For much of the last two decades, the microprocessor market has been defined by companies divorcing themselves from manufacturing to focus solely on design and sales.
But since the pandemic, and now the war in Ukraine, it has become clear that this business model puts too much manufacturing capacity in Asia and creates huge supply problems if that region is impacted by extreme weather, geopolitical instability, or a major world health event like a pandemic.
Intel was being pushed to go fabless, but considering the problems listed above, it was clear that doing so would have just exacerbated the logistics problems. Instead, Intel CEO Pat Gelsinger massively increased Intel’s investment in manufacturing in the U.S. first, and then, this week, announced a similar effort in Europe to help definitively overcome the supply shortage for semiconductors across the ecosystem.
Let’s talk about Intel’s plans this week and what they mean for the company and the chip industry.
Also read: Intel Maps Out Ambitious Comeback Plans
The Chip Logistics Problem
Whether we are talking about the spiking pandemic in China, where much of the world’s manufacturing capacity exists, or the war in Ukraine, where half of the world’s neon gas comes from (neon is critical to semiconductor manufacturing), the semiconductor market is in a world of hurt. More things are using semiconductors at a time when semiconductor manufacturing and the materials needed for that manufacturing have been significantly reduced.
Cars use a huge number of semiconductors, so car makers are having to hold cars or deliver them incomplete after removing attractive options because they cannot get the parts needed for them to work. This is increasing car prices while lowering vehicles’ capabilities and availability, casting a huge dark cloud over the entire automotive industry.
Technology designed to fight climate change and to put AIs into more critical places to help with things like medical diagnosis and disease protection has also slowed significantly. With the potential for a global war now in progress – including on the cybersecurity front – the need for more advanced weapons will gobble up available supply.
To address these and other shortage problems, Intel has stepped up.
Intel’s European Plans
Intel announced a massive increase in its European investments, with more than $18 billion going into fabs in Germany and $13 billion going into expanding manufacturing capacity in Ireland. This effort, coupled with the $20 billion plant planned in Ohio and expansions to other existing Intel facilities should provide a counterbalance to the existing manufacturing capacity in Asia.
You might think this would hurt Asian companies and countries, particularly Taiwan, but the massive increase in semiconductor demand that is partially driving these investments should still exceed this new capacity so, while the result will be greater logistical balance in production, Asia shouldn’t see a decline. As Asia wasn’t able to keep up with growth and will also be investing, the combination should result in a far more robust supply chain for semiconductors going forward.
In addition, Intel has done something incredible given its closed history by opening this manufacturing capacity to third parties so that everyone, well except for Russian firms now, benefits from this capacity increase. It is also interesting to note that this effort was supported in the U.S. by a CHIPS Act that contributed funding, and in the EU by another Chips Act that added $20 billion to the European effort.
Combined, both the U.S. and EU’s governments, for once, are in lock step and funding similar efforts to enhance both regions’ ability to overcome the logistical nightmares their industries are now suffering through.
Also read: Gelsinger May Need To Take Intel Private to Execute on Strategy
Building the Digital Revolution
We are at the forefront of the next Industrial Revolution. This revolution is being enabled by semiconductors being used to provide AI capabilities in systems ranging from manufacturing and automotive to utilities and weaponry. Without adequate capacity, the so-called digital transformation will stall, leaving many companies and countries in no-man’s land where you know what you need but cannot get it.
This week, Intel stepped up to solve the problem and is making huge investments in the U.S. and now in the EU to ensure that the Digital Revolution driven by semiconductors will occur on schedule and at scale, hopefully also assuring a far better tomorrow.
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