Monday, April 16, 2018
Earlier this month, media sources reported that technology giant Apple is planning to replace Intel Corp. processors in its Macs with its own chips starting in 2020. Following the news shares of Intel dropped by almost 9.2%.
Intel, once the leader in the microchip market, has ceded ground to others in mobile processor segment. Companies like Qualcomm, MediaTek, and Samsung have leapfrogged it using newer technologies. Furthermore, the slowdown in personal computer segment and its inability to capture the ‘iPhone revolution’ has left the company stagnant.
Headquartered in Santa Clara (USA), Intel is one of the largest semiconductor chip makers in the world. Robert Noyce and Gordon Moore founded it in 1968 to make logic circuits using semiconductors for memory chips.
Intel created the first commercial microprocessor chip in 1971 and following the personal computer revolution, the microprocessor division became its primary business. Intel’s relentless focus on processor performance made it a market leader and helped it sustain this position for many years. The company supplied its products to Apple, Dell, Lenovo, HP and many more. The Intel Inside campaign became synonymous with quality in the PC industry.
Intel Celeron, Pentium, Core, and Xeon have dominated the desktop and server computing segment from the 1990s till today. The underlying x86 architecture became the foremost choice for personal computing.
Yet, the same hyper-focus on performance has become the proverbial noose around its neck in 2018.
Moore is famous for his law predicting the number of transistors in an integrated circuit doubling every 18 months. Intel targeted its product launches around the prediction, however, starting in the late 2000s, there were larger distortions in production timelines and development of newer chips had more gaps between them.
Core started its commercial fabrication at 65 nm in 2006 and reached 32 nm in the first generation of Core I series by 2010. It took the company five more years to reach 14nm with its sixth generation of the Core I series. It was clear: Moore’s observation was starting to plateau. As dimensions shrunk, it became more difficult to control the current flow. This combined with lower investments for innovation and higher manufacturing costs meant no significant improvements have been made to the Core I series of microprocessors for users.
Margins and control
The partnership with Microsoft on Intel Inside campaign allowed it dominate in the chip-making industry. Windows locked itself with Intel’s architecture, making the latter’s product almost mandatory for its customers. With the focus on the high performance of its chips, the company charged premium prices for its products, thereby, enjoying high sales along with high margins.
In mobile computing, the ARM technology cannot compete on raw performance with x86 parts prevalent in PCs. Its strength laid in it being more power efficient than the latter. This allowed increased battery life for mobile devices. Although the volumes were high, the margins were low in this business. So when mobile computing came along, Intel also had its own line of ARM processors and x86 processors. But with the high payout from PC segment, Intel decided not to pursue ARM line of business and sold it off.
The problem came in the mid-2010s when PC started stagnating and mobile devices became the growth market. Now with Apple’s impending abandonment of Intel, even its primary segment is in danger.
So what now?
Founder of Apple, Steve Jobs, once said, “If you don’t cannibalize yourself, someone else will.” The technology world has seen Intel’s dilemma, many times before, Kodak once faced the same when it failed to transition from selling films to the digital camera revolution.
Intel’s failure to secure a footing in mobile computing, as well its failure to know what the next step will be in such a dynamic and innovative industry has left its finances stagnant, and its products vulnerable as customers are jumping to make their own processor components. To counter this, the company is looking to diversify into GPU business and hopes to shore up its existing product line with more powerful and innovative products. However, only time will tell if the company will be able to revive itself and recover from this blow.
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