Since its inception in 1968, Intel has been an industry leader in the semiconductor industry. Intel’s revenue has reached record highs over the last few years by achieving $72.0 billion in 2019, then rising to $77.8 billion in 2020 (+8% year over year). However, based on Intel’s latest full year 2021 revenue guidance of $77.6 billion, it is projected to realize a nearly flat (-0.3%) year-over-year growth rate this year vs. 2020. Revenue growth of Intel’s top competitors, AMD (+45% in 2020 vs 2019) and NVIDIA (+53% in 2020 vs 2019), has been accelerating and these companies are on track to set new records in 2021.
Due to pandemic-driven chip shortages, the global semiconductor industry is in flux in 2021, yet demand for integrated circuits (ICs) has never been stronger. Even before COVID-19, IC demand was strong. Then virus-related shutdowns created bottlenecks in production and the industry could not produce enough products to support the post-pandemic recovery. Most of these issues should be resolved in 2022, but there are several longer-term trends impacting the market and Intel’s strategy:
• Gaming and AI applications require specialized silicon. Intel’s CPU business is stagnating, but sales of GPUs and TPUs are skyrocketing.
• Leading cloud companies are starting to develop more ICs in-house.
• China is investing heavily in the domestic design and manufacturing of CPUs. China is not yet challenging Intel’s technological dominance, but potentially it could take away a large portion of their customer base in the mainland.
In March 2021, Intel made a strong commitment to expand its foundry business by heavily investing in manufacturing processors, for itself and other companies, as part of its integrated device manufacturing (IDM 2.0) strategy. It said the strategy will help it evolve long-term by taking three major actions:
1. Continuing to manufacture most of its products internally and advancing its 7nm development by using the extreme ultraviolet (EUV) lithography process.
2. Enhancing existing relationships with 3rd party foundries, which will include more manufacturing partnerships for the development of advanced process technologies.
3. Creating a standalone business unit, Intel Foundry Services (IFS), which it says will provide top-class process technology and packaging, increased capacity, and a broader intellectual property (IP) portfolio.
The IDM 2.0 announcement is evidence that Intel is not putting all its eggs in one basket, its main processor business, as its chip design unit experiences intense pressure from the formidable competition. Instead, Intel is continuing to update its processor portfolio while re-investing in other parts of its business which are also part of the semiconductor supply-chain.
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