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Is this Intel's downfall?

 

Rising competition, missteps on new market segments and a staggering flaw in its chips – is Intel on its way out?Is this Intel's downfall?

All good things must come to an end, or so they say. Yet a world without Intel seems unthinkable. This is the company that helped make home computing ubiquitous, became synonymous with servers and is even behind the famous Moore’s Law. But its fortunes haven’t been steady in recent years. Despite having a record year with reported revenues of $62.8 billion in 2017, it was knocked off the top spot as the world’s largest chipmaker after 25 years by Samsung. Intel’s hegemony has been further challenged by Qualcomm in the mobile chip market, it's also struggling to get into the IoT arena, its grip on laptop systems may be challenged by new ARM chips, and its earnings have been under pressure.

On the flip side Intel has been working to break away from its reliance on the PC market and clawed in some mobile ground, thanks to a switch by Apple due to souring relations with Qualcomm. A new partnership with rival AMD to produce notebook CPUs with an embedded ATI graphics chip is another exciting prospect. Maybe Intel’s fortunes can be compared to Moore’s Law, a prediction of increasing processing capacity, often used as shorthand to demonstrate any theory of scale. But Moore’s Law is messy – it has outlived its own lifespan, mainly because chip manufacturers have gotten better at squeezing more performance out of their designs. Likewise, Intel’s situation is a bit messy.

Early in 2018, it revealed stellar results and its stock shot to dot-com era prices. It has a market cap north of $230 billion. But at the same time it got hit by arguably the worst chip security flaws scandal in history – Meltdown and Spectre. Is Intel at a crossroads?

Everyone’s in the same boat

Intel’s situation is precarious, but it’s not alone. Spectre affects just about every chip manufacturer (the joke is that only potato chips are unaffected). AMD, its major rival is enjoying a resurgence, but remains significantly smaller.

Qualcomm, the darling of the ARM world (ARM being a rival chip architecture to Intel’s x86s), is suffering from growing pains and fending off a takeover bid by Broadcom. Intel’s woes are less isolated and more inline with a generally volatile and transitional market, says Jeff Pollard, Forrester’s principal analyst serving security and risk professionals.

“I think it’s fair to say that every technology company that exists today feels it’s at a critical point in company history. Cyber security is the number one risk to digital business in a hyper-connected world. Increased customer expectations, market risks, and cyber security threats are putting pressure on business and security leaders from all sides.”

The fixation on Intel may be an attempt to make sense of the overall market. Intel has considerably more size and history than any of its competitors, and it has enjoyed at least partial monopolies in many sectors.

Whenever one of those are challenged – as they are with AMD’s EPYC chips for servers or the possibility of Windows 10 running on ARM – pundits rush to ponder Intel’s demise. But these are all historic views. Intel’s biggest problem may still be ahead of it. As mentioned earlier, Moore’s Law has outlived itself several times. This first came to be as better ways to use copper were engineered, then later through fancy slights of hand such as speculation.

CPU speculation is essentially the CPU guessing what will happen next, so it’s prepared to act as soon as the instructions arrive. This may seem trivial, but when a chip does thousands to millions of operations every second, that can make a big difference in its speed and performance.

Total meltdown

Meltdown is a flaw made public early in 2018, affecting all Intel chips from at least the past decade. It ties into this speculation function, unintentionally creating a large security hole that criminals can use to terrifying effect.

Though Intel has downplayed the significance of this and has been working on patches, this particular bombshell has not yet exploded. “I have three rules I always tell companies to remember about security issues,” says Pollard. “Security issues linger for a long time, they overshadow everything else you try to do, and there’s no good time for them. Intel is now facing scrutiny from State Attorneys General and a large number of Class Action lawsuits have been filed as a result of these issues. That scrutiny will linger for years as those cases make their way through the legal system.”

If Meltdown can’t be successfully patched or if the subsequent patches create notable performance drops, Intel will have to re-engineer its chips. It’s already doing so, but a new CPU design won’t happen overnight or even in a year. Ironically the Spectre flaw is a reprieve, as it affects all chip brands and not just Intel. It’s also significantly harder to patch, so some of that mud on Intel’s face is being shared among its competitors. Yet Meltdown is easier to exploit than Spectre and will likely be the more prominent source of attacks once the flaws become weaponised by criminals. Regulatory intervention may also be a future pain that at the very least can dampen Intel’s prospects. “There’s regulatory policy, and then there’s regulatory intervention. I’m not sure we need any form of regulatory oversight to guide how chips are developed. But regulatory intervention could certainly be used here to determine if Intel should face any regulatory or commercial penalties. Intel sold chips that either don’t perform as well as advertised if they operate in a secure fashion, or run as promised, as long as you don’t mind that an attacker might exploit this method to steal data,” says Pollard.

