Intel Financialized and Lost Leadership in Semiconductor Fabrication


Innovation and competition in global semiconductor fabrication

For a half of-century after the invention of the built-in circuit at Texas Instruments (TI) and Fairchild Semiconductor in the gradual 1950s, the United States used to be a pacesetter in global semiconductor fabrication. Till 1991, TI and Motorola were the enviornment’s main built-in draw producers (IDMs), promoting chips they fabricated, at which level they were surpassed by Intel, with its microprocessor having turned into the long-established hardware in interior most pc systems.[1]

Meanwhile, from the early 1980s, “fabless” semiconductor firms – firms that designed, however failed to invent chips themselves – proliferated, constructing merchandise for diversified segments of the memory and common sense markets. On the beginning, these build firms turned to IDMs for wafer fabrication. Responding to the opportunity to provide chips for fabless firms, in 1987 Morris Chang, a Taiwanese native with electrical engineering levels from MIT and Stanford and 25 years of labor trip at TI, launched Taiwan Semiconductor Manufacturing Corporation (TSMC) because the enviornment’s first “pure play” foundry. In 1985, the Taiwanese govt had lured Chang wait on dwelling to cross its Industrial Technology Research Institute (ITRI), from which TSMC used to be spun off with monetary backing from a screech construction fund and the Dutch electronics firm Philips.

In 1980, ITRI had created United Microelectronics Corporation (UMC) as Taiwan’s first IDM. In 1995 UMC divested its chip-build change as MediaTek and have turned into a pure-play foundry.[2] In 2020, TSMC’s revenues were $46.9b., 7.4 times UMC’s. Terminate in gross sales to UMC used to be GlobalFoundries (GF), a 2009 breeze-off from U.S.-based fully Improved Micro Gadgets (AMD). GF due to the this reality got fabs of Chartered Semiconductor (Singapore) and IBM. Now wholly owned by an Abu Dhabi sovereign wealth fund, GF’s global headquarters are in Current York Express. In fourth situation amongst the devoted foundries is China-based fully Semiconductor Manufacturing International Corporation (SMIC), with 2020 revenues of $3.8b.[3]

Bigger, nonetheless, than UMC, GF, and SMIC as a semiconductor fabricator is Samsung Electronics Corporation (SEC), the flagship firm of the Korean Samsung chaebol, with estimated 2020 foundry revenues of $14.7b., extra than twice these of UMC and GF. In 2020, SEC generated $200.6b. in total revenues all through all product segments, of which semiconductors contributed $121.0b. Besides the $14.7b. in foundry revenues, SEC’s fab output consisted of $59.3b. in chips frail in SEC merchandise such as smartphones and pc systems as effectively as $47.0b. in SEC-designed chips sold externally. As an IDM, SEC used to be second globally to Intel, which had $77.9b. in 2020 semiconductor revenues. Among the many fabless firms competing with Intel at the excessive dwell of the processor market are U.S.-based fully Nvidia (2020 revenues: $16.7b.) and AMD ($9.8b.).

Essentially the most evolved chips are produced for smartphones as “machine-on-a-chip” (SOC). The main designers of SOCs are Apple (USA), Qualcomm (USA), SEC (South Korea), and MediaTek (Taiwan). HiSilicon, a unconditionally-owned subsidiary of Huawei Technologies (China), used to be also a SOC chief unless U.S. change sanctions, utilized from August 2020, terminated its decide up admission to to TSMC’s fab output.[4] TSMC and SEC exercise 7nm and 5nm process abilities to provide many of these mobile processors alongside with the most evolved AMD pc and Nvidia gaming SOCs. Basically based fully on TSMC, when in contrast with 7nm, 5nm offers 15% faster bustle, 30% much less energy consumption, and 1.8 times the common sense density.[5]

TSMC’s principal evolved-fabrication customer is Apple, accounting for 22% of win revenues in 2018, 23% in 2019, and 25% in 2020.[6] From the iPhone’s open in 2007, Apple relied on SEC for chip fabrication, for which the Korean firm built a screech-of-the-art plant in Texas. But SEC due to the this reality emerged as Apple’s main competitor in smartphones. In early 2011, Apple filed a smartphone-patent infringement swimsuit against SEC. As every other to SEC, Apple reduced in dimension with TSMC for foundry products and services however wished extra than 5 years to shift iPhone chip fabrication fully from SEC to TSMC.

