Intel at crossroads: Should it split into two companies?

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An old idea came up again: Should Intel be split into a fab company and a chip designer? Opinions vary. (Intel)

For years, some investors and analysts have wanted Intel to split into two companies, one that would design chips and another than would make them.

FierceElectronics asked several analysts what they think of the idea of splitting up Intel and got a variety of answers. Some said it makes sense for the company to split in two but questioned if Intel will do so any time soon.

Some of their answers are below, but first, some background:

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Fifty-one-year-old Intel has held onto both major roles as an Integrated Device Maker (IDM) since Robert Noyce first took the helm in 1968. The question now sits firmly on the shoulders of current CEO Bob Swan.

The question of splitting up Intel came up again recently, partly because Intel faces another earnings call on Thursday from its Santa Clara, California, headquarters, but also because some analysts noticed that Taiwan-based chip fabricator TSMC surpassed Intel in market capitalization for the first time in late September. At the close of markets on Friday, TSMC’s market cap was $247 billion, while Intel’s was $228 billion.

The foundry model that TSMC typifies gained ground in the 2000s, leading to the demise of some IDMs, as a financial analyst using the pen name EnerTuition in Seeking Alpha recently pointed out. 

A big reason for their demise is that it is hard to tackle both jobs as designer and maker of chips and because making chips becomes increasingly exponentially expensive as chip nodes have shrunk in size to 7nm.

“Intel has made some halfhearted efforts to build a foundry business in parallel, but the company failed to make significant gains,” the Seeking Alpha blogger noted. “Despite the great strides of foundry players [like TSMC], Intel management does not seem to have woken up to the cold reality of [fab costs] even years after Jerry Sanders left AMD and AMD had to divest its fabs to survive. A series of Intel CEO’s have been complacent…”

The blogger suggests Intel should partner with Samsung to create a viable foundry alternative to TSMC but questioned whether “organizational inertia at Intel makes the timing of such moves questionable.”

Against this backdrop, FierceElectronics posed two basic questions to analysts: Should Intel be split in two? And, will Intel actually be split in two given its long history of staying unified? Here are some of their answers:

Karl Freund, senior analyst at Moor Insights & Strategy:

“I think the idea of [splitting in two] has merit, as both the foundry and design businesses would potentially benefit. The fab would have a broader market to address, and the designers would enjoy more flexibility to remain competitive.”

He added, however: “I think it’s unlikely to happen soon, as companies tend to shun what some self-serving execs may see as self-immolation until they are in crisis. If Intel can’t get 10nm to work, they will be in crisis.”

Jack Gold, president of J. Gold Associates:

“This idea has appeared periodically since AMD divested its fab years ago. It’s reappearing now that TSMC is perceived to have advanced ahead of Intel in process technology. The problem with this analysis is that people only look at the process node—say, 7nm—and not the totality of what having your own fab does for your design process.

“Intel gets great advantage by having the ability to fine tune designs and process together when they release products. You don’t get that with a commodity chip maker. As long as Intel can keep their fab full, there really isn’t any downside to having their own fab. It’s very expensive to run a fab, but having one also gives you the ability to manage your production needs ahead of anyone else in the production line.

“It also allows you to make investments as needed and not rely on others to do so. Finally, it allows you to easily differentiate in designs and not just nodes like 7nm but also in transistor design, interconnect, packaging and more. 

“Bottom line, I don’t buy the notion that Intel should follow the competition and go fabless design and divest its fabs. AMD divested and the resulting fab, Global Foundries, hasn’t been that successful.

“So yes, I believe Intel should stay the course. Having a fab is an advantage for them.”

Jeff Kagan, independent industry analyst:

“Intel is one of the best-known brands and they not going away, but that does not mean they will be an industry leader going forward either. They exited the chip business for Apple iPhone earlier this year and said they would focus on areas where they could see higher levels of growth.

“This idea of splitting in two may be valid as a way to separate business segments, but this won’t solve the underlying problem Intel faces, and that problem is slow growth.

“I describe this as a growth wave. The growth wave rises or grows, but it ultimately crests then falls. Some growth waves are long and others are short. It is very difficult for a company that sees its growth wave cresting to crank it back up again.

“It has to do with momentum and that’s Intel’s problem. Its momentum has been slowing.”

RELATED: A look at Intel’s big-picture AI on 7nm

 

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