The big ship Intel

It’s not clear yet how these flaws will impact Intel. But Intel is tough and embedded. In a way Meltdown is distracting from a larger issue: the bigger they are, the harder it is for them to change course. Intel’s near-term prospects are not the major concern. Rather it’s the company’s attempts to expand its products beyond the traditional markets that it’s enjoyed vast control over. Intel is fully aware of it. When ARM and Microsoft started getting cozy over  Windows 10, Intel hinted at lawsuits relating to patent violations. Late last year it made radical changes to its IoT strategy, binning several prominent products. This was in response to virtually no gains in that market, other than its Arduino boards. Even its responses to Meltdown, which have left many including Linux creator Linus Torvalds fuming, has been lacking and speaks of a company still too used to its laurels, adds Pollard.

“Intel’s response to this has been less than helpful. Unfortunately, Intel has focused on managing the PR of this, and not focused on providing clear, empathetic, accountable guidance. Mix that with the deployment and rollbacks of microcode then Intels left its customers, and its customers’ customers in a real lurch.” Intel’s problem isn’t one of fading away. It’s the more classic challenge of a dominant player needing to change in a volatile market. What makes Intel’s situation more noteworthy is that the volatility has been around for several years – but Intel has only recently stopped playing all of its usual cards and started looking for new ideas. This is not a death knell: IBM is in a similar situation, but it’s also showing signs of reversing those fortunes. Both are monoliths, powerful anchors for their industries. They’re not going anywhere, not even in the face of the worst chip security flaw in memory. The channel can continue to bank on ‘Intel Inside’ as a slogan that sells. But unless Intel can work out new ways to navigate the waters, that may not be so true a few years from now.

The who's who of CPU's

Semiconductors are spreading everywhere, and so this sector is growing, and growing fast, writes Paul Booth. There are three reasons for this. The first is that research, development and production are becoming more complex resulting in rising costs, as such size and scalability become extremely important. The second is that entities are looking to exploit the latest ‘trend’ areas, particularly those utilising wireless technologies that are becoming critical, such as artificial intelligence, the autonomous driving space and the Internet of Things. Finally, many of them need to move away from being overly dependent on a single customer. Because semiconductors are hidden away inside computers, phones, tablets and other electronic devices, many semiconductor companies are relatively unknown and quietly do business with companies that manufacture these devices.

Analog Devices is a  designer, manufacturer and marketer of a portfolio of solutions that leverages analog, mixed-signal, and digital signal processing technology, including integrated circuits (ICs), algorithms, software, and subsystems, with a market capitalisation of roughly $33 billion. The company’s last deal was the acquisition of Linear Technology, which was completed in early 2017 for about $30 billion. A bid was also made for Maxim Integrated Products in 2016, but that didn’t materialise.

Broadcom (formerly Avago Technologies) is a manufacturer of semiconductor and analogue devices and, provides interfaces for Bluetooth connectivity, routers, switches, processors and fibre optics. It has revenues  of over $15 billion and a market capitalisation of approximately $110 billion. Broadcom has been engaged in a hostile bid for Qualcomm, in a deal valued at over $130 billion, as it believes it can cut Qualcomm’s costs, at the same time complement and extend its current product range. This is on top of its $5.9 billion acquisition of Brocade Communications Systems in 2017. Avago, which has roots based in the rich technical heritage of technology powerhouses such as AT&T/Bell Labs, Lucent and Hewlett-Packard/Agilent, originally bought out Broadcom for $37 billion in 2015/16 but decided to retain the Broadcom name.

Globalfoundries is a privately owned full-service semiconductor design, development, fabrication and innovation company. It was created in 2009 by the divestiture of the manufacturing arm of Advanced Micro Devices (AMD). The majority shareholder of Globalfoundries, ATIC, acquired Singapore-based Chartered Semiconductor for $3.9 billion in 2009 and in 2014, it received $1.5 billion from IBM to accept taking over IBM's chip-manufacturing business unit.

Infineon was created in 1999 when the semiconductor operations of the parent company Siemens AG were spun off to form a separate legal entity. Based in Germany, Infineon designs, develops, manufactures and markets semiconductors and system solutions. It has annual revenues of approximately $6.5 billion and a market capitalisation of $31 billion. In 2016, Infineon agreed to buy Cree for $850 million, but the deal was stopped due to US security concerns.

Nvidia designs graphics processing units (GPUs) for the gaming, cryptocurrency, and professional markets, as well as system on a chip (SoC) units for the mobile computing and automotive markets. Its annual revenues sit at $8 billion. With GPUs' suitability to cryptocurrency mining and artificial intelligence, Nvidia's stock has grown about 900% over the last three years, with the company’s market capitalisation at approximately $117 billion. It has no acquisition history and deemed to have a two year lead in autonomous driving.

Micron Technology makes dynamic random-access memory (DRAM) components and modules, with revenues of over $23 billion and a market capitalisation of $51 billion. Its last acquisition was that of Inotera Memories for $4 billion in 2016.

