips for mobile phones and tablets. Instead computer makers turned to companies like Qualcomm. Apple decided to design its own.
Either way, Taiwan Semiconductor Manufacturing Company or TSMC, got to make the chips. It became better at the job than Intel. If Intel does outsource manufacturing, TSMC is the most likely candidate for the job.
TSMC now makes more processor chips than Intel. It has the economies of scale. It has sharper skills, competitive pricing and everything needed to be market leader. At least when it comes to making processors.
Intel’s designs remain first class. But its rivals have caught up. Take AMD: For years it trailed far behind Intel. That’s changed. AMD’s Ryzen can deliver better performance while using less power than Intel processors.
Intel slow to 7nm
Unlike Intel, AMD is working with 7nm technology. That is, more advanced chip technology. We need to be careful here, 7nm refers to the size of chip components, but different chip makers have nuanced uses of the term.
If losing Apple wasn’t enough, last week the company announced it would delay moving to its 7nm process. The company slipped behind when it was late to market with 10nm technology. Now the 7nm line is at least 12 months behind schedule.
Intel isn’t going away. It managed to grow revenue 20 percent in the last quarter. The company sold almost US$20 billion worth of kit. Even the PC chip business, that’s the bit everyone worries about, was up seven percent.
Yet, it does look as if Intel is no longer the world’s leading chipmaker. It’s brand is no longer a name to conjure with.