The Intel’s Pivot And Unveiling “Amazon AWS of Chipmaking”

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.

Apple had taken its Mac chips from Intel, and would design and fabricate with possibly TSMC or Samsung since other players like GlobalFoundries remain weak. Other companies will do just that. Provided there is TSMC to make the chips after circuit designs, most companies will go all the way to designing internally and sending to TMSC to fab. This was not possible in the past as TSMC was weak, but over the last few years, TSMC has evolved to be as good as Intel, if not better.

Simply, Intel has to solve TSMC flank attacks even as it looks for ways to defend its design castle from AMD and Nvidia. If not, the Apple Mac effect will become more common. This week, we are learning that Intel’s new boss has a plan: Pat Gelsinger will build new factories at the cost of $20 billion, and most importantly, open its factories to outside customers. Simply, Intel has gone TSMC, and can compound the physical network effects TSMC has been enjoying running. Expect a new dimension of competition in the industry.

Intel Corp has announced plans to greatly expand its advanced chip manufacturing capacity. The new chief executive said the plans involve spending as much as $20 billion to build two factories in Arizona and to open up its factories to outside customers, Reuters reported.

The move by CEO Pat Gelsinger on Tuesday aims to restore Intel’s reputation after manufacturing delays sent shares plunging last year. The strategy will directly challenge the two other companies in the world that can make the most advanced chips, Taiwan’s Semiconductor Manufacturing Co Ltd (TSMC) and Korea’s Samsung Electronics Co Ltd.

In Intel’s history, this is a quintessential moment. Intel will have more ways to capture value, and can actually run a better business, knowing that investments on the factories must not depend on the excellence of Intel designs. Yes, even if its product generation flops, there is a likely chance that one of its manufacturing customers is winning. So, if Intel has a customer A and that customer does well in the market, Intel’s chip revenue will track that customer’s even if Intel’s own design did not fly.

That is what Samsung does: whenever Apple does well, Samsung Electronics does well since it makes some of the most sophisticated Apple chips. That has been the cornerstone of Samsung One Oasis and Double Play strategy. Intel just joined the party.

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