May 18, 2021


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Intel, the United States, and the Chip War

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Economically, financially and geopolitically, the chip industry   is one of the hottest sectors at the moment.From the new 5G iPhones to the fifth-generation  F-35 fighter jets, from cars with self-driving  capabilities to the large servers which  house the cloud.

Everything, absolutely everything, depends on the chip industry. chips, semiconductors have become the neurologic axis, the heart and the brain of new industrial  trends.

The fact is that we are talking about a market that continues to grow and that,  in 2020, achieved a turnover of just over $439 billion dollars worldwide. This market is currently led by the communications sector, but it will gradually change to give more and more prominence to everyday objects and products. Cars, for example, are increasingly equipped with chips and it is quite possible that we will soon be able to find chips appearing in everyday items, even in our shoes or glasses.

And take note because we already have them, to give just three examples, in smartwatches, in the latest headphones, and even in measuring scales. Not to mention the dependence of other more sensitive fields on these devices,  such as security and defense. Those who have access to the most advanced technology will be the ones who get the most modern military equipment.

Taiwan and the chip war”, not all semiconductor suppliers  manufacture their own devices. There are currently three different types of companies.  Firstly, there are those that design their chips and then completely outsource  production. This is the most common type. We are talking about companies like Nvidia,  Qualcomm or even Apple or Amazon.

Then there is a second typeof company,  in this case integrated, that is, they design and manufacture their own chips.  This would be the case of Intel or Samsung. And finally there are those known as foundries.  

These companies focus exclusively on manufacturing. For example, when Apple  designs its own chips, such as the processors of the iPhone or of some recent Mac computers,  the Cupertino company commissions the production of the chips to one of these foundries.  

And this, this is the activity that in recent times has been in the eye of the hurricane and has become the great bottleneck of the global technology industry. These companies are working at near full capacity and the battle for the smallest and most advanced chips is almost fierce. According to data from market intelligence companies “TrendForce and “ReportLinker”, revenue from chip production was $70 billion in 2020, and its turnover is expected to grow at a rate of 10% per year over the next decade.  The chart you see on the screen is the composition of the foundry market. 

As you can see, more than 77% of the market share is in Taiwanese and South Korean hands.  And remember, this extremely capital intensive, very costly and technologically advanced activity  has become one of the main epicenters of world economic and geopolitical activity. Without the production of advanced chips we cannot think about things like nanotechnology,  robotics, autonomous driving or 5G.

And the fact that the bulk of  production is in Taiwanese and South Korean hands has been a huge shift  that has finally set off alarm bellsin the world’s largest economy. Historically, the United States has been a major producer of semiconductors. For decades,  chips have been one of the most advanced and strategic products of the US industry.

Now,  however, the situation is very different. The big companies that design chips are still American, yes, but their production… That’s another matter. Even taking into account Intel – one of the great stars of the American business fabric,  a corporation that has been visited and praised by every single US president since Bill Clinton – the United States has gone from having a market share of almost 40% in the world chip production in1990 to just over 10% today. And no, their companies are not leading the way in manufacturing technology either.

When giants like Apple, Nvidia, Amazon, Google, or the titans of the military industry like Lockheed Martin,  Northrop Grumman or General Dynamics, want to get their hands on the most advanced chips to  equip their technological systems, they all have to go looking for them thousands of miles away.  strengthen America’s semiconductor supply chains and keep our country at the top in chip  technology, leaders in Washington need to fully fund the semiconductor manufacturing incentives  and research investments called for in the annual defense bill.” John Neuffer,  president and CEO of SIA, the American Semiconductor Industry Association)And that is exactly what the US federal government and also Congress is doing.  Over the past few years, this issue has received increasing attention.

The trump administration, for example, negotiated with major foundries to set  up factories in the United States and blacklisted Chinese technology  companies such as SMIC or Huawei, denying them access to American  designs and preventing foundries such as TSMC from selling their chips to them.Now, for his part, Joe Biden is following a similar path.

In February 2021 he signed an  executive order to favor local production and How does the saying go, “same dog, different collar In a way, the future of the very technological, military, and even economic dominance of the  United States and the outcome of the trade and technology war with China will depend on a large on which of the two players manage to control the global semiconductor industry?And you know what – right here, at this point, is where all eyes are on Intel.  Not only as the most advanced North American producer but also as a reflection of the problems facing the industry.


Along with Microsoft’s Windows operating system, Intel chips formed the tandem known as Wintel,  a duo that piloted the digital world for decades. However, the last few years have seen many changes. You see, Intel is apparently a company that is going from strength to strength.  Over the last five years its revenues have grown at an annual rate of 7% while its operating margins have remained above 30%. Its revenues in such booming areas as data centers continue to grow at double-digit rates, and both the so-called “internet of things” and 5G have created major growth opportunities for the company.  

If we add to all this the fact that during the last six years this company has been able to  maintain a Free Cash Flow over Sales ratio above 20%, we could well think that things are going  from strength to strength and at full steam ahead.In 2020 alone, this American technology giant,  which had a market value of about $260 billion at the time of making this video,  obtained a Free Cash Flow of more than 20 billion. 

