Where is Intel going to place its next strategic bet?

Intel is the company that powers most of the world’s PCs, servers and datacentres. But while it is the market leader, it is not the most valuable semiconductor company. That accolade goes to Nvidia, which last September took the audacious decision to buy ARM, whose microprocessor design dominates the smart device market.

Intel’s announcements during the Consumer Electronics Show in January may be welcome news for PC manufacturers, but it is questionable whether new iterations of microprocessors are likely to give the company the boost it needs to keep ahead.

Intel positions its latest EVO family as a way for more partners to deliver “the best thin and light experience”.

The fact that Pat Gelsinger is taking over as CEO of Intel shows that the chipmaker needs to look beyond its existing capabilities and expertise.

In a letter posted on the Intel website on 13 January, Gelsinger wrote: “I look forward to working with all of you to continue to shape the future of technology. While Intel’s history is rich, the transformation from a CPU to multi-architecture XPU company is exciting and our opportunity as a world-leading semiconductor manufacturer is greater than it’s ever been.

“I will be sharing more in the near term about my vision and strategy for Intel, but I know we can continue to accelerate innovation, strengthen our core business and create value for our shareholders, customers and employees.”

Moving beyond traditional processors (CPUs) is an important step that Intel must take to remain competitive against rival Nvidia. The PC market has been in decline for a number of years, and although the coronavirus pandemic has resulted in an uptick in PC sales, this is more of a blip.

“In early 2020, the expectation was that Covid-19 would have a negative impact across all end equipment markets, but the actual effect was more nuanced,” said Andrew Norwood, research vice-president at Gartner. “Automotive, industrial and some areas of the consumer market were hit hard by reduced enterprise and consumer spending. However, lockdowns vastly increased work from home and e-learning, and any markets that facilitated those activities benefited.”

According to Gartner’s worldwide semiconductor revenue report, published earlier in January, with a 15.2% market share, Intel was the number one global semiconductor company by revenue in 2020, followed by Samsung Electronics, SK Hynix and Micron. Nvidia was the 10th largest semiconductor firm. Its market share is just 2.2%, but the company has grown by 37.7% since 2019, and improved its global ranking by six places.

“Server demand was strong as hyperscale customers, which in 2020 accounted for over 65% of server demand, rushed to add capacity to cope with extra demand during lockdowns in the first half of 2020,” said Norwood. 

He added that strong demand for PCs from enterprises and consumers due to increased work and study from home led to strong growth in CPUs, NAND flash and DRAM. In fact, Gartner reported that memory was the best-performing semiconductor category in 2020. Sales benefited from the increased server build and PC and ultramobile demand from the shift to home working and learning. Worldwide memory revenue increased by $13.5bn in 2020, which accounts for 44% of the overall semiconductor revenue growth in 2020.

In the transcript of Intel’s earnings call for Q4 2020, posted on Seeking Alpha, outgoing CEO Bob Swan discussed the XPU strategy and how Intel had previously introduced its first graphics chip. “In the expanded market opportunity in front of us, CPUs are critical, but multiple architectures or XPUs will be required to help customers optimise for specific workloads,” he said.

“We had a big XPU leap in the fourth quarter as we entered the discrete graphics market with Intel Iris Xe Max graphics, Intel’s first Xe-based discrete GPU. We are now shipping discrete graphics into thin and light notebooks from Acer, Asus and Dell and we introduced our first discrete GPU for the datacentre.” 

During the earnings call, Gelsinger described Intel as an “American national asset”. As its incoming CEO, he said he was looking forward to the opportunity of putting Intel and the US in a technology leadership position. What is perhaps interesting from his comments is not necessarily the XPU strategy, but the largely untapped potential of 5G virtual infrastructure.

Swan said the company had projected 20% growth in its chips for the 5G market by 2022. But it saw 40% growth in 2020, as telco customers replaced equipment with application specific integrated circuits (Asics) and field programmable gate array (FPGA) specialist chips with general-purpose processors that run network function virtualisation and software-defined networking.

Gelsinger said he began discussing 5G with Swan a while back when he was leading VMware’s 5G roadmap. He believes there is a massive opportunity for Intel as 5G migrates from a vertically controlled industry with proprietary network hardware to one that is more horizontal, built around software-defined infrastructure.

“5G is going to represent a platform that is redefining edge computing, it will open up smart cities, smart factories, it will displace Wi-Fi,” he said. “This is a powerful technology; it will also be deployed in private 5G environments. So, not only is Intel establishing a beachhead in a very important market that was never a major source of revenue forward in the past, but it is redefining all aspects of distributed computing in the future.

“So, this leadership position that is established today is one that we’ll be harvesting for the next decade.”