Pat Gelsinger Vows Intel’s Comeback As AMD Hits Server Biz

‘Clearly, we’re not interested in just closing gaps. We’re interested in resuming that position of the unquestioned leader in process technology, and that’s our commitment,’ Intel’s incoming CEO says as the chipmaker faces increasing pressure from AMD and other fabless semiconductor companies.

Incoming Intel CEO Pat Gelsinger vowed to overcome the company’s manufacturing setbacks and return the chipmaker to its “position of the unquestioned leader in process technology” as it faces increased competition from AMD, Nvidia and companies embracing alternative processor architectures.

Gelsinger made the remarks during the Santa Clara, Calif.-based company’s fourth quarter 2020 earnings call Thursday, saying that while the chipmaker won’t make a decision on outsourcing future chip production until after he joins mid-February, he’s confident that Intel will continue to manufacture most of its products internally in light of improvements to its troubled 7-nanometer process.

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“Based on initial reviews, I am pleased with the progress made on the health and recovery of 7nm program,” said Gelsinger, a 30-year Intel veteran who is ending his tenure as VMware’s CEO. “I am confident that the majority of our 2023 products will be manufactured internally. At the same time, given the breadth of our portfolio, it’s likely that we will expand our use of external foundries for certain technologies and products.”

Intel’s missteps in manufacturing have resulted in delays for both 10nm and 7nm products over the last few years, allowing manufacturing rivals TSMC and Samsung to arm fabless chipmakers like AMD and Nvidia with next-generation processes sooner.

The impact of such dynamics was seen in Intel’s financials for its Data Center Group, where the chipmaker cited a “competitive pricing environment” for one of three reasons its average selling price for server processors and chipsets was down in the fourth quarter. The competition was also cited as a factor for server platform revenue sinking 20 percent sequentially in the fourth quarter.

AMD, Intel’s x86 CPU rival, has been using TSMC’s 7nm process for its products, including server CPUs, since 2019 while Intel is only just shipping its first 10nm server CPUs this quarter. With AMD’s 7nm Zen 2 architecture, the company has been able to claim major price-performance advantages with its EPYC processors over Intel’s Xeon Scalable chips.

An executive at a server system integrator said they noticed that Intel has been more willing to make pricing adjustments on its server CPUs when there are competitive bids with AMD.

“I think they realize there’s pressure on them. So where before they were the top dog, and it didn’t really matter, now there is real competition, so they need to adjust to be competitive,” said the executive, who asked to not be identified because they were not authorized to discuss Intel’s pricing strategy in public.

The executive said it’s not new that Intel has a process in place for pricing adjustments, but the company’s willingness to act was more pronounced in 2020 than previous years. They added that the adjustments are made on a case-by-case basis, and that volume and system type factor into decisions.

AMD also has a process for making pricing adjustments in competitive bids, according to the executive, echoing comments made by AMD executive Jason Mooneyham to CRN last year that the company will move on price in competitive bids when necessary.

“No one wants to lose on price, but they also don’t want to be giving parts away for nothing,” they said.

On Intel’s earnings call Thursday, Gelsinger said he won’t be content to just close the gap with chip foundries like TSMC and that his goal is to restore Intel’s leadership in chip manufacturing.

“Clearly, we’re not interested in just closing gaps,” he said. “We’re interested in resuming that position of the unquestioned leader in process technology, and that’s our commitment.”

However, while Intel will continue to largely embrace its traditional model as an integrated device manufacturer, Gelsinger said, the chipmaker will likely expand its use of chip foundries for future products. With this hybrid manufacturing approach, the company will be able to deliver both supply and “unquestioned leadership product” to customers for the long term, he added.

“We’re committed to the IDM model. We’re committed to leadership products but also innovation that fundamentally has us leading the industry in a consistent basis,” Gelsinger said. “And sometimes that may happen outside of the company. Sometimes it will be inside of the company, but we’re committed to leading innovation and delivering the best products for our customers in every category that we participate in.”

Bob Swan, who is stepping down as Intel’s CEO, said the company has resolved the defects found in its 7nm process, which has also been streamlined and simplified to ensure that the company can meet its commitment of delivering 7nm products for 2023.

Swan made it clear that Intel continues to believe that its integrated device manufacturing model is largely a strength for the company, pointing to supply issues that have emerged at AMD. He added that the company believed it had gained market share against AMD in PCs.

“In a market where competitors are seeing supply challenges, this is a powerful example of the incredible value and scale of our factory network as we continue to deliver greater performance and cost efficiencies for our customers,” he said.

Intel reported $20 billion in fourth-quarter revenue, a 1 percent decrease year-over-year but $2.5 billion higher than what Wall Street analysts were expecting. Net earnings were $1.52 per share, 41 cents higher than the analyst consensus.

The company projected that its first-quarter revenue for 2021 will be $17.5 billion, a 12 percent decrease from the same period last year, with PC-based sales expected to be up in the low single digits and data-centric sales down by roughly 25 percent.

Intel’s stock price was up 6.46 percent before market close Thursday due to the company’s earnings coming out earlier than usual, but in after-hours trading, the stock price decreased 4.4 percent.