It doesn’t seem a bad ratio in theory, does it? But hold on a second, because in spite of everything over the last four years,  things have been getting complicated to the point of causing the dismissal of two CEOs and sowing many doubts in the markets about the future of this company. And the thing is, by 2018, Asian giants TSMC and Samsung Electronics had caught up,  not only did they already manage to manufacture chips as small as Intel’s,  but they were managing very ambitious deadlines for further downsizing.a large production of 10 nanometers for 2018-2019,

they set a target of 5 nanometers in 2021 and 3 nanometers for 2023. That meant bringing forward Intel’s own schedule which,  as you can imagine, suddenly put a lot of pressure on the US manufacturer. And that’s when the problems started to arise, the real problems. In early 2019, Intel had to acknowledge serious problems on its production lines that would delay the mass arrival of 10-nanometer 

Still, the chief engineer at the time,  Murthy” Renduchintala said publicly that Intel had learned from its mistakes, that 10-nanometer  chips were on the way and that a new generation7 would be ready for mass production in 2021. However, the problems and delays did not go away. While TSMC and Samsung were already mass-producing  5-nanometer chips, in July 2020, the company’s then CEO, Bob Swan, publicly communicated that the 7-nanometer chips promised for 2021 would not arrive until at least 2023.

What’s more, Intel was considering outsourcing the production of its cutting-edge chips because its manufacturing lines were simply not capable of producing them. It was the public realization that something was wrong, very wrong. Of course, the market reaction was not long in coming. (Intel shares punished after delay to next-gen microchips. Stock opens 17% lower on doubts over chipmaker’s ability to regain manufacturing edge. FT) All this has prompted some of Intel’s major customers, such as Apple ad Microsoft,  to start designing their own chips and contracting Asian foundries to produce them.

June 22, 2020:

Apple announces transition away from Intel chips Tim Cook hails ‘historic day’ as company moves to use in-house designs. FT) But why is it so important for chips to get smaller and smaller? Well, take a look:

The smaller the chips, the higher the performance,  the lower the power consumption, and the more functions manufacturers can package.  For example, TSMC’s 5-nanometer chips allow packing together the CPU, GPU, and cache,  machine learning cores, and accelerators, and specialized units for audio, video, and photo or cryptographic security in the same size space as Intel’s 14-nanometer chips. In other words,  less size equals more performance, less power consumption, and more possibilities. Well, the fact is that all these developments prompted Intel to replace its CEO for the second time in two years. On 15 February 2021, engineer Pat [Gel-singer, hard G] Gelsinger took over the helm. And with him came a new strategy.


On 23 March, the new CEO, Pat Gelsinger made public his new strategy. There were many rumors that Intel might announce a drastic turnaround,  including speculation that it would stop manufacturing its own chips,  at least the most cutting-edge ones, or even split into two different companies.  

However, all that speculation was a far cry from what was eventually put on the table.  Intel announced the creation of a new business, the “Intel Foundry Services” to compete head-on  with Asian foundries. This new unit will manufacture chips designed by third-party  companies such as Microsoft or Amazon. To achieve this, Intel announced an  investment of more than $20 billion to build two new state-of-the-art factories in Arizona.

At the same time, the new CEO also announced that Intel would begin to pursue the market  for less advanced chips, such as those in demand by the automotive industry,  and that it would outsource some of its most cutting-edge production.

To this end, the  company will adopt what is known as unbundling, a method that allows a single chip to be made  from different manufacturing processes carried out in different places or different companies. And, as always, this strategy has met with many supporters and many detractors.  On the one hand, forecasts suggest that demand for chips is set to grow strongly  at a time when the US government’s national security concerns are increasing. That,  advocates of this strategy point out, could act as a major boost for Intel.

In addition, chip manufacturing is extremely capital-intensive, so for it to be profitable,  factories have to work at full capacity. Thus, opening up production to manufacture chips designed by other companies will increase volume, which should help Intel to catch up.  

However, detractors do not believe it will be so straightforward.They consider that Intel is concentrating its forces where it has failed. Its factories will  be making 7 nanometer chips by 2023 at the earliest, while TSMC for example,  has just announced an investment of $100 billion over the next three years and  will already be manufacturing much smaller chips, of 5 and 3 nanometers by that time  So critics argue that the big customers are unlikely to come back to Intel. And  in the case that they do come back, that will only happen if there are no further delays this time.  

In addition, many companies may be reluctant to share their designs  with a rival that also manufactures for itself. They also argue that another of the Santa Clara  company’s bets –the market for less advanced chips – is much less profitable. Competition  is much greater and margins are generally small.

So even if the  US company were successful in securing orders, its margins could be substantially reduced.  In short, these would be the main pros and cons. The Santa Clara, California-based company  is confident that it can get back on track, take advantage of the US government’s federal  boost and, in any case, maintain its slice of the growing pie in the semiconductor market.
And that’s where things stand right now, because Intel is still the great American  bet for the manufacture of chips. We know this is a concern for many of you  because it is something you often ask us about. With these videos our intention is simply to put  on the table some of the main trends that are underway in the financial world, to  take a closer look at some companies or business models that are in the spotlight. Let’s be clear:  our intention is not to say whether Intel’s strategy will work or not,  or whether or not it is a good investment. That is for each individual to determine.  But having said that, the question is, will Intel and the US make up for lost ground?  Who will be the big winner in the chip war? What do you think of Intel’s new strategy?

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