NXP (formerly Philips) is a Dutch nonmemory semiconductor supplier, and a leading semiconductor supplier for the secure identification, automotive and digital networking industries, with annual revenues of over $8.5 billion and a market capitalisation of $41 billion. Its last acquisition was that of Freescale Semiconductor for about $40 billion in 2015. At the time of writing, Qualcomm has just had a bid of $44 billion agreed to acquire NXP (subject to approval from China's regulator).

Qualcomm is a semiconductor and telecommunications equipment company that designs and markets wireless telecommunications products and services, with revenues of over $17 billion and a market capitalisation of $94 billion. It was subject of a hostile takeover by Broadcom in 2017, which it rebuffed, and is currently in numerous litigation battles with Apple over mobile technology patents.

Samsung's chipset division recently eclipsed former industry leader, Intel, by revealing total revenues of $69 billion for 2017, which overshadowed the $62.8 billion Intel reported for the same period. Samsung's focus is on mobile, and in particular memory chips for smartphones.

SK Hynix, is a South Korean memory semiconductor supplier of DRAM chips and flash memory chips with revenues of over $26 billion and a market capitalisation of over $80 billion. It was founded as Hyundai Electronic Industrial in 1983 and was known as Hyundai Electronics, but in 2012, when SK Telecom became its major shareholder, Hynix merged into the SK Group. In 2014 SK Hynix acquired the firmware division of Softeq Development. 

Taiwan Semiconductor, along with its subsidiaries, engages in the computer aided design, manufacture, packaging, testing, marketing and sale of  integrated circuits, colour filters and other semiconductor devices. It has annual sales of over $29 billion and a market capitalisation of $197 billion, but has little acquisition history.

Texas Instruments designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide. It has  annual revenues of about $15 billion and a market capitalisation of $103 billion. Its last deal ($6.5 billion) was in 2011 for National Semiconductor, although it also made a bid in 2016 for Maxim Integrated Products that didn’t come to fruition.

Toshiba is a manufacturer of consumer products as well as a manufacturer and supplier of semiconductor, electronic components and storage devices, with revenues of over $12 billion and a market capitalisation of almost $20 billion. The company is considering an IPO of its memory chip business in the event that the agreed $18 billion sale of the prized unit to Bain Capital fails to gain antitrust approval.

Western Digital is an integrated circuit maker and a storage products company, with annual revenues of over $9 billion and a market capitalisation of nearly $26 billion.

In addition to the majors above, there are numerous other significant players including:

Ambarella, ($1.7 billion market cap) develops semiconductor processing solutions for video that enable HD video capture, sharing, and display.

AMD ($12.1 billion market cap) primarily offers x86 microprocessors as an accelerated processing unit, (APU), chipsets, discrete GPUs, and professional graphics, and server and embedded processors, and semi-custom SoC products and technology for game consoles.

Cirrus Logic($3.4 billion market cap) is a fabless semiconductor company that develops, manufactures, and markets analog and mixed-signal integrated circuits for a range of consumer and industrial markets. It’s heavily dependent on Apple as a flagship client.

Cypress Semiconductor ($5.8 billion market cap) designs, develops, manufactures, markets, and sells embedded system solutions.

Diodes Incorporated ($1.5 billion market cap) together with its subsidiaries designs, manufactures, and supplies application-specific standard products in the discrete, logic, and analog and mixed semiconductor markets.

Himax Technologies ($1.7 billion market cap) is a fabless semiconductor company, providing display imaging processing technologies to consumer electronics brands.
 
Lattice Semiconductor ($792 million market cap), together with its subsidiaries, develops and sells semiconductor devices.

Maxim Integrated Products ($19 billion market cap) designs, develops, manufactures, and markets a range of linear and mixed-signal integrated circuit

Microchip Technology Incorporated ($22.8 billion market cap) develops, manufactures, and sells semiconductor products for various embedded control applications. 

On Semiconductor ($10.7 billion market cap) manufactures and sells semiconductor components for various electronic devices.

Renesas Electronics ($20 billion market cap) is a Japanese company created in 2010 through the integration of Renesas Technology and NEC Electronics. It designs and manufactures a host of semiconductors and components. In 2016, it acquired Intersil for $3.2 billion.

Semiconductor manufacturing International Corporation ($7.1 billion market cap) is an investment holding company, that’s engaged in the computeraided design, manufacture, testing, packaging, and trading of integrated circuits and other semiconductor services

Silicon Laboratories ($4.2 billion market cap) is a fabless semiconductor company that designs, develops, and markets mixed-signal analog intensive integrated circuit.

Softbank ($90.9 billion market cap) paid $24 billion for ARM holdings in 2016.

STMicroelectronics ($21.2 billion market cap) together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products, and subsystems and modules.

Tower Semiconductor ($3.3 billion market cap) is an independent semiconductor foundry, which manufactures and markets analog intensive mixed-signal semiconductor devices.

Vishay Intertechnology ($3.3 billion market cap) manufactures and supplies discrete semiconductors and passive components.

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