In this episode of Making Markets, Intel CEO Pat Gelsinger shares the company’s aggressive plans to capitalize on the growing demand for semiconductors to build the next wave of growth and technology leadership for Intel. From macroeconomics and policy to process leadership and innovation, we cover a wide spectrum of Intel’s strategy, plans, and vision, shared during the same week as the company’s annual investor day event and their announcement of the $5.4 billion acquisition of Tower Semiconductor.
You can grab the video here and subscribe to our YouTube channel if you’ve not yet done so.
You can also listen below or stream the audio on your favorite podcast platform — and if you’ve not yet subscribed, let’s fix that!
Disclaimer: The Making Markets podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.
Transcript:
Daniel Newman: Across the front of his shirt read Torrid, and you could sense confidence, enthusiasm, and passion, as he laid out the strategy that Intel plans to implement to regain process leadership by 2025 and win investor sentiment long before that. Today, Intel’s CEO, Pat Gelsinger, joins me to discuss the macroeconomy, supply chain resiliency, Intel’s boundary plans, and the company’s innovation strategy as it looks to win the Street. So strap in for another fast-paced conversation. You’re tuned in to Making Markets.
Announcer: This is the Making Markets podcast, brought to you by Futurum Research. We bring you to top executives from the world’s most exciting technology companies bridging the gap between strategy, markets, innovation, and the company is featured on the show. The Making Markets podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host, principal analyst and founding partner of Futurum Research, Daniel Newman.
Daniel Newman: Pat Gelsinger, CEO Intel, welcome to Making Markets.
Pat Gelsinger: Thank you. Great to be here.
Daniel Newman: It is really exciting to have you on the show. I’ve wanted you to join for quite some time, and the circumstances worked out and… By the way, how fun to do this live?
Pat Gelsinger: Yeah, this is pretty… It’s been a while since we’ve been face to face anywhere. So every once in a while, I just want to say give me a hug, right.
Daniel Newman: Yeah, you remember The Six Five Summit, you keynoted it for us last year, and we were in a studio at Intel. So we were in person, but we were sitting in, we were like 30, 40 feet apart from each other, and they did a great job in editing, it looked like we were together, but we weren’t.
So this week though, huge week for Intel. I was planning initially to just ask you about investor day, but then you went ahead and made a really significant acquisition announcement to start off the week. So let’s just start there Pat. Talk about kind of the whole week, the buildup, and what’s got you excited.
Pat Gelsinger: Well, it has been a big week, obviously the foundry strategy that we laid out in March of last year, and we were always sort of considering, okay, we’re going to build an organic business. But where are the inorganic opportunities here? And this week we announced the acquisition of Tower Semi. And really, if you think about the semi industry, you have leading-edge, you have mature nodes, you have specialty nodes, and memory. And we’re not a memory company, and we sold that business at the end of last year, our NAND business.
So if you think about that, Tower is a leader in specialty. We are clearly the leader in leading-edge and obviously mature becomes leading, right, as capacity keeps them moving on. So this really gives us is a very comprehensive strategy. It’s going to take us maybe a year to close the acquisition through the normal regulatory process, but a huge acceleration for our foundry strategy.
And then right after that, I had my board of directors meeting, right. It was always sort of high stress for me. And then of course, just to keep the week interesting, we finished with our yearly investor day, bringing 150 buy and sell-siders together to really sort of lay out the strategy and what it means to the markets and the Street. And, wow, this is the last thing of the week, I’m going to take a nap after this one.
Daniel Newman: Yeah. Well, your energy was really high and I always say… Like you doing stage time, I always get off the stage like woo, you know you take a breath. You’ve been absolutely exhilarating in terms of your passion. It’s been coming through very, very clearly, which I think is what the Street really needs to see and needs to hear.
I’d love to talk about geopolitics, because there was a lot. You laid out a ton, by the way, this week. First of all, and just so I want to say it to everybody out there, Tower was a really important addition to the portfolio, it really cemented the whole foundry strategy. And then of course yesterday you covered a lot of ground.
So when I start with geopolitics, it’s not because there’s not a lot to cover, it’s because this is something that really resonated with me, Pat. You put up a slide that talked about the semiconductor manufacturing distribution and we’re getting close to 80% of the chips worldwide are now manufactured offshore, mostly in Asia. We’ve had supply chain challenges, we have economic challenges, we have headwinds, we have resiliency, and then of course we have the goals to onshore, politically to onshore. Intel seems to really have a great foundation to do this, but I don’t know if it’s being fully appreciated. Talk about that for a minute.
Pat Gelsinger: Well, and everybody knows after COVID how disruptive this has been. All of a sudden, I have a car. I was just talking to Senator Thune when I was in DC last week from, and he just got a new F-150 truck. He said, “But the seat heater wasn’t enabled because we didn’t have chips.” Right. And he says, “Hey, in winter in South Dakota, you need seat heaters.” Right. We have supply chains stopped because of it, factories that are idled as well. So then you sort of say, “Wow. We need more semiconductors.” Every aspect of humanity is becoming digital, everything had digital needs semiconductors. So every aspect of the economy, of our lifestyle, of our national security. And then we’ve seen this drift, as you said, in 1990, 80% of chips were manufactured in the west, between Europe and US. Today, 80% is in Asia and in very concentrated areas of China, Taiwan, and Korea. This is precarious.
And we look at the geopolitical situation, and as I say, we have gone to wars. The oil reserves have defined the geopolitics for the last 50 plus years, semiconductors are more important to the next 50 years than oil reserves were for the last 50 years. Let’s build these [fabs] where we want them, let’s create a geographically balanced resilient supply chain. And as once the Churchill said, “Never waste a good crisis.” Well, we’ve had one. A COVID induced crisis has shown the fragility of our supply chains. And boy, as we go to European leaders, to US leaders as well, we’ve just been sounding this drum very clearly that we need to build where we want them for a resilient future for our economy and our national security.
Daniel Newman: And when you talk about national security, and of course that in impacts the economy as a whole, but when you talk about that you’re effectively saying what American or what company here in North America, US based, could actually take this on? And you look at this because the vast majority of our chip makers are fabulous now, and they’re doing great things and innovative things, and that’s fine. But when you look at solving the problem, it’s about production, it’s about manufacturing.
And so when I hear this, I go, Intel seems to be, Pat, the company that is best fit to solve the problem. However, to some extent, I’m not sure the market’s fully appreciating that because who else is going to guess. You used the Moonshot…
Pat Gelsinger: Yeah.
Daniel Newman: … To get to 50%. We could say TI could help a little, and you could say Micron could help a little. But at the scale we’re talking about, you seem best fit to accomplish this.
Pat Gelsinger: Yeah and this has been one of the mantras since I came back to the role. This week was my one year anniversary back in the CEO role. And so, as I’ve come back into the role, it’s been one of those things that I says, “No, this is our duty, this is the responsibility.” It’s the legacy of this great iconic company, but it’s also our nation, our industry, we must be doing this as a company.
And I firmly believe that with TI, Micron, [AWN], GlobalFoundries, we want it to be all of them, but we play a very central role. We’re about half of the US manufacturing today in semiconductors. So yeah, I better step up in a big way. We’re also very prominent in Europe, our Ireland, Israel locations, and we’ve been very active politically as we engage in… Obviously we did our Ohio announcement, we had President Biden joining us for that, Secretary Raimondo. It really is, I think, part of this bigger agenda. It’s critical for the nation, it’s the right thing for the world. And we’re one of the few companies, maybe the only company, that could really play that central role.
Daniel Newman: It certainly seems on the time horizon, in terms of A, getting resiliency there, B, mitigating the risk of geopolitical challenges. Let’s just say they could come up. And C, it’s also very good for the economy. Higher paying jobs, and by the way, bringing it back into, it’s not all in California here.
Pat Gelsinger: Yeah.
Daniel Newman: You know, in Ohio, in Arizona.
Pat Gelsinger: I’ll tell you this Silicon Heartland announcement, I mean, in one of the lines I used in the announcement, “We are the company that puts Silicon into Silicon Valley. We created the Silicon Forest in Oregon, we created the Silicon Desert in Arizona, the Silicon Isle in Ireland, the Silicon Oasis in Israel. And we are the company today launching the Silicon Heartland.” And it was just such an embrace.
And particularly, this is the Rust Belt of the past becoming the Silicon Heartland of the future. It’s transformational for that entire region of the country, and about half the population of the nation. I mean, so much of the nation gets defined on the coast, right, and now it’s sort of, “No, we the center, are going to be this manufacturing, this technology hub.” It just touched a chord in the nation, and certainly in that part of the country. That to me was quite unexpected.
Daniel Newman: Wouldn’t it be serendipitous if a large percentage of the automotive chips started coming out of Ohio again?
Pat Gelsinger: Oh, that’s my goal. I want Mary Barra, and Jim Farley from Ford, and General Motors to be able to say, there’s my fab.
Daniel Newman: Yeah. And I mean, with the [bombs], what, 20% by 2030 are going to be semiconductors. A lot of people don’t appreciate how influential semis could be in the future of automobiles back in the Rust Belt.
Pat Gelsinger: Yeah and your quick piece of data, just to tear that apart for our listeners. The car of today, you know a premium car, a nice mid-range cars, 4% semiconductors in the bill of materials. By 2030, estimates are that will be 20%. So a 5X increase. So you think we have a problem today for a semiconductor supply chain for auto, you ain’t seen nothing yet, baby. Right, as we keep these moves toward EV and toward AV, autonomous vehicles, electrification cars are becoming computers with rubber tires, right. It’s just amazing the transformation that’s occurring.
Daniel Newman: Which you’re able to take advantage of that through, of course you have MobilEye and that business and there’s the spin on that which is going on, and I might get back to that if we have time. But you also, in the foundry business and other parts have long participated in automotives, so. Well MobilEye because it’s kind of hip, cool, L4, L5, robo-taxis and all that stuff. You guys have an opportunity to participate across the board in this growing of the bomb towards semiconductors in the automobiles.
I want to challenge you a little bit, because I think to make any conversation really stand out you got to ask the hard questions sometimes. And you guys are coming out and saying process leadership by 2025, parody in ’24, leadership in ’25. And, I think, to some extent you’ve laid out a very clear roadmap of how you’re going to get there. But to some extent as well, the Street is kind of showing skepticism, you can look at the way the market’s just reacting to things. Talk to me about how you keep moving forward at a faster pace than these other companies. TSM, and all the other companies that are using their technology to actually gain that leadership position in the next few years.
Pat Gelsinger: Yeah and what we’ve done is quite a number of things. Part of it is new leadership, building a new team to fix the mistakes of the past. Second is, we’ve essentially created a TikTok model of our process development, and that framing of TikTok Intel. And my head of products, Sunil and I, essentially created that model for Intel almost 20 years ago, right. How we have this cadence sequential, but yet Parallel development model that manages risk over a sustained execution period. We’ve created that Parallel teams now inside of our TD, so a new methodology, a new model. But of course