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Finally, Intel Replaces Bob Swan

Intel CEO Bob Swan has step down and is expected to be replaced by Pat Gelsinger, VMWare CEO. Intel has been on a declining trajectory and is seen failing to keep up with new technologies in the semiconductor space under Bob Swan’s leadership. Activist hedge fund investors, Third Point, led the charge in seeking for the ouster of Bob Swan, after AMD and Apple both released more modern and powerful chips compared to Intel.

Intel’s disastrous performance in the rollout of the 10nm chip, where it was easily beaten by the more agile rival AMD, has led to calls for a change of leadership. AMD,  which has released its latest 7nm chip Ryzen 4000 chip into the market is looking at not only leading in the consumer and gaming sectors, but also providing competition in Intel’s core revenue generator, cloud computing.

So, why are 7nm chips such a big deal compared to the 10nm?

The smaller the chips transistor size (10nm, 7nm), the lesser the amount of energy used by the chip to process. When less energy is used, less heat is generated. Because the chip uses less energy, electricity consumption cost for running the chip and cooling the chip is lower. It has been reported that 7nm chips produces 10%-20% more performance and 30%-40% more power efficiency. Data centers main operating expense is electricity and being able to improve electricity consumption (W) vs revenue will improve profitability of data centers.  Cost savings coupled with the need for performance for performing big data and machine learning, will lead the data center sector to transition to 7nm chips sooner rather than later.

Intel is trying to catch up. At this stage it is looking to go fabless, a process where Intel will focus on chip design and will outsource manufacturing to a 3rd party semiconductor fabricator. Intel is also facing stiff competition from Apple in the consumer space with the introduction of the new M1 chips.

Intel has 4 main revenue generation segments:

  • Personal and Client Computing
  • Data Centers
  • Software (including endpoint protection, architecture etc…)
  • Internet of Things (Smart Devices, Smart TV, etc..)

Intel’s growth was heavily contributed through its data center segment. This is led by the digital transition to cloud computing making most consumer and business software available over the internet. It is expected that Intel will be losing market share to its competitors in at least 3 of its 4 revenue generating segments however its data center segment is still expected to grow albeit at a lower pace. Intel is expected to lose market share in the consumer and ioT segments due to its lackluster performance. The next generation chips are those that will cater to 5G devices and those that work with AI, Smart Cars, and Smart Cities. If Intel is able to position itself strategically, it might still come out of this slump.