Intel's Production Decision: Insights from CEO

Intel's Production Decision: Insights from CEO

Table of Contents

1. Introduction
2. The Downgrades from Bank of America
3. The Importance of Product Delivery for Customers
4. The Role of Disaggregated Design
5. The Decision-making Process for Production
6. The Percentage of Outsourced Chips
7. The Competitive Advantage of Integrated Design and Manufacturing
8. The Flexibility of Advanced Packaging Technologies
9. Evaluating Criteria for Outsourcing Production
10. Considerations for Shareholders and Gross Margins
11. The Focus on Operating Income and Customer Satisfaction
12. The Forecast for PC Demand and the Changing Role of PCs

Introduction

In this article, we will delve into the recent downgrades faced by Intel, specifically one from Bank of America. We will explore the key issues at HAND and how Intel plans to address them. Additionally, we will discuss the importance of product delivery for customers and Intel's strategy for meeting their demands.

The Downgrades from Bank of America

Bank of America's downgrade raises concerns about Intel's ability to meet the staggering demand for their transistors and the possibility of a lack of support from other foundries. This uncertainty could lead to an extended period of instability, with customers potentially shifting their loyalty towards Advanced Micro Devices (AMD) as a risk mitigation strategy. To address these concerns, Intel needs to provide Clarity on their approach to investors and stakeholders.

The Importance of Product Delivery for Customers

Intel acknowledges the increasing importance of their role in delivering products to their customers. The company recognizes their responsibility to provide a predictable cadence of leadership products each year to satisfy their cloud, enterprise, PC, network, and IoT businesses. This commitment to customer satisfaction is their top priority. Intel assures that they have a robust product lineup for 2020, 2021, and 2022. Looking ahead, they have significant flexibility in their product roadmap for 2023 and 2024.

The Role of Disaggregated Design

Intel embraces the concept of disaggregated design, which offers them ultimate flexibility in manufacturing decisions. This philosophy allows them to leverage advanced packaging technologies as a valuable asset, rather than a sign of weakness. By considering the optionality of building products in their own fabs or evaluating external fabs, Intel aims to make decisions that prioritize the best interests of their customers, employees, and shareholders.

The Decision-making Process for Production

A crucial aspect that the market is keen on understanding is the timeline for Intel's decision regarding production. With high-volume production expected in the 2023 timeframe, Intel plans to finalize this decision by the end of the current year or early next year. This timeframe is crucial as it will dictate whether Intel's production will be carried out in-house or outsourced to third-party foundries.

The Percentage of Outsourced Chips

Intel approaches the outsourcing of production without fixating on a specific percentage. Instead, their primary focus remains on delivering high-performance, predictable cadence products to their customers. Disaggregated design grants Intel the ability to assemble chips from their own fabs and other fabs onto a single Package or system-on-a-chip. Leveraging this flexibility, Intel anticipates that the percentage of outsourced chips may increase over time, regardless of their upcoming decision.

The Competitive Advantage of Integrated Design and Manufacturing

Intel firmly believes that the integration of design and manufacturing provides a significant competitive advantage. This synergy allows their designers, architects, and manufacturers to optimize the intersection of design and manufacturing, leading to the highest possible performance for their products. Additionally, having both design and manufacturing under one roof eliminates the need to share economics involved in outsourcing decisions. Furthermore, Intel maintains control over supply allocation, ensuring greater stability in production planning.

The Flexibility of Advanced Packaging Technologies

Intel emphasizes the importance of advanced packaging technologies and its role in enabling disaggregated design. As their technologies evolve, Intel sees this flexibility as an opportunity to meet the primary criteria of delivering a predictable cadence of leadership products to their customers. They anticipate a future where they embrace a hybrid design and manufacturing approach, collaborating with other manufacturers and potentially producing products for them as well.

Evaluating Criteria for Outsourcing Production

When considering outsourcing production, Intel evaluates several critical criteria, including predictable schedules, product performance, economics, risk management, and supply assurance. The decision-making process revolves around ensuring that the products they rely on, whether internally or externally manufactured, meet the commitments they make to their customers. They factor in various dynamics to strike a balance between integrated design and manufacturing, adapting their strategy as technologies evolve.

Considerations for Shareholders and Gross Margins

While shareholder interests are crucial, Intel asserts that their focus extends beyond gross margin percentages. They acknowledge that their gross margins may vary, but their business diversification and the broad range of products they offer offset any concerns. Intel is committed to expanding their role in delivering differentiated technology, driving greater profitability for their shareholders. Their priority lies in delivering value and not being limited by a fixed gross margin percentage.

The Focus on Operating Income and Customer Satisfaction

Intel's focus extends to generating a higher operating income and ensuring customer satisfaction. They prioritize delivering on promises to customers while driving innovation and profitability. Intel is dedicated to maximizing the value they provide to their customers and shareholders, even if it means exploring ideas that may impact gross margins. They aim to strike a balance between customer-centricity and financial success, evaluating trade-offs that best serve both stakeholders.

The Forecast for PC Demand and the Changing Role of PCs

Intel recognizes the unexpected surge in PC demand influenced by the COVID-19 pandemic and shifting consumer needs. They anticipate that the PC will play an increasingly essential role in everyday life, serving as a critical tool for remote work, online education, and constant connectivity. With higher-than-anticipated growth in the PC market, Intel expects sustained demand for their products and plans to deliver solutions that exceed customer expectations.

Overall, Intel faces challenges in meeting the demand for their transistors, but their commitment to customer satisfaction, flexible manufacturing options, and resilient product roadmap ensure they remain competitive in the market.

Highlights:

• Intel faces downgrades and uncertainties regarding their ability to meet demand.
• The company prioritizes delivering a predictable lineup of leadership products for customers.
• Disaggregated design provides Intel with flexibility in manufacturing decisions.
• The decision on production will be made by the end of the year.
• Intel maintains a strong focus on integrated design and manufacturing as a competitive advantage.
• The utilization of advanced packaging technologies allows for greater flexibility.
• Intel considers various criteria when evaluating the outsourcing of production.
• The focus extends beyond gross margins, emphasizing profitability and customer satisfaction.
• PC demand has exceeded expectations due to the COVID-19 pandemic, highlighting the device's essential role in everyday life.

FAQ

Q: What is the timeframe for Intel's decision on production? A: Intel expects to make a decision by the end of the year or early next year.

Q: Will Intel outsource more production? A: Intel anticipates an increase in the percentage of outsourced chips over time.

Q: Does Intel view integrated design and manufacturing as a competitive advantage? A: Yes, Intel believes that integrated design and manufacturing provide a significant competitive advantage.

Q: What criteria does Intel consider when evaluating the outsourcing of production? A: Intel evaluates criteria such as predictable schedules, product performance, economics, risk management, and supply assurance.

Q: How does Intel balance shareholder interests and customer satisfaction? A: While shareholder interests are important, Intel prioritizes customer satisfaction and aims to strike a balance between the two.

Q: What is the forecast for PC demand? A: Intel predicts sustained demand for PCs, as they play an increasingly essential role in everyday life.