🕶e8: Intel’s Got A Chip On Its Shoulder
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😪 Intel’s Got A Chip On Its Shoulder
For computer and phone chip manufacturers, speed and being at the forefront of the industry is everything. From securing partnerships to touting their chips in the latest and greatest tech devices, having the chip crown proves very lucrative for the business that has it. In 2006, Intel stole the crown from IBM as they secured their partnership with Apple, spanning multiple generations of Macintosh computers. Unfortunately, fast forward to 2020 and we can see a clear grasp of dominance slipping. The competitors, AMD and Nvidia, are experiencing a 2x YTD stock growth while Intel shares have struggled to stay afloat. Let’s see what it took to topple this longtime giant!
The Intel Golden Age missed opportunity...
Intel was designated to be Apple’s premier chip maker as they had an edge over its competitor, IBM. While the company was able to stay in front of competition for over a decade, they did make one bad decision... When Apple began developing their iPhone, they had asked Intel to be their designated chip manufacturer. Intel declined even though Apple had already declared Intel to be their choice of chip for the Mac lineup in 2006. Apple being Apple instead decided to start developing their own chip that was powered through ARM Architecture (M1 Chip).
Why Intel? When can we design our own?
Apple isn’t the only one experiencing Intel fatigue. Other companies like Google, who use Intel for their Chromebooks, and Microsoft, who uses the chip supplier for their Surface lineup and Azure cloud services have also been working on their own custom chips. At this pace, it seems as if every tech giant is moving operations in-house. This makes sense as large tech is here to stay. Deploying capital in R&D for developing these chips will ultimately provide substantial long-term benefits such as saving costs, not having to rely on another company, etc.
So what has made this possible?-Super Interesting Wall St Journal Insight
““The custom-chip leader isn’t a manufacturer, but a designer with technology in almost every mobile device, and more and more notebooks, desktop computers and cloud servers, as well: Arm Holdings.”
This is a powerful statement showing how there should be one main creator (ARM), and many producers. This makes sense as equipment and use of semiconductors is extremely expensive and cutting fixed costs always sounds nice.
“This Cambridge, U.K.-based company licenses its microchip blueprints to tech giants and hardware startups alike, more than 500 in all. Arm already has 90% of the market for processors that go into smartphones, tablets and laptops. Now the largest electronics companies, like Apple and Samsung, can dial up custom chips that cost the same or less than Intel’s, and do as much or more,says Patrick Moorhead, president of the technology research firm Moor Insights & Strategy. This battle—between Intel’s vertically integrated approach and Arm’s more flexible strategy—has also spread to the cloud, or rather, to the earthbound data centers that power it. Amazon Web Services, the biggest provider of cloud computing, now offers access to servers running its own custom Arm chip, one it claims delivers 40% better performance for cloud apps than Intel’s chips, at a 20% lower cost.” (via WSJ)
The common theme we see for large conglomerates moving forward is increased efficiency. Having the ability to start utilizing their own in-house manufactured products will push development as companies race to make the best chips for their products. But here is the catch: with the ARM infrastructure the chips will have similar design but inherently different qualities. This results in the repair and interchangeability for the parts becoming limited as it will be harder to source compatible parts from competing manufacturers. Good luck upgrading your desktop or laptop down the line… and not to mention the excess E-Waste.
Now onto Mr. Struggle… Intel needs to break away from their old habits of doubling down on existing strategies. It’s evident that their chips just ain’t cutting it anymore and it’s time to adapt. They will struggle to stay in competition with big tech as their chip partnerships begin fading, but all hope isn’t lost. Gaming has become one of the hottest topics of 2020, which holds enormous potential for Intel should they choose to focus their efforts on it. Most gamers tend to avoid Apple, Google, and Microsoft products due to their limited customizability, in favor of building from the ground up. This is a pattern upon which Intel could (and should) capitalize. Coupled with their solid cloud server chip demand and the fact they are actually aiming to work the supply chain of the silicon market (a key component of computer chips due to their conductivity properties), they’ve actually got a pretty decent chance at survival.
All in all, it’s incredible how fast our personal computers have become, even without the best hardware. All you really need nowadays is a decent connection to connect to the cloud, unlocking nearly limitless potential. I'm excited to see which conglomerate will come out with the fastest chips, and hopefully Intel can figure out how to move past these tumultuous times.
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What's up, my name is Evan Hiltunen! I am a recent finance grad from Indiana University and financial analyst @ Goldman Sachs. I have a strong passion for start-ups, finance, and technology, and I hope you find this newsletter informative!
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