Later, Mike thought Gelsinger might be able to give Intel a kick up the a*rse but thought anything he did would be too little too late. Now, it is starting to look like Mike was right and while Chipzilla is not sitting down to its last meal, it is at the stage that its lawyers are running out of places to appeal.
Chipzilla must spend a lot of money to match Taiwan Semiconductor Manufacturing's prowess in producing cutting-edge chips. Yet, with business slowing, boss Pat Gelsinger can’t keep up.
Once the semiconductor industry’s undisputed leader, Intel now lags TSMC regarding chip density, cost and power efficiency. As rivals abandoned the vertically integrated design-and-manufacturing model, they benefitted from the Taiwanese firm’s advances, boosting market share. Intel is burning cash and while everyone else on the Nasdaq has been making a killing Intel shares have fallen by half in five years.
Gelsinger was the chief architect of Intel’s landmark 80486 chip nearly four decades ago and returned to pull the company out of its technological rut in 2021. He now says that the mission is almost accomplished, promising that chips coming next year will equal anything made by TSMC.
He might be correct technologically but Chipzilla will need to prove it can produce cutting-edge chips in volume before TSMC’s customers will change horses.
Scaling up production like this - and upgrading it year after year - is immensely costly. TSMC plans to invest $30 billion in 2024. About 80 per cent of this goes to the most advanced semiconductors. That’s enough for a new fabrication facility, which costs $25 billion.
The US company doesn’t have to invest quite as much. Executives say public subsidies and help from co-investors like Brookfield can fill in a quarter of required spending. If so, Intel needs about $19 billion annually to maintain the same one-new-plant-a-year pace.
Right now, it plans to spend roughly that amount next year. The problem is that Gelsinger has also promised that capital expenditures will equal about a quarter of the long-term revenue. If sales come in at about $75 billion, that leaves enough headroom. But that’s a third more than analysts see Intel generating next year.
Meanwhile, the cost of building plants is only going up. TSMC has better-operating margins than Intel, and its capital expenditures have averaged 40 per cent of revenue over the past decade.
Chipzilla thought it could turn around if it had a revival in chip designs and another in regaining manufacturing supremacy. While Intel might still have street cred regarding chip design, Gelsinger is a long way from getting the manufacturing sorted out.