Inside Intel: A Look at the Mega Chip Maker
Never has a corporation done so much with so little. Founded in Mountain View, Calif. on July 18, 1968, by Robert Noyce and Gordon Moore, Intel Corp. (INTC) has been among the world’s leading manufacturer of microprocessors and chipsets almost since its inception.
According to data from Statista, Intel remained the largest semiconductor in the world based on revenue from 2009 through 2020, but rival Samsung Electronics (SSNLF) took over the top spot in 2021. In 2022, Intel’s revenue of $58.4 billion came in second place to Samsung’s revenue of $65.6 billion, with SK Hynix, Qualcomm (QCOM), and Micron Technology (MU) rounding out the top five revenue generators in the industry.
In this article, we’ll take a look at Intel’s strengths that kept it at the top of the semiconductor industry for so long. Plus, we’ll review challenges the company will need to contend with in the years to come as competition intensifies for the mega chip maker.
- Unlike some of its competitors that outsource manufacturing to foundries in China, Intel fabricates its products in-house at Intel-owned facilities.
- In 2020, Intel lost a lucrative and long-standing customer when Apple announced that it was developing its own semiconductor solutions and that its new laptops and desktops would no longer use Intel processors.
- Intel has lost market share to rival companies—such as Taiwan Semiconductor Manufacturing Co, Advanced Micro Devices Inc., and Samsung Electronics.
- In response to criticism from an activist hedge fund, Intel replaced CEO Bob Swan with VMware CEO Pat Gelsinger in February 2021.
- Intel broke ground in September 2022 on a new mega semiconductor plant in Ohio.
What separates Intel from most other semiconductor companies is that it fabricates its products in-house. The bulk of semiconductor “manufacturers” farm the actual work of creating the products out to foundries in China. Intel even fabricates chips for other companies—for the most part, ones too small to be considered true competitors. Is that a conflict of interest? Not really. Fabrication plants can cost several billion dollars to build, and it makes sense for Intel to keep its plants busy.
Intel does indeed assemble chipsets in China, but at Intel-owned facilities. It is received wisdom among some American doomsayers that low labor costs make China the world’s factory and the default base of manufacturing operations for U.S. corporations that want to save a few pennies per unit and “ship jobs overseas.” That claim is sometimes more accusatory than it is true.
At the end of 2022, Intel had a multitudinous workforce of 131,900. Almost half of Intel’s chipsets and microprocessors are manufactured at home, at facilities in the suburbs of Phoenix, Albuquerque, and Portland. Outside of China, most of the remaining Intel products are developed in Israel.
The semiconductor industry uses the term “fabless” to describe a company that designs and markets its chips while outsourcing the fabrication to a third-party manufacturer. Some of Intel’s biggest competitors—Nvidia Corporation and Qualcomm—are fabless companies.
The Competitive World of Chip-Sourcing
Given that Intel fabricates other companies’ chips at its facilities, the business of working with companies that in some settings might be your competitors is more common than you might think. For instance, in 2007, Apple Inc. (AAPL) began using Intel chips exclusively in its Macs, supplanting the PowerPC CPUs that Apple itself helped develop as part of a consortium.
But that long-term partnership with Intel came to an end in 2020 when Apple announced that its new laptops and desktops would no longer use Intel processors. Instead, the machines would be powered by Apple’s new M1 chip, which the company developed as part of its “Apple silicon” plan to own and control the primary technologies behind their products.
This loss of a valued (and lucrative) customer came as a significant blow to Intel. In its 2020 annual report, the company said that one of its biggest challenges going forward would be in dealing with the loss of revenue from customers like Apple that decide to break ties and develop their own semiconductor designs.
Intel’s co-founder Gordon Moore lends his name to the most famous observation in technology. Formulated in 1965, Moore’s Law states that transistor density doubles every two years. Not only has the observation held ever since, but Intel has officially incorporated the law into its company strategy. In 2020, the company announced it had doubled its combined 14nm and 10nm manufacturing capacity in just a few years. This enabled Intel to expand its line of 10nm products and launch its next generation of mobile PC processors.
Watch Now: What Is Moore’s Law?
