Intel repeats five-year-old pledge to invest billions in a new factory

Intel CEO Brian Krzanich’s meeting with new U.S. president Donald Trump was followed by a big announcement: The company will invest US$7 billion over the next three to four years to complete a factory to make 7-nanometer chips.

Intel's Fab 42The completion of Fab 42—where the chips will be made—will create about 3,000 jobs in the Chandler, Arizona, area, Intel said. The chipmaker expects to help create 10,000 jobs tied to supporting the activities of Fab 42.

Trump has been pushing for more jobs in the U.S. and for bringing manufacturing back to the country. Making the announcement after meeting with Trump amplifies Intel’s efforts to promote itself as a jobs creator.

But just last year, the company laid off more than 12,000 employees to restructure operations. Also, this isn’t the first time Intel has committed to creating jobs and investing billions to make Fab 42. It made a similar announcement in 2011 but then backed off.

In February 2011, then-CEO Paul Otellini announced the company was investing $5 billion to complete Fab 42 to make 14-nm chips and create 4,000 jobs. That announcement was made during former President Barack Obama’s visit to an Intel facility in Hillsboro, Oregon.

Intel slammed the brakes on that plan in 2014 to keep the space available “for unspecified future technology.”

The construction of Fab 42 began in 2011, but its completion was delayed, William Moss, an Intel spokesman, said in an email.

“We’re making this investment now in anticipation of the growth of our business,” Moss said.

In 2011, Intel announced the factory as it expected to grow its mobile device business. But Intel has now stopped making smartphone chips and is instead focusing on growth in the internet of things, server, automotive, and other markets.

The White House hailed the completion of the factory as a positive development.

Trump called the announcement a “great thing” for Arizona. “We’re very happy, and I can tell you, the people of Arizona are very happy,” he added.

Intel’s announcement is the latest in a “wave of economic optimism” since Trump took office, Sean Spicer, White House press secretary, said later.

Outside the U.S., Intel also operates factories in China, Vietnam, Malaysia, Israel, and Ireland. Many of Intel’s chip design takes place in Israel, and the company is making its latest Optane memory chips in Dalian, China.

Intel regularly establishes new factories to create smaller, powerful and more power-efficient chips. The 7-nm factory is a big investment and could lead toward longer battery life to smaller devices.

The 7-nm chips will be made for PCs, sensors, and other high-tech devices. The chips will “enable things like artificial intelligence, more advanced cars and transportation services, breakthroughs in medical research and treatment, and more,” Krzanich said in an email to Intel’s employees.

Two weeks ago, Intel said it was establishing a pilot 7-nm plant to manufacture test chips. Intel currently ships 14-nm PC, server, and IoT chips, and is expected to start shipping its first 10-nm PC chips code-named Cannonlake by the end of the year.

The announcement also gives a time frame for when Intel will make its first 7-nm chips. Intel will likely release three or more chip architectures on the 10-nm process, like it has with 14-nm, before switching over to 7-nm. The 7-nm could also introduce new tools like EUV (extreme ultraviolet), which will help make finer chips, and materials like gallium-nitride (GaN) in chips.

After Ryzen, AMD has no immediate plan to purge its other PC chips

An AMD Athlon or Sempron chip may not drum as much excitement as Ryzen, but loyalty has helped those brands stick around for more than a decade.

So what happens to those and other PC processors, like the A-series and FX, when AMD’s new Ryzen chips start flooding the market in March? AMD has said the first high-end desktop Ryzen chips will ship in March.

AMD will keep its Sempron line after Ryzen comes out.

For now, AMD plans to make no changes to its lineup of existing chips, a company spokesman said.

Instead, the chips will be regrouped to focus on price-sensitive PC buyers.

Ryzen-based PCs are expected to be priced at a premium, competing with Intel’s top gaming CPUs. The FX chips will not go away once Ryzen arrives, and will be targeted toward budget gamers.

The A-series chips — which were targeted toward a wide range of laptops — will be much like Intel’s Core i3, i5 and Celeron and Pentium processors, which are also targeted at low-end to mid-range laptops and Chromebooks.

Unified AM4 socket compatibility helps maintain existing chips and has provided an easy path to Zen-based PC chip upgrade, the spokesman said. For example, the AM4 socket supports Zen chips and the recent 7th Generation A-series chips.

Expanding the PC chip lineup will help AMD compete with Intel, from the high-end to low end. AMD is already gaining in the PC market.

AMD took x86 chip market share from Intel in 2016. AMD had a 13.6 percent market share in 2016, growing from a 12.7 percent share in 2015. Intel’s share was 86.3 percent in 2016, dropping from 87.1 percent in 2015, according to Mercury Research.

Strong laptop chip shipments in the second half of 2016 and an inventory purge in 2015 helped AMD grow its market share, said Dean McCarron, principal analyst at Mercury Research.

The most vulnerable AMD chips are Athlon and Sempron, which sit on the bottom rung of the company’s chip lineup.  Some brands like Phenom have died, but Athlon and Sempron have shown amazing staying power thanks to brand loyalty from home PC builders in Asia, McCarron said.

Those chips will be hard to discontinue overnight, McCarron said.

“Intel dealt with that in Asia on Pentium. Once it is established, they can’t go away,” McCarron said.

Chips like the Athlon X4 and FX-4300 — which is cheap to manufacture — will keep serving customers’ needs and will stay in production for some time to come, McCarron said.

Also, PC makers need low-end products to segment markets and maintain prices. The price of high-end FX chips helps set a minimum price for Ryzen chips. It also helps retain Ryzen as a high-margin product, which is important for AMD in its pursuit of higher profitability.

The low-end chips will also help keep AMD’s chip volume active and meet supply agreements. AMD has an agreement with GlobalFoundries to manufacture a certain number of chips each year.

Low-end chips are also important to manufacturing. They help amortize manufacturing costs and provide a market for chips with minor defects. It’s fairly common for chips to get defects during manufacturing, and those are repackaged into low-end parts. That helps reduce inventory and produces revenue from those chips.

AMD can’t say it is getting rid of older chips because that would damage partnerships with PC makers and OEMs, said Jim McGregor, principal analyst at Tirias Research.

“They can’t displace the entire product portfolio over night,” McGregor said.

But at some point, AMD will have to figure out which ones to chuck. It’s likely the chips that are more expensive to manufacture will get the boot. Some chips like high-end FX parts could get the boot as Ryzen chips expand into lower-end gaming PCs. A decision to drop expensive chips and retain cheaper ones would be a cost-saving measure to reduce the manufacturing overhead.

“You’ll see the transition over the next nine to 12 months to move everything over,” McGregor said.

AMD has also released Zen-based server chips to succeed the current Opteron server chips. The company has seemingly put the development of ARM-based server chips on hold, and few server makers are using Opteron chips now. AMD will continue making embedded chips, which are used in devices with life spans of up to 10 years.

Kim Stevenson’s exit from Intel hints at problems in the PC business

Kim Stevenson, who served as the second-in-command at Intel’s PC chip division, has left the company after just six months in her new role.

intel-rnb-building-logo-cropStevenson tweeted last week that she had left the company after serving more than seven years at Intel, and she would move “on to new adventures.”  She served as the chief operating officer for its Client and Internet of Things Business and Systems Architecture group—a catchall for Intel’s consumer-focused products, including its traditional PC business. Stevenson reported to Murthy Renduchintala, the group’s president.

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PCs are decidedly unfashionable at Intel these days. In 2016, Intel chief executive Brian Krzanich announced layoffs of 12,000 employees as the company announced a transition into becoming a “leader for the smart, connected world,” as Krzanich put it. That reclassified the PC as just another connected device. In turn, that prompted Kirk Skaugen, who led the PC group, and Doug Davis, who headed the IoT business, to leave the company.

Nevertheless, that doesn’t explain why Stevenson spent just six months in her new role. Stevenson was previously the chief information officer of Intel, according to her LinkedIn profile. That’s the same position held by her predecessor, Diane Bryant, who now holds the title of senior vice president and general manager of Intel’s Data Center Group.

What this means: Stevenson’s departure, on top of last year’s restructuring, suggests that Intel’s PC chip business is still shaky. The company already created market uncertainty when it shipped a third 14-nm chip (Kaby Lake) instead of moving to 10-nm technology in its usual tick-tock cadence. Response to the chip has been lukewarm. AMD is readying a new architecture, Ryzen, which could prove to be formidable competition. You can’t help but wonder if dark clouds are hanging over Intel’s headquarters in Santa Clara.