Ten years ago, Intel was worth about $177 billion. AMD was worth just $6 billion. Today, AMD is worth about 60% more than Intel ($1 trillion vs. $622 billion), according to a comparison published this week by The Motley Fool.
How did one of the most dominant companies in semiconductor history lose so much ground?
THE FLYWHEEL REVERSED
For decades, Intel’s vertical integration was an enormous competitive advantage. It designed its own processors and manufactured them using some of the world’s most advanced semiconductor technology. Better manufacturing enabled better products, which drove greater market share and volume, generating more investment and learning for the next generation of manufacturing technology. The flywheel kept turning forward.
But a flywheel can turn in both directions. When Intel fell behind in process technology, manufacturing delays became product delays, weakening its competitive position. AMD had separated design from manufacturing and could instead take advantage of TSMC’s process leadership. TSMC’s manufacturing advantage became AMD’s manufacturing advantage.
CAN INTEL REVERSE IT?
Now Intel is trying to get the flywheel turning forward again. Under CEO Lip-Bu Tan, the company is ramping 18A and pushing ahead with 14A as it attempts to restore manufacturing leadership and build a major external foundry business. There is already an important sign of progress: Intel is leading the industry in the adoption of ASML’s High-NA EUV technology, becoming the first chipmaker to use it in high-volume logic production.
But the challenge remains. Today, only about 5% of Intel Foundry’s revenue comes from external customers; the other 95% comes from Intel itself.
The outcome is far from certain, but Intel’s experience illustrates a powerful lesson about vertical integration: when manufacturing is your competitive advantage, integration can magnify your success. When manufacturing falls behind, it can magnify your problems.
The question now is whether Intel can make the flywheel work in its favor again.
Jeffrey L. Cooper
Tech Analyst & Author
JeffreyLCooper.com | When Machines Begin to Dream
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