So who’s buying all these Intel chips? In 2022, Intel had three major customers that were responsible for 42% of the company’s net revenue. Dell Inc. accounted for 19%, Lenovo Group Limited accounted for 12%, and HP Inc. accounted for 11%.
The Changing Market
Capitalizing on the leverage of its market-leading position, Intel has over the years shifted some of its focus to smaller devices and embedded systems. The latter refers to chips placed in something other than stand-alone computers, which can include everything from cars and planes, to traffic signals and factory assembly lines.
Like any corporation of its size ($114.7 billion market capitalization as of April 27, 2021), Intel has an elaborate business organization. The company has five major divisions or groups:
- The Client Computing Group includes Intel’s core processor systems for desktop computers, notebooks, and tablets.
- The Data Center Group includes products for cloud communications and infrastructure.
- The Internet of Things Group includes products designed for internet connectivity in areas like retail, transportation, industrial, video, buildings, and smart cities.
- The Non-Volatile Memory Solutions Group creates memory and storage products with innovative form factors based on Intel Optane technology and Intel 3D NAND technology.
- The Programmable Solutions Group offers programmable semiconductors for the company’s cloud and enterprise market segments.
Intel Faces Criticism
While Intel’s business groups have enjoyed a reputation for cutting-edge innovation, that reputation came under close scrutiny by activist hedge fund Third Point LLC in December 2020. Third Point criticized Intel’s management for losing market share to its rivals, noting, in particular, the loss of customers like Apple, Microsoft, and Amazon that were developing their own semiconductor solutions and sending their designs to Asia for manufacturing. Additionally, Intel was rebuked for not retaining some of its top chip designers and leaders, who were steadily leaving the company.
Third Point Chief Executive Daniel Loeb asked Intel to consider strategic alternatives, such as divesting itself of failed acquisitions and deciding whether it should remain an integrated device manufacturer. Bowing to the pressure, Intel’s board of directors announced that CEO Bob Swan would be replaced by VMware CEO Pat Gelsinger in February 2021.
Intel Breaks Ground on Mega Plant in Ohio
In September 2022, Intel officially began construction of a massive semiconductor manufacturing facility near Columbus, Ohio. The project takes advantage of billions of dollars in subsidies from the federal government. The Biden administration has highlighted the project as a critical step toward bringing manufacturing jobs back to the U.S. and a key measure in reinforcing the country’s economic and national security.
The project, which carries an eye-popping price tag of $20 billion, is expected to bring significant economic benefits to the area. According to estimates, the new plant will eventually add 3,000 Intel jobs, in addition to 7,000 construction workers employed by the project and accompanying growth in the service sector. However, the scope of the project has raised concerns about how it will affect the area’s housing market, and local residents have questioned the potential environmental impact of the Intel facility.
Where Is Intel Headquartered?
The chipmaker’s headquarters are in Santa Clara, California. In addition, Intel maintains a presence around the world, with manufacturing facilities in countries including Israel, Ireland, and China.
Who Are Intel’s Main Customers?
As of 2022, 42% of Intel’s net revenue came from three main customers: Dell Inc, Lenovo Group Limited, and HP Inc. In 2020, a key long-term partnership for the company came to an end when Apple Inc. announced that its Macs would no longer use Intel processors.
When Was Intel Founded?
Intel was founded in 1968 by Robert Noyce and Gordon Moore. Co-founder Moore lends his name to Moore’s Law, the well-known observation about the rapidly evolving speed and capacity of semiconductor chips. Intel has incorporated Moore’s Law into its strategy, and the company highlights its focus on research and development as a critical factor behind its success.
The Bottom Line
Some companies dominate an industry, fail to innovate, and fall into irrelevance (e.g., Howard Johnson and Kodak). Others have great ideas but never manage to capitalize on them. The company that can leverage intellectual firepower with commanding market share is the company that can stay both powerful and relevant for decades.
While Intel has enjoyed over 50 years of dominance in the semiconductor industry, it faces fierce competition from rivals—such as Taiwan Semiconductor Manufacturing Co, Advanced Micro Devices Inc., and Samsung Electronics—that could put Intel’s future dominance in the semiconductor industry in question.