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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

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“My team and I are committed to doing what is necessary to deliver a predictable cadence of leadership products for our customers,” wrote Keyvan Esfarjani, who in July was named corporate vice president and general manager, manufacturing and operations in a blog post in mid September. Esfarjani replaced Ann Kelleher, an Intel senior vice president, as leading manufacturing, while Kelleher was promoted to leading technology development, focusing on the development teams working on the 7-nanometer and 5-nanometer processes, in a management shake-up that claimed Murthy Renduchintala, just a few days after its July bombshell.

But while Intel is talking about innovations and tweaks to keep Moore’s Law alive, the bottom line is that it’s getting increasingly difficult.

“The challenge is that as Intel is maturing 10 [nanometer process], you have TSMC going to 5 [nanometer process], where they have lost the density game,” said Patrick Moorhead, principal analyst at Moor Insights and Strategy. “How they got there is up for debate, but putting all the technical gobbledy gook aside, they took some big risks on 10-nanometer to get even denser, and it didn’t pan out.”

Tumult in the executive suite

If Moore’s Law is still alive, could the problem be inside Intel, or possibly with some of those executives who have now left the company? The man overseeing the new structure, CEO Bob Swan, could be the one to push toward a solution that would be outside the company’s comfort zone, since he is not an Intel old-timer, and coming in as Intel’s former CFO, not as an engineer.

“Intel giving up the fabs is a bridge too far for the older boys,” Enderle said. “If they have a CEO who could make that decision, Bob is one who could make that better than anyone else because he is not an old Intel guy.”

Swan came to the company in 2016 as chief financial officer, joining from General Atlantic, a growth equity investor after serving as the CFO of eBay Inc. /zigman2/quotes/204653455/composite EBAY -7.08%  for nine years. He was named CEO of Intel in early 2019 after serving as interim CEO when Brian Krzanich stepped down after the board learned he had a relationship with an Intel employee against company policy.

Read more about Swan’s appointment

It was under Krzanich, who moved up from the manufacturing side of the company, that Intel began to start missing some of its manufacturing milestones. Krzanich, who became CEO in May, 2013, undertook Intel’s biggest layoffs in a decade, cutting 12,000 jobs in April 2016, 11% of its workforce, as it refocused its business around data-centric and cloud computing.

Leadership issues may have begun even before the big layoffs and Krzanich’s abrupt resignation, however.

“For the longest time, Intel’s big advantage was the ability to manage an R&D team,” said Dan Hutcheson, president of VLSI Research. “They were the best at that, maybe IBM /zigman2/quotes/203856914/composite IBM -0.68%  too, but there was nothing in Asia that came close.”

Hutcheson noted that the retirement of manufacturing chief Bill Holt in 2016, and followed three years later by former senior fellow and director of process architecture Mark Bohr in 2019, may have created vacuums in the absence of longtime leadership roles, and instead some may have been focused on the machinations inside Intel, not on customers.

At the time of his retirement, Bohr told The Oregonian, “We kind of overshot, I think, with our 10 nanometer technology ,” adding that Intel was “too aggressive” in its goals of packing transistors on its semiconductor wafers.

“We have a strong bench of technical talent at Intel. We’ve continued to invest and innovate to deliver leadership products,” Intel’s spokeswoman said. She pointed out how Intel is advancing its 10-nanometer process with its new Superfin technology, which is contributing nearly a node-sized advance in performance, which will be in the new Tiger Lake family.

The abrupt resignation of Jim Keller, a microprocessor guru earlier this year, who has worked at AMD, Apple and Tesla Inc. /zigman2/quotes/203558040/composite TSLA +1.45%  , after just two years at Intel also raised some eyebrows. One of the class-action lawsuits against Intel contends that Keller was pushing for Intel to do more manufacturing with foundries in order to be more competitive, but no source was cited for this statement. Intel at the time said that Keller was resigning due to personal reasons.

A few weeks after Keller’s resignation, Apple announced at its virtual developer conference that it would be breaking up with Intel as its long-term microprocessor partner, after a 15 year relationship. In a two-year transition period, Apple will move the Mac over to custom-designed ARM-based chips.

How does Intel move forward?

Longtime industry analysts could not point to a single event or person that led to Intel’s current situation, but a combination of failed process and inadequate leaders. Daniel Newman, principal analyst with Futurum Research summed it up succinctly. “It was clearly a people and tech problem,” he said.

Whatever the root cause of the issues, Intel is now at a major crossroads. Already, its delays are having ramifications. In late August, the New York Times reported that Intel’s delays with its 10-nanometer technology could delay the $500 million supercomputer, called Aurora , one that counts Intel among its major tech providers. On top of a possible delay, the possibility that Intel may have some parts of the chipset manufactured by TSMC will also dash the hopes of a project with all American products. Intel said that beyond Aurora, it has a long-term deal with the Energy Department to further support the U.S. leadership in advanced computing systems.

From 2018: Why AMD believes it can challenge Intel in servers

Brookwood noted that Intel has gone through major shifts in its strategies in its past, especially when Grove was CEO, but was unsure if Swan could navigate the same treacherous waters as his legendary predecessor.

“A couple of weeks ago, I was thinking about Andy Grove and how he got them out of the memory business, because they just couldn’t compete with the Japanese,” Brookwood said. “I could see how someone with Andy Grove’s vision today could look at Intel and say, ‘you know, the manufacturing part of what we do has become a commodity, and the TSMCs and Samsungs can do it better than us. Maybe it is time for Intel to get out of manufacturing entirely and focus on what we know we do well’....But they need someone to have Andy Grove’s insight and business judgment and I don’t know if Bob Swan is that guy.”

Bernstein Research analyst Stacy Rasgon said it was difficult to envision the impact on Intel if it began contracting out its manufacturing on a larger scale. Rasgon said in an interview that Intel will probably never get rid of all of its plants, but it needs to pursue a sort of dual-pronged strategy, of contracting out more parts.

“They have to pursue both options. If they want to get first products in 2023, they have to place orders at TSMC by end of 2021.” Analysts may ask for more details on the alternative plans during Intel’s third quarter earnings call later this month.

Intel indeed has a massive manufacturing footprint and expenditures that employs thousands around the world. In July, Intel said it would spend $15 billion on capital expenditures this year.

Perhaps the answer will be scaling down of some manufacturing in the future, as Swan hinted at in an op-ed piece for USA Today.

“Forty years from now, how and what Intel manufactures may look quite different,” he wrote. “But what won’t change is our belief in the power of technology to enrich lives and our relentless effort to provide the technology foundation for the world’s innovation.”

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Therese Poletti writes the "Tech Tales" column for MarketWatch. Follow her on Twitter @tpoletti.

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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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