CHANDLER, Ariz. – Intel made a mammoth investment to shore up its U.S. supply chain this week, dedicating $20 billion to build two new chip plants on its sprawling campus here. The country’s largest chipmaker also expanded its commitment to make chips at third-party contract manufacturers.
There’s a third prong to Intel’s manufacturing moves. And at first glance, it seems to run counter to the first two efforts.
Specifically, Intel announced it will be setting aside some of its own manufacturing capacity to sell to domestic chipmakers, which they can use to help iron out their own supply-chain issues. In other words, the company will be making chips for its own competitors. And in doing so, it essentially will be competing with independent foundries like TSMC in Taiwan and Samsung Semiconductor in South Korea – which, incidentally, make chips for Intel as well as its chip rivals. It’s enough to make your head spin.
But everyone, it seems, is just fine with all of it. Which underscores just how fervently industry and government officials believe the country needs to fortify the semiconductor supply chain.
“The world needs more semiconductors,” Pat Gelsinger, Intel’s energetic new CEO said Wednesday, shortly after the first big stake-in-the-ground announcement of his tenure. He spoke with a fire not seen from an Intel CEO since his mentor Andy Grove vacated the role in 1998. “And we’re going to step into that gap in a powerful and meaningful way.”
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Did you say ‘supply chain’?
Supply chain is one of those things that no one ever thinks about, until there are problems. Which is how it used to be.
Not long ago, few Americans gave much thought to the state of the supply chain for chips – or for anything else for that matter. And it’s no wonder. For years, the supply chain kept the heart of the nation’s economy beating with the precision and efficiency of a metronome. Warehouses, distributors and stores always seemed to be stocked with just the right amount of whatever we wanted or needed.
So supply chain was very much out of sight, out of mind. Until the pandemic hit. Then, suddenly, no one could find any toilet paper.
Indeed, the pandemic has driven home just how prone to disruption the path from dock to doorstep can be. And though the paper goods aisle has largely recovered, a series of roving shortages – everything from webcams and lighting to propane heaters and TVs – conspire to keep supply chain woes at the forefront of our collective consciousness.
All that goes double for chips, the digital smarts that power myriad systems that keep us safer, happier and more informed. The US is still the preeminent semiconductor designer. In fact, domestic companies like AMD, Intel, Nvidia and Qualcomm are responsible for roughly half the world’s chip market. But only about 15 percent of all chips are built here. Most of the world’s manufacturing is in Asia, which means America’s chip supply is typically designed here and built half a world away.
Toward that end, a more geographically diverse manufacturing network could help smooth regional disruptions, like the recent fire in a Japanese chip plant that is intensifying an already problematic shortage of automotive chips. Inventories continue to be squeezed, sending prices skyward – particularly for trucks and SUVs, which were already hard to come by.
A recent inventory search on automakers’ websites, for example, revealed that there were no new Cadillac Escalades in the Phoenix area priced less than $100,000. And no new Ford Raptors available at any price.
National security issue
Even before the pandemic, escalating tensions between the US and China elevated semiconductor supply chain concerns to a national security issue. And the government is becoming a catalyst in the response. The bipartisan CHIPS for America Act, for example, earmarks funding for onshore manufacturing incentives.
Intel is unique among the big domestic semiconductor players in that it’s still an integrated device manufacturer, or IDM. In other words, Intel designs and builds its own chips.
At the moment, Intel is focused on building lots more capacity. Beyond the two new plants in Chandler, the company plans to announce more fabrication facilities, or fabs, in the US and Europe later this year. And it will be reserving some of that new capacity for competitors as well as for Intel, Gelsinger said.
Gelsinger dubbed the three-point manufacturing initiative IDM 2.0. And the third prong – that is, the new business with capacity dedicated to, well, everybody but Intel – is called Intel Foundry Services, or IFS. Gelsinger named Randhir Thakur, Intel’s Chief Supply Chain Officer, IFS President.
Anybody who’s anybody
Interested foundry partners already include cloud juggernauts Amazon, Google and Microsoft, communications giants Cisco and Ericsson – and even semiconductor rival Qualcomm. Executives hope to convince Apple, IBM and others to build chips at Intel as well.
Thankur told me that none of this could have happened even a few years ago, due to competitive issues.
“There’s a crying need now for everyone to collaborate and work together, “Thankur said. “And everyone realizes it. This really is a new era.”
A new era, hopefully, where trucks and toilet paper are plentiful. Driven by a domestic supply chain that works so well we don’t think about it ever again.
USA TODAY columnist Mike Feibus is president and principal analyst of FeibusTech, a Scottsdale, Arizona, market research and consulting firm. Reach him at [email protected] Follow him on Twitter @MikeFeibus.
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.