With its Apple contract, TSMC now leads the coast in evolved process abilities, with SEC shut in the wait on of. In 2020, both TSMC and SEC transitioned from 7nm to 5nm process, and in 2021 both are making investments to commercialize 3nm. TSMC went from zero 5nm revenues in 2Q20 to 8% in Q320 and 20% in Q420.[7] SEC is intent on closing the abilities gap with TSMC by allocating $28b. to capital expenditures in 2021, about the degree of its 2020 plant and instruments (P&E) investments.

For its portion, TSMC has announced plans to exercise $100b. in total on P&E and R&D over the next three years, including $30b. in 2021, up from $17.2b. in 2020. TSMC will decide up a $12b. 5nm facility in Arizona and will be brooding about the screech because the positioning for a $25b. 3nm fab.[8] Most of this unique capacity is slated to invent Apple’s M-series processors.[9]

Intel tranquil leads the worldwide semiconductor industry in total revenues. But, as an IDM, Intel manufactures almost all its CPUs at 14nm, and its 10nm capacity has been caught, with restricted output, since 2018.[10] Meanwhile, Apple is forsaking Intel processors for its Mac pc systems, turning as every other to TSMC to invent Apple’s enjoy designs.[11] Intel itself already contracts with TSMC and UMC to provide 15-20% of its non-CPU chips. Furthermore, later this year, TSMC will initiate manufacturing of intel’s Core i3 processors, internal evolved laptops, at 5nm.[12]

At the same time as it has fallen in the wait on of in evolved chip fabrication, Intel has remained a truly friendly firm, averaging $21.0b. in annual win income in 2018-2020, with average annual P&E expenditures of $15.2b. In 2021, Intel expects to provide its first 7nm CPU, while increasing P&E spending to $20b.

As portion of its IDM 2.0 strategy for manufacturing, innovation, and product leadership, announced in March by the firm’s unique CEO, Pat Gelsinger, Intel plans to provide two fabs in Arizona.[13] Incorporated in IDM 2.0 is the open of Intel Foundry Companies and products “with plans to turned into a important provider of foundry capacity in the U.S. and Europe to wait on customers globally.”[14] But although Intel must enact 7nm on a wide scale in 2021, this can tumble additional in the wait on of TSMC and SEC as this decade unfolds. At some level, Intel can even even win itself trailing SMIC, namely if China responds to U.S. change restrictions by constructing a semiconductor instruments provide chain that’s now not dependent on U.S. distributors.[15]

Intel’s exterior and interior opponents

Why has Intel fallen in the wait on of TSMC and SEC in semiconductor fabrication, and why is it unlikely to steal up? The scenario is that Intel is engaged in two forms of competition, one with firms love TSMC and SEC in reducing-edge fabrication abilities and the opposite internal Intel itself between innovation and financialization. The Asian firms have governance constructions that vaccinate them from an economic virus identified as “maximizing shareholder mark” (MSV).[16] Intel caught the virus over two a protracted time ago. As we shall explore, with the surprising appointment of Gelsinger as CEO this previous winter, Intel sent out a extinct signal that it acknowledges that it has the disease.

In the years 2011-2015, Intel used to be in the running, alongside with TSMC and SEC, to be the fabricator of the iPhone, iPad, and iPod chips that Apple designed. While Intel spent $50b. on P&E and $53b. on R&D over these 5 years, it also lavished shareholders with $36b. in inventory buybacks and $22b. in money dividends, which together absorbed 102% of Intel’s win income (explore Desk 1). From 2016 through 2020, Intel spent $67b. on P&E and $66b. on R&D, however also dispensed almost $27b. as dividends and one other $45b. as buybacks. Intel’s righteous dividends have equipped an income yield to shareholders for, because the name says, holding Intel shares. In distinction, the funds spent on buybacks have rewarded sharesellers, including senior Intel executives with their inventory-based fully pay, for executing effectively-timed gross sales of their Intel shares to mark beneficial properties from buyback-manipulated inventory prices.

Desk 1: Intel: inventory buybacks (BB), money dividends (DV), plant and instruments expenditures (P&E), and be taught and construction expenditures (R&D), with ratios to win income (NI) and revenues (REV), 1991-2020
Source: Intel 10-Good ample filings.

As Desk 2 reveals, Intel’s distributions to shareholders were far bigger than these made by both SEC or TSMC.

Desk 2: Stock buybacks (BB) and money dividends (DV) as percentages of win income (NI) at Intel, SEC, and TSMC, 2001-2020
Sources: Intel, Manufacture 10-Good ample filings; TSMC and SEC, Manufacture 20-F filings.

The impartial of SEC’s inventory buybacks in 2002-2007 and 2014-2018 used to be to amplify the balloting energy of the founding Lee family, thereby consolidating its strategic preserve an eye on over resource allocation against the specter of corporate raiders.[17] It’s far determined from SEC’s excellent history that the Lee family has frail its strategic preserve an eye on to allocate earnings to investments in world-class productive capabilities. So too at TSMC under the leadership of Morris Chang. At 50% of win income over the last decade, TSMC’s dividend payout ratio used to be 2.8 times that of SEC and 1.4 times that of Intel. The one real impartial of TSMC’s inventory repurchases between 2003 and 2008 used to be to win out the ownership stake of Philips.[18]

Innovation requires a social situation we call monetary dedication to preserve technological transformation and market decide up admission to unless the abilities of an even bigger-quality, decrease-cost product can lead to monetary returns.[19] The basis of monetary dedication is retained earnings. In the case of Intel, as shown in Desk 1 above, in sleek years the firm has made large allocations to P&E and R&D, even as it has dispensed almost all its earnings to shareholders.[20] But Intel has been ready to tap other money flows to decide up, simultaneously, immense-scale productive investments and shareholder payouts. For the last decade, 2011-2020, these other money flows incorporated depreciation prices of $87b., long-timeframe debt considerations with $45b., and inventory gross sales (mainly to employees in inventory-based fully compensation plans) of $12b.

Given the availability of these sources of funds, the astronomical sums that Intel has wasted on buybacks have not up to now imposed a money constraint on its investments in semiconductor fabrication. Pretty, it has been a deficiency in organizational studying—the essence of the innovation process—that has hampered Intel’s implementation of process abilities. The abilities of excessive phases of productivity from P&E and R&D expenditures requires, as a second social situation of innovative enterprise, organizational integration, working alongside with monetary dedication. Organizational integration mobilizes the abilities and efforts of immense numbers of folk in a hierarchical and purposeful division of labor into the collective and cumulative studying processes required to remodel technologies to generate an even bigger-quality product and, then, decide up admission to markets to attain economies of scale.

The basis of Intel’s failure in organizational integration lies in the financialized persona of a third social situation of innovative enterprise, strategic preserve an eye on. Accepting inventory yield because the measure of enterprise efficiency, in sleek years Intel’s senior executives who exercise strategic preserve an eye on have lacked both the inducement and, increasingly we might perchance argue, the flexibility, to place into effect innovative investment suggestions through organizational integration.

Govt inventory-based fully pay, in the make of inventory alternatives and inventory awards, has created incentives for Intel’s CEOs to enact immense-scale buybacks to give manipulative boosts to the firm’s inventory mark. Desk 3 paperwork the total compensation, including realized beneficial properties from inventory alternatives and inventory awards, of Intel’s CEOs over the last three a protracted time.

Of the $170m. in total compensation that Grove took dwelling over six years as CEO, 90% used to be realized beneficial properties from inventory-based fully pay, with 89% of the $170m. flowing into his checking story in 1996 and 1997 because the Cyber web inventory-market enhance took off. Aided by the enhance and a doubling of Intel’s buybacks to $6.8b. in 1998, Barrett’s total compensation in his first year as CEO used to be $117m., with 98% of it realized beneficial properties from exercising inventory alternatives.

Desk 3: Complete and inventory-based fully remuneration of Intel CEOs, 1992-2020
Source: Intel DEF 14A proxy filings.
Point to: Stock-based fully pay is measured because the true realized beneficial properties from the exercise of inventory alternatives and vesting of inventory awards.

Intel’s buybacks reached $10.6b. in 2005, the year in which Otellini, Intel’s first non-engineer CEO, took over. Buybacks declined to an average of $1.7b. in 2008 and 2009 in reaction to the monetary crisis, however then were jacked up to as excessive as $14.3b. in 2011. The next year, buybacks were $5.1b. as Otellini departed as CEO with $40m. in total compensation, 82% of it inventory-based fully.

With Krzanich as CEO, buybacks peaked at $10.8b. in 2014. He raked in $40 million in total pay (79% inventory-based fully) in 2017 however used to be ousted in mid-2018 for having a “consensual relationship” with an Intel employee.[21] In early 2018, records outlets alleged that Krzanich engaged in insider trading, per interior most records of safety flaws in Intel’s CPUs, as he sold all his Intel shares besides for the minimal 250,000 he used to be required by contract to preserve.[22]

With Krzanich’s exit, the unique CEO used to be Robert Swan, an MBA who had spent his profession in finance at a desire of firms, including GE, TRW, Northrup Grumman, eBay, and Overall Atlantic, sooner than joining Intel as CFO in 2016. From 2018 through 2020, Swan averaged steady under $13m. in total remuneration, of which 57% used to be inventory-based fully. In the Swan years, annual dividends were 19% bigger and annual buybacks 186% bigger than in the Krzanich years.

The tension on a U.S. publicly listed firm such as Intel to enact buybacks comes now not only from senior executives as “mark-extracting insiders” however also from the specter of attack by hedge-fund activists as “mark-extracting outsiders.”[23] The activists win a miniature portion of a firm’s shares on the inventory market after which, to support the insiders to enact buybacks, line up the proxy votes of asset managers, who feature as “mark-extracting enablers.” The U.S.Securities and Alternate Commission provides “regulatory” give a win shut to for this predatory mark extraction with its Rule 10b-18, which since its adoption in 1982 has given a firm that does wide buybacks a “gather harbor” from inventory-mark manipulation prices.[24]

Will Intel’s unique CEO flip the firm from financialization to innovation?

Of us that exercise strategic preserve an eye on at Intel wish to ask themselves why, in doing buybacks, they’re showering money on public shareholders who are merely inventory merchants shopping for the most lucrative opportunity to rid themselves of the firm’s shares. Phase of the scenario, as now we have seen, is that these that exercise strategic preserve an eye on at Intel were increasingly incentivized to dwelling precisely this device of mark-extracting habits.

On January 13, 2021, Intel with out be aware announced that Swan’s stint as CEO would dwell on February 15, with industry broken-down Pat Gelsinger taking on. Gelsinger had joined Intel in 1979 at the age of 18, due to the this reality incomes a bachelor’s degree from Santa Clara University and a master’s from Stanford, both in electrical engineering. He used to be central to the build of Intel’s microprocessors in the final half of of the 1980s, when the firm used to be rising to dominance in the discipline. He turned into Intel’s first chief abilities officer in 2001 and senior vp of the firm’s Digital Venture Team in 2005. From 2009 to 2012, Gelsinger used to be president and chief working officer of EMC, the main pc storage firm, after which turned into CEO of VMware, a publicly listed firm managed by EMC after which, from 2016, by Dell Technologies after the merger of Dell and EMC.

Is Gelsinger a CEO who understands that Intel can now not hope to decide up global technological leadership in semiconductor fabrication except it stops doing buybacks to manipulate its inventory mark so as that it might perchance be wholly infected about investing in innovation? In an interview broadcast by CBS’s Sixty Minutes on Could perchance fair 2, Gelsinger complained that the U.S. share of world semiconductor manufacturing had declined from 37% to 12% in the previous 25 years and urged interviewer Lesley Stahl that “Intel has been lobbying the U.S. govt to wait on revive chip manufacturing at dwelling—with incentives, subsidies, and-or tax breaks, the kind the governments of Taiwan, Singapore, and Israel have carried out. The White Dwelling is responding, proposing $50 billion for the semiconductor industry in the U.S. as portion of President Biden’s infrastructure knowing.”

Stahl requested Gelsinger why, given its profitability, Intel wished U.S. govt give a win shut to, to which the CEO invoked U.S. national interest: “Right here’s a obedient, extreme industry and we desire extra of it on American soil: the roles that we desire in The United States, the preserve an eye on of our long timeframe abilities future, and as we’ve also acknowledged, the disruptions in the availability chain.”

Stahl countered: “You have gotten spent great extra in inventory buybacks than you have gotten in be taught and construction. Lots extra” (for the story, in 2019-2020, Intel spent $27.8b. on buybacks and $26.9b. on R&D). Gelsinger spoke back: “We is doubtless now not anyplace come as infected about buybacks going forward as now we have in the previous. And that’s been reviewed as portion of my coming into the firm, agreed upon with the board of directors.”

Gelsinger’s response is a uncommon occasion of a sitting CEO of a important U.S.-based fully firm even implying that buybacks can even fair have undermined its capacity to compete in its industry. As for his take care of the board that “we is doubtless now not anyplace come as infected about buybacks going forward,” Intel’s monetary document for Q121 reveals that between February 22 and March 27, with Gelsinger at the dwell, Intel performed $1.5b. in buybacks. Per chance the unique CEO used to be infected about other things at some stage in his first month and a half of in office. For Intel as for other principal U.S. firms, the habit to buybacks is onerous to kick.

The 19 publicly listed corporate contributors of the U.S. Semiconductor Commercial Association that signed a letter to President Biden in February,[25] asking the governmentfor monetary give a win shut to for his or her industry, did buybacks of $540b. (2020 greenbacks) from 2001 through 2020, with IBM, Intel, Qualcomm, and TI accounting for 84% of these repurchases. In 2016-2020 by myself, these 19 firms squandered $148b. (nominal) on buybacks—almost thrice the $50b. in monetary wait on that the Biden administration has provided the SIA.

Our policy recommendation for the Biden administration is straightforward: As a situation for giving the U.S. semiconductor industry $50 billion in infrastructure aid, establish a ban on SIA contributors doing inventory buybacks as open-market repurchases. That guidelines can then be a predominant step in Congress rescinding the Securities and Alternate Commission’s Rule 10b-18—corporate The United States’s license to loot.[26] With a seriously principal firm love Intel infected about innovation as every other of financialization, the United States can decide up wait on to the change of creating a global-class semiconductor-fabrication industry – person that leads as every other of lags advances in abilities.


This article attracts on a public comment submitted by the authors on April 5, 2021, to Commercial and Safety Bureau, Place of work of Technology Evaluate, U.S. Division of Commerce, Dangers in the Semiconductor Manufacturing and Improved Packaging Present Chain, BIS-2021-0011. It also summarizes portion of a discover about of why the United States has fallen in the wait on of in semiconductor fabrication, and what it desires to enact to steal up, funded by the Institute for Current Financial Pondering (INET). We thank Thomas Ferguson, Ken Jacobson, Yin Li, and Jang-Sup Shin for his or her feedback on a old draft.


[1] William Lazonick, Sustainable Prosperity in the Current Financial system? Commercial Organization and Excessive-tech Employment in the United States, W. E. Upjohn Institute for Employment Research, 2009, ch. 2.

[2] John A. Mathews and Dong-Sung Cho, Tiger Technology: The Creation of a Semiconductor Commercial in East Asia, Cambridge University Press, 2000.

[3] Thomas Alsop, “Leading semiconductor foundry revenues worldwide 2019-2021, by quarter,” Statista, March 8, 2021.

[4] For a sleek ranking of the 30 main SOCs, explore Kashish Kumawat, “Perfect mobile processor ranking list 2021,” Tech Centurion, March 29, 2021. Of the 30 processors in the list, Qualcomm claimed nine spots, HiSilicon seven, and MediaTek six, Samsung 5, and Apple three.

[5] Anton Shilov, “The kind forward for main-edge chips in response to TSMC: 5nm, 4nm, 3nm and previous,” techradar, August 31, 2021.

[6] TSMC, Manufacture 20-F submitting with the United States Securities and Alternate Commission, 2020, p.8; “TSMC’s absolute best customer makes up 25% of revenue, Taipei Instances, March 9, 2021; Codrut Nistor, “Apple secures 80 percent of TSMC’s 5 nm manufacturing capacity for the upcoming year,” Notebookcheck, December 21, 2020.

[7] Locate TSMC, Administration Experiences for Q320, Q420, and Q121.

[8] Anton Shilov, “TSMC plans to exercise $100B on fabs and R&D over the next three years: 2nm, Arizona fab & extra,” AnandTech, April 2, 2021.

[9] “Apple unleashes M1,” Apple Press Originate, November 10, 2020.

[10] A. Souppouris, “A solid Intel is what the tech industry desires honest now,” Engadget, March 24, 2021.

[11] Kif Leswing, “Apple is breaking a 15-year partnership with Intel on its Macs—here’s why,” CNBC, November 10, 2020.

[12] Luke James, “Intel space to outsource utilize CPU manufacturing to TSMC’s 5nm process,” AllAboutCircuits, January 20, 2021.

[13] “Intel CEO Pat Gelsinger proclaims ‘IDM 2.0’ strategy for manufacturing, innovation and product leadership, Intel Press Originate, March 23, 2021.

[14] Ibid.

[15] Arjun Kharpal, “How Asia got here to dominate chipmaking and what the U.S. wants to enact about it,” CNBC, April 11, 2021.

[16] William Lazonick, “Maximizing Shareholder Worth as an Ideology of Predatory Worth Extraction,” in Knut Sogner and Andrea Colli, eds., The Emergence of Company Governance: Of us, Energy, and Performance, Routledge, 2021: 170-186.

[17] Samsung, Manufacture 20-F filings; Jonathan Cheng and Min-Jeong Lee, “Samsung to win wait on $2 billion price of shares,” Wall Boulevard Journal, November 26, 2014.

[18] TSMC, Manufacture 20-F filings; “Philips to sell its 16.2% stake in Taiwan’s TSMC,” Current York Instances, March 9, 2007.

[19] William Lazonick, “The Theory of Modern Venture: Foundations of Financial Evaluation,” in Thomas Clarke, Justin O’Brien, and Charles R. T. O’Kelley, eds., The Oxford Instruction manual of the Corporation, Oxford University Press, 2019: 490-514.

[20] Point to that R&D is accounted for as a sleek expense, so only increments to R&D spending must be financed out of earnings or other sources of funds such as depreciation, debt, or equity considerations.

[21] Sara Salinas, “Intel’s Brian Krzanich is forced out as CEO after ‘consensual relationship’ with employee,” CNBC, June 21, 2018.

[22] Jeremy C. Owens, “Intel CEO sold millions of inventory after firm used to be urged of vulnerability, sooner than disclosure,” MarketWatch, January 4, 2018.

[23] William Lazonick and Jang-Sup Shin, Predatory Worth Extraction: How the Looting of the Commercial Corporation Became the US Norm and How Sustainable Prosperity Can Be Restored, Oxford University Press, 2020.

[24] Lenore Palladino, “The $1 Trillion Demand: Current Approaches to Regulating Stock Buybacks,” Yale Journal of Law, 36, 2018: 89–105; Ken Jacobson and William Lazonick, “License to Loot: Opposing Views of Capital Formation and the Adoption of SEC Rule 10b-18,” The Academic-Commercial Research Community, coming near near.

[25] SIA Board of Directors, “Letter to President Joe Biden,” Semiconductor Commercial Association, February 11, 2021.

[26] Jacobson and Lazonick, “License to Loot”; Lenore Palladino and William Lazonick, “Regulating Stock Buybacks: The $6.3 Trillion Demand,” Roosevelt Institute Working Paper, Could perchance fair 2021.

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These three are your greatest treasures.
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