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Oct. 17, 2020, 9:19 a.m. EDT

How did Intel lose its Silicon Valley crown?

Chip giant has fallen behind AMD in engineering process and Nvidia in market cap as troubling decade takes its toll

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By Therese Poletti, MarketWatch


MarketWatch photo illustration/Getty Images, iStockphoto

Intel Corp. is still the dominant provider of chips for personal computers and servers, but its reign as the chip king of Silicon Valley has ended, and the unresolved question is whether its woes stem from reaching the limits of technology, the people in charge or a mixture of both.

The chip giant announced a delay of at least six months in releasing new chips designed using its next generation 7-nanometer manufacturing process this summer, and disclosed a change that shocked longtime observers: Intel may work with a contract manufacturer to make some components of the first chip in the next generation, a graphics processor focused on the data center known as Ponte Vecchio. While Intel /zigman2/quotes/203649727/composite INTC +0.85%  already works with a foundry for about 20% of its chips, the idea that the largest chip processor would possibly farm out some of the manufacturing for one of its important next-generation chips was perceived by investors and industry analysts as a stunning fall for the standard-bearer of Moore’s Law.

“I think Andy Grove would probably be spinning in his grave,” said Nathan Brookwood, principal analyst of Insight64, referring to the famously paranoid Intel co-founder and longtime chief executive. “He regarded the manufacturing group at Intel as the heart and soul of the company, so to see them flounder, especially with regards to new-process tech, that has never happened before.”

The delay in 7-nanometer process followed a nearly four-year delay on the company’s transition to its current manufacturing process, the 10-nanometer process. Intel has been offering intra-node advancements of its 10-nanometer process, with new technologies and software optimization and other changes to stay competitive with Taiwan Semiconductor Manufacturing Co. Ltd., known as TSMC /zigman2/quotes/207385621/delayed TW:2330 0.00% , the world’s leading foundry for manufacturing semiconductors on a contract basis.  

From July: Intel admits another defeat with unprecedented manufacturing issues

Intel’s prolonged descent allowed rival Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD +0.55%  to move ahead of Intel in the manufacturing process with its partner TSMC, a once unimaginable turn of events. At the same time, Nvidia Corp. /zigman2/quotes/200467500/composite NVDA +0.20%   has soared ahead of Intel in market value and made a bold $40 billion move to buy ARM Holdings PLC from SoftBank Group Corp. /zigman2/quotes/207303954/delayed JP:9984 +2.27% /zigman2/quotes/207303954/delayed JP:9984 +2.27% /zigman2/quotes/207303954/delayed JP:9984 +2.27% which would propel the graphics chip maker into Intel’s core market for microprocessors.

Three months after the initial news of the delay, Intel has not given many more answers about its struggles, and analysts are still at odds about whether the company’s slip was due to the increased difficulty of fighting the laws of physics, company personnel issues, or some combination of both. The only thing that may be more of an unknown is where Intel goes from here.

Is Moore’s Law dead?

“One of the things...that we all know is that Moore’s Law has come to an end,” Jensen Huang, Nvidia’s co-founder and chief executive, said on a conference call to discuss the Arm deal last month.

Huang was referring to a prediction made in 1965 by Intel co-founder Gordon Moore that the number of transistors on a semiconductor would double every year, which he later revised in the mid-1970s to every two years. The bottom line of this prediction was that computers would become more powerful and less expensive, as part of that huge increase in transistors in the future, and it served as a guiding light for the semiconductor industry.

But now, the doubling of transistors, and the associated increase in computing power, has become more difficult, as engineers bump up against the laws of physics and the geometries of electronic transistors become increasingly minute, and not even visible with the human eye. It was Intel’s ability, like clockwork, to increase the amount of transistors on its chips, in its own manufacturing facilities, with every new generation of chips, that made its both the company and its chips more powerful with each new product line, at a pace of every two to two and a half years.

More from Therese: The inside story of Gordon Moore and the pre-PC days of Silicon Valley

“Moore’s Law is alive and evolving,” an Intel spokeswoman said in an email, adding that even though it is taking longer in between nodes, intra-node advancements such as its SuperFin 3-D technology and specialized architectures for specific workloads, advanced packaging and software optimizations are helping. “We can continue to deliver the benefits of Moore’s Law well into the future,” she said.

If Moore’s Law is dead, someone should tell TSMC, which still seems to be moving along at a steady clip. It is already believed to be providing Apple Inc. /zigman2/quotes/202934861/composite AAPL +0.48%  with its custom-designed chips for the iPhone 12, which are based on the latest 5-nanometer process. At its iPhone 12 launch this month, Apple touted many new features in its four new models as based on its A14 bionic chip, calling it the first 5-nanometer based chip.The new iPhones will be available next month.

Some analysts believe that as investors pose the question about its manufacturing future, inside Intel there is a debate inside about whether or not it should go completely fabless and farm out its fabrication needs to TSMC to keep up with competitors and the fabled tech path its founder laid out.

“I believe that argument is going on inside the company, but I don’t have a sense if it’s going one way or the other,” said Rob Enderle, principal analyst at the Enderle Group. “But if you miss a stepping stone like this, it does force you to rethink how you are doing things.”

See also: Nvidia’s deal for Arm could mean a real challenge to Intel and AMD, but is likely to face opposition

Some of the issues may have begun in 2011, when Intel introduced a new technology into the chip manufacturing process, to create three dimensional transistors, as a way to continue Moore’s Law, and maintain its two-year cadence of introducing new technology generations, for the 22-nanometer lithography process. But this technology change may have been trickier to scale further down the line, because a 3-D stack of transistors is taller and more fragile. When Intel moved to 14 nanometers, things started to slow. Chips based on the 14-nanometer process took three years instead of two. The company also began to introduce other innovations in new materials, such as cobalt.

With the 10-nanometer process, things slowed even further. Intel launched a chip called Cannon Lake based on the 10-nanometer process in 2018, after it was originally planned for 2016. But the first iteration was disappointing and short-lived. The big volume product is expected with its new Tiger Lake processor for PCs due at the end of this year. Intel officially unveiled Tiger Lake at a virtual product launch in September. The 11th generation chip will also include an integrated graphics processor and Intel said the chip is four times faster than the competition on common tasks such as photo uploading and 20% faster on productivity applications like Word and PowerPoint.

“Intel may have put too many things into the 14-nanometer and 10-nanometer process increments,” said Brookwood of Insight 64. “When you have that many variables, and something is not right, fixing it is a non-trivial problem.”

Despite these issues, Intel is still plowing billions into its fabs. This October marked 40 years of manufacturing operations in Ocotillo, Ariz., and it celebrated that anniversary with a multibillion expansion of its fab there, culminating in a $7 billion investment. The fab created 3,000 Intel jobs. Intel said it has invested about $23 billion in its factories in Arizona, and it is also expanding its facilities in Oregon, Ireland and Israel and investing in New Mexico, for an advanced memory facility.

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/zigman2/quotes/207303954/delayed
JP : Japan: Tokyo
¥ 7,250.00
+161.00 +2.27%
Volume: 21.51M
Nov. 27, 2020 3:00p
P/E Ratio
33.12
Dividend Yield
0.00%
Market Cap
¥13322.50 billion
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¥76.45M
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/zigman2/quotes/207303954/delayed
JP : Japan: Tokyo
¥ 7,250.00
+161.00 +2.27%
Volume: 21.51M
Nov. 27, 2020 3:00p
P/E Ratio
33.12
Dividend Yield
0.00%
Market Cap
¥13322.50 billion
Rev. per Employee
¥76.45M
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/zigman2/quotes/202934861/composite
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P/E Ratio
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About Therese Poletti

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Therese Poletti chronicles the machinations of the technology industry for MarketWatch in the Tech Tales column. Before joining MarketWatch, Poletti covered...

Therese Poletti chronicles the machinations of the technology industry for MarketWatch in the Tech Tales column. Before joining MarketWatch, Poletti covered some of the biggest companies in Silicon Valley for the San Jose Mercury News. Previously, she spent over a decade at Reuters, covering a range of beats, from spot news and Wall Street to biotech and technology. Poletti was also the lead reporter on teams at the Mercury News that won two Society of American Business Editors and Writers awards for breaking news and two Society of Professional Journalist awards. She was also a finalist for the Gerald Loeb Awards in the deadline writing category. Poletti is also the author of "Art Deco San Francisco: The Architecture of Timothy Pflueger," published by Princeton Architectural Press.

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