Overcome. Intel is in a money-spending struggle and is not keeping up. The company has invested billions of dollars in matching Taiwan Semiconductor Manufacturing’s prowess in producing cutting-edge chips. But with business slowing, chief Pat Gelsinger has much less firepower. Intel simply can’t keep up.
Intel, once the undisputed leader of the semiconductor industry, now lags behind TSMC in terms of chip density, cost and energy efficiency. As its rivals abandoned the vertically integrated design and manufacturing model, they benefited from the Taiwanese firm’s advances and grabbed market share. The result: Intel is burning through cash and its stock has fallen by half in five years.
Gelsinger was the chief architect of Intel’s iconic 80486 chip nearly four decades ago and returned to lead the company out of its technological rut in 2021. Now he says the mission is nearly accomplished, promising that chips coming out next year will match any others made by TSMC. Key measuresPerhaps, but that’s only part of the battle. Intel needs to prove it can produce next-generation chips in large quantities and efficiently, and that it can convince outside customers to use its manufacturing.
Scaling up production in this way — and improving it year after year — is immensely expensive. TSMC plans to invest $30 billion by 2024. About 80% of that amount will go to the most advanced semiconductors. That’s enough for a single new manufacturing plant, which costs $25 billion, according to Intel.
The U.S. company doesn’t have to invest that much. Executives say government subsidies and help from co-investors such as Brookfield can cover a quarter of the required spending. If that were the case, Intel would need about $19 billion a year just to maintain the same pace of adding one new plant a year.
Right now, he plans to spend about that amount next year. The problem is that Gelsinger also has fiance Capital expenditures will account for about a quarter of revenue over the long term. If sales total about $75 billion, that leaves plenty of room to maneuver. But that’s a third more than analysts think Intel will generate next year, according to LSEG.
Meanwhile, the cost of building plants is only rising. TSMC has fatter operating margins than Intel, and its capital spending has averaged 40% of revenue over the past decade. In other words, the two companies are headed in opposite directions. Intel has staked its recovery on two comebacks: one in its chip designs and the other on regaining manufacturing supremacy. If current promises hold up, it will have proven its prowess at the former. But with the financial gap only widening, barring a miraculous recovery, Gelsinger will be forced to rethink the latter.
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