Intel CEO Says Expansion Is Threatened by Chip Shortage
The chip shortage threatens the growth of Nvidia and Intel, two of the largest companies in the technology industry. While the chip shortage is expected to last until 2022, the companies are trying to mitigate the situation by expanding domestic production. Here are some tips for manufacturers to minimize supply risks. One way to increase domestic production is to improve the efficiency of existing manufacturing facilities. However, that is not always an easy feat.
Global chip shortage set to last until at least 2022
In a recent conference call, Intel CEO Pat Gelsinger said that a chip shortage will continue to impede the production of chips until at least 2024. He blamed the shortage on the imbalance between supply and demand, which would be addressed by more chip-making capacity. However, the shortage is likely to last much longer than 2022 if current trends continue. Intel plans to invest $7.1 billion in a new chip-making facility in Ohio and Germany, and the company says these investments will prepare the company for the future.
The shortage is likely to impact all major segments of the chip industry. GPUs and CPUs were the most high-profile items affected, and demand has been beginning to balance out. But networking chip vendors are still facing a significant chip shortage. The lack of supply in this segment has slowed the shipment of PCs, and the global shortage of ethernet chips is a particularly challenging “ecosystem constraint.”
Several companies have stepped up their production capacity to cope with the shortfall, including ST Microelectronics and Onsemi. TSMC and Samsung Foundry have already expanded their manufacturing facilities. In addition, GlobalFoundries, AMD’s manufacturing division, has raised $1 billion to expand fab capacity in New York and Germany. But even these two large companies have struggled to keep up with Intel’s demand.
The shortage has affected both automotive and home entertainment products. Automakers have been forced to limit their outputs in recent months, as consumers became stuck at home for longer periods. As a result, new car registrations declined last month. Automakers, who disproportionately depend on cheaper processors, put off their orders. And the chip plants allocated their remaining capacity to other customers. However, this situation could only last for a few months.
The chip industry is forecast to grow to a $1 trillion dollar industry by 2030. As chip demand grows beyond computers and smartphones, chipmakers are scrambling to expand their supply chains. The new megafabs in Germany, Arizona, and Oregon are a sign of the times. While the new production lines aren’t ready for mass production yet, the company expects them to be operational by 2025.
Nvidia and Intel at forefront of technology growth
Both companies have a vested interest in driving AI technology, and combining their respective strengths should allow them to dominate this space. In fact, NVIDIA and Intel have already partnered on several AI initiatives, including a groundbreaking new chip that can boost performance by 20 times or more. In addition, these companies have extensive chip ecosystems, and the combination of their AI capabilities and massive computing ecosystems should result in a new leader in the artificial intelligence field.
With both companies focusing on AI, Nvidia’s 10x performance leadership has been a valuable source of competitive advantage. It also helped Intel capture a sizable chunk of the AI market. But now, Intel is copying Nvidia’s data-centric strategy and developing its own real discrete GPUs. Its future is bright. However, the question is which company will come out on top?
While both companies focus on AI, NVIDIA’s business models are highly complementary. For example, it has plans to expand into the server CPU market and to enter the 3D collaboration and simulation platform Omniverse. It also has plans to enter the cloud gaming market with its new GeForce Now service. While this expansion strategy makes sense in general, it does present a major challenge. However, it also highlights the importance of building more redundancy into the system, which is essential for Nvidia and the entire semiconductor industry.
Despite their divergent business models, both companies have achieved major breakthroughs in the semiconductor market. While Intel has remained the world’s biggest chipmaker, NVIDIA has become one of the most exciting prospects in tech. Both companies have ambitious goals for their technology and aim to topple Intel’s processor dominance. While the competition is fierce, NVIDIA’s AI-focused chip technology is advancing rapidly.
While Nvidia has had success in the graphics chip market, Intel has fallen behind as the latter’s revenue has slumped. But the reversal in the momentum is not entirely unavoidable. Analysts are already acknowledging that the chip sector is undergoing a change in momentum. Analysts at Piper Sandler recently downgraded AMD stock, citing growth concerns. While this isn’t good news for AMD, it’s a good sign that Intel has a new CFO in Raja Koduri.
Samsung and TSMC plan to build new factories
The recent looming shortage of chips has prompted the company’s chief executive to talk about his concern over the situation. Pat Gelsinger, the CEO of Intel, addressed a Senate hearing on commerce, science, and transportation, saying that the company needs more processing chips and semiconductors. While he acknowledged that the company is under some pressure to increase its production, he also said that the chip shortage is an issue that should be addressed on a global scale.
The shortage has been affecting sales of products such as cars, tablets, and smartphones. In fact, some chips are not even manufactured by Intel but by third parties. While the shortage has affected Intel’s expansion, other chipmakers have been hit as well. Chipmakers such as Broadcom Inc. reported a 15% increase in sales during its latest quarter. As a result, they’re squeezing the capacity of fabrication facilities.
The chip shortage has also put the spotlight on the state of US manufacturing. With TSMC and Samsung Foundry putting the pace for chip output, Intel has fallen to third place. The chipmaker is hoping to capitalize on rising demand and government funding to invest in new manufacturing facilities. Last January, Intel announced that it would invest $20 billion in two chip fabrication plants near Columbus, Ohio. The new megafab could house eight factories costing $100 billion.
While there’s no easy solution, a new approach to addressing the shortage could help reduce risks associated with the supply chain. The chip industry is a complex global network of companies and suppliers that depend on raw materials, production equipment, talent, and specialized manufacturing. It would be prudent for chipmakers to diversify their supply chains to avoid future shortages. The chip industry will continue to be highly dependent on the global supply chain.
The COVID-19 pandemic is causing global chip shortages. The resulting shortages are affecting automakers and tech companies. Some carmakers are not able to release new models due to shortages in processor hardware, while Apple Inc. is experiencing production delays on MacBooks. These issues are forcing companies to increase their prices. There is no immediate solution, but manufacturers can do their best to meet customer demand.
Boosting domestic manufacturing can reduce supply risks
In his State of the Union address, President Joe Biden praised Intel CEO Pat Gelsinger for his recent comments. Biden mentioned the company’s $20 billion investment in Ohio, contingent on a $50 billion innovation act that passed the Senate last year but has yet to be signed into law by the House. He says the incentives from CHIPS will reverse the decline in manufacturing shares. But the question remains: how long can the incentives last?
If you’re in the market for a new car or tablet, you may have to wait a few months for your purchase. That’s not likely to happen this holiday season. But if you’re looking for an iPad, you could face a shortage of the device. Buying an iPad could cost up to 20 percent more than it did last year. Apple’s iPad and Mac mini shortages are expected to take a big bite out of its quarterly sales. Samsung recently said its new phone may be delayed because of chip shortages.
Despite the high costs of overseas labor, Intel’s new manufacturing plant in Ohio will create tens of thousands of jobs. This will be the first new manufacturing facility for the company in 40 years. Intel says it will create 3,000 Intel jobs, 7,000 construction jobs, and tens of thousands more in the surrounding area. While the plan is risky and long, it is consistent with the vision of Pat Gelsinger, the company’s CEO. It will take years to ramp up the domestic foundry and new chips, and in the meantime, it will sell its chips to companies like Qualcomm and Apple.
While Intel is ramping up its domestic production, rival companies are stepping up their investments in the U.S. Intel’s CEO also believes it’s wise to bolster domestic manufacturing to protect the company from supply risks. Meanwhile, Samsung, the largest semiconductor manufacturer in the world, plans to invest $17 billion in a new factory in Taylor, Texas. And there’s no end in sight.