Asia beat US, EU in chip building because the West didn't invest, Intel CEO claims
Gelsinger reckons pandemic-era supply chain snarls helped demonstrate the sector's importance
The COVID-19 pandemic was a decisive factor in Intel’s decision to re-emphasize its own manufacturing prowess, after decades in which US and European nations failed to recognize the importance of the semiconductor industry and allowed Taiwan and Korea to become global leaders, Intel CEO Pat Gelsinger told World Economic Forum chair Klaus Schwab in Davos on Wednesday.
"Never was a vote taken in Brussels or DC to get rid of this industry," he said "But there were votes taken in the Asias — countries like Korea, Taiwan, and China — to get this industry. They put in place long-term industrial policy, tax investment, etcetera, to attract this industry and 30 years later, they attracted the industry."
Gelsinger is of course referring to foundry giants TSMC and Samsung, which produce the majority of leading-edge semiconductors sold today. The Taiwanese and Korean outfits will be Intel's largest competitors as the US manufacturer ramps up its Foundry Services business over the next few years.
Gelsinger argued that the West's failure was focusing on high-margin aspects of the industry, like the design of chips, and neglecting then offshoring low-margin aspects, such as manufacturing.
"We were on the hair's edge of never being able to recover the manufacturing of this industry," he said. "Had I started the rebuilding of Intel a year later, I don't think I could have accomplished it."
This comment is particularly interesting as shortly before the ousting of former CEO Bob Swan and Gelsinger's return to Intel, the chip giant was facing pressure from investors to transition more of its production portfolio to outsourced foundries like TSMC.
That pressure came after Swan admitted that Intel's 7nm manufacturing process — now called Intel 4 and Intel 3 — was woefully behind schedule.
Gelsinger thinks that outsourcing push may have succeeded, were it not for the COVID-19 pandemic and the supply chain chaos that followed.
"We all woke up and we realized, 'oh my gosh, what happened, 30 years of industrial policy and we lost something so critical to our future'," he said. "The world needs balanced, resilient supply chains, and that's what created the environment for the US and the EU CHIPS Act."
Gelsinger: This biz isn't cheap, you know
Intel hopes to walk away from the negotiating table with a sizable chunk of CHIPS funds in both the US and EU (and some from Israel).
It has already announced six fabrication plant projects, a couple in Arizona plus facilities in Ohio, Magdeburg, Germany, and Kiryat Gat, Israel. Yet, while the US Commerce Department has announced funding allotments to the likes of BAE and Microchip, Intel is waiting for its share of the cash.
Valued at $53 billion and €43 billion, respectively, US and EU CHIPS Acts are critical to achieving the goal of ensuring local manufacturing, Gelsinger explained, as producing semiconductors isn't cheap or easy.
Looking at the US CHIPS and Science Act, we estimate Intel could walk away with between $2.5 billion to $7.5 billion in funding and tax incentives over time. While those are big numbers, even the larger sum would not completely cover the costs to build a single fab, never mind the six Intel is developing.
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Gelsinger therefore expects a second round of CHIPS funding will emerge.
"I do believe they'll need to be a CHIPS Two, at some point, to continue building those policy decisions," he said.
The extreme cost associated with semiconductor manufacturing is one of the reasons Gelsinger gave for why the US and Europe have fallen behind Taiwan and South Korea.
"If you want to be a cutting-edge semiconductor supplier, you just need to invest $20-$30 billion of capital per year, you need to invest $8 to $10 billion of R&D per year, and you need to do that for 30 years," he said. "There's only three companies in the world that are capable of doing these cutting-edge chips: TSMC, Samsung, and Intel."
China’s lost decade
While Gelsinger remains confident that Intel will be able to compete against TSMC and Samsung, the one country he doesn't appear to be worried about is China.
The Intel chief predicts that China will likely disrupt the market for mature nodes. But, when it comes to leading edge process tech, Gelsinger wagers that China is at least a decade behind the rest of the industry.
The export policies put in place by the US, the Netherlands, and Japan have put a floor for semiconductor production in China at between 10 and 7 nanometers, he opined. "I think this is a ten-year gap, and I think it's sustainable ten-year gap."
Last year we learned that China's state-backed Semiconductor Manufacturing Internal Co. (SMIC) had begun producing 7nm chips for Huawei. Pundits previously believed the most advanced chips SMIC could manage used a 14nm process.
More recently, rumors began to fly that China had managed to produce an even more advanced 5nm part for Huawei's Qingyun L540 notebook. But as it turned out, the machine uses stockpiled TSMC silicon from 2020. ®