Column: Intel, the pitfalls of time-earning bets | Reuters

[New York, 24th, Reuters BREAKINGVIEWS]— US semiconductor giant Intel is betting that it will take the next few years to decide what it wants to be as a company. The company announced on the 23rd that it will strengthen its investment in expanding production in order to supply cutting-edge semiconductors not only to itself but also to its peers. It also announced that it will increase the purchase of parts from rivals such as Taiwan Stacked Cable Manufacturing (TSMC) and Samsung Electronics of South Korea.

Intel, a major US semiconductor company, is betting that it will take the next few years to decide what it wants to be as a company. The photo is the company’s logo. Taken in December 2019 near Tel Aviv (2021 Reuters / Amir Cohen)

Certainly, these bets can also give you time to solve manufacturing technology issues while continuing your semiconductor production business. However, during this time, you will be exposed to various tensions with other companies, and you will end up exhausting your cash on hand.

Pat Gelsinger, the new CEO, has one big problem. Due to repeated failures in the manufacturing process, TSMC has been ahead of TSMC for several years with cutting-edge semiconductor production technology.

As a result, the market share was lost to rival Advanced Micro Devices (AMD). Intel emphasizes that the situation is improving and should be on track by 2023. But, of course, TSMC isn’t standing still, and will probably complete smaller, more complex products by 2011.

Intel’s expansion of parts production outsourcing to TSMC or Samsung could work positively in the short term. More gambling is the plan to invest $ 20 billion in Arizona to build a new state-of-the-art semiconductor plant.

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And this is just the beginning of the problem. Most semiconductor manufacturers design, but do not produce their own products. So what is expected here is that they will leave part of the production to Intel as well.

Concerns over Asia’s growing dominance in cutting-edge semiconductor production may also help the US government. Congress is considering a semiconductor subsidy, which could be offered to Intel and at the same time put pressure on US companies to expand domestic production.

However, there are some challenges here. Intel is expected to rely on foundries (contract manufacturing companies for semiconductors) to procure parts, but Intel will also have a competitive relationship with foundries in the sense that it will embark on a contract manufacturing business. And yet, I don’t know if the foundry will prioritize production for Intel.

In addition, AMD and other manufacturers will not even try to outsource production to Intel across the board. For example, in the case of Apple and Samsung, Apple has been reluctant to buy semiconductors from Samsung since it became a competitor in the smartphone market.

Other manufacturers will be wary that in the event of a supply shortage in the future, Intel will put its business first and put off supply to them.

Also, the investment amount announced by Intel is not small. This year’s capital investment is expected to be up to $ 20 billion, and free cash flow is expected to be about $ 10 billion, about half that of last year. Given these various reasons, Intel’s idea of ​​separating the design department from the manufacturing department may still be considered in the end.

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● Background news

* Intel announced on the 23rd that it aims to expand its manufacturing capacity for cutting-edge semiconductors. It will invest $ 20 billion in Arizona to build two new plants and work to increase production at other locations in the United States and Europe. Not only products for our company, but also contract production from other companies.

* In an interview with Reuters, Gersinger’s new CEO explained that these factories will be dedicated to producing cutting-edge semiconductors, and Intel has completely resolved its most recent manufacturing technology problems in 2023. He emphasized that “the whole system will start working”.

* According to Intel, the increase in production of some semiconductor parts will be outsourced to contract production businesses such as rival TSMC and Samsung Electronics of South Korea.

* Intel said it expects annual revenue from continuing operations to be $ 72 billion and capital investment of $ 19-20 billion.

(I’m a columnist for “Reuters Breaking views”. This column is based on my personal opinion.)

* Content such as news, transaction prices, data and other information in this document is provided by Reuters columnists for your personal use only and is provided for commercial purposes only. It’s not a thing. This content in this document is not intended to solicit or induce investment activity and is not appropriate for use in making decisions when trading or buying or selling this content. This content does not provide any investment, tax, legal or other advice as investment advice, nor does it make any recommendations regarding specific financial individual stocks, financial investments or financial products. The use of this document does not replace the investment advice of qualified investment professionals. Reuters makes reasonable efforts to ensure the reliability of the Content, but any views or opinions provided by the columnist are the columnist’s own views or analysis, not Reuters’ views or analysis.

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