(2018-06-25) Thompson Intel And The Danger Of Integration

Ben Thompson: Intel and the Danger of Integration. The details of Brian Krzanich’s departure, though, ultimately don’t matter: his tenure was an abject failure, the extent of which is only now coming into view.

When Krzanich was appointed CEO in 2013 it was already clear that arguably the most important company in Silicon Valley’s history was in trouble.

in a remarkable turn of events, Intel has lost its manufacturing lead

Intel is behind, and its insistence on integration bears a large part of the blame

Intel, like Microsoft, had its fortunes made by IBM: eager to get the PC an increasingly vocal section of its customer base demanded out the door, the mainframe maker outsourced much of the technology to third party vendors, the most important being an operating system from Microsoft and a processor from Intel.

IBM insisted on having a “second source”, that is, a second non-Intel manufacturer for Intel’s chips. Intel chose AMD.

Intel would invest huge sums of money into creating new and faster designs (the 386, the 486, the Pentium, etc.), and also invest huge sums of money into ever smaller and more efficient manufacturing processes

Intel was largely successful. AMD did take the performance crown around the turn of the century with the Athlon 64, but the company was unable to keep up with Intel financially when it came to fabs, and Intel illegally leveraged its dominant position with OEMs to keep them buying mostly Intel parts

In the meantime there was a revolution brewing in Taiwan. In 1987, Morris Chang founded Taiwan Semiconductor Manufacturing Company (TSMC) promising “Integrity, commitment, innovation, and customer trust”

Integrity and customer trust referred to Chang’s commitment that TSMC would never compete with its customers with its own designs: the company would focus on nothing but manufacturing. This was a completely novel idea: at that time all chip manufacturing was integrated a la Intel

This represented into a three-pronged assault on Intel’s dominance

Intel, meanwhile, was hemmed in by its integrated approach. The first major miss was mobile: instead of simply manufacturing ARM chips for the iPhone the company presumed it could win by leveraging its manufacturing to create a more-efficient x86 chip

Intel took the same mistaken approach to non general-purpose processors, particularly graphics: the company’s Larrabee architecture was a graphics chip based on — you guessed it — x86

The latest crisis, though, is in design: AMD is genuinely innovating with its Ryzen processors (manufactured by both GlobalFoundries and TSMC), while Intel is still selling varations on Skylake, a three year-old design.... the issues with 10nm seemed to catch Intel off-guard... when management had the opportunity to start doing the work to bring their latest processor design, known as Ice Lake (abbreviated “ICL” in the tweet), [to the 14nm process] they decided against doing so. That was likely because management truly believed two years ago that Intel’s 10nm manufacturing technology would be ready for production today. Management bet incorrectly, and Intel’s product portfolio is set to suffer as a result.

It is perhaps simpler to say that Intel, like Microsoft, has been disrupted

Intel has spent the last several years propping up its earnings by focusing more and more on the high-end, selling Xeon processors to cloud providers. That approach was certainly good for quarterly earnings, but it meant the company was only deepening the hole it was in with regards to basically everything else

This is all certainly on Krzanich, and his predecessor Paul Otellini. Then again, perhaps neither had a choice: what makes disruption so devastating is the fact that, absent a crisis, it is almost impossible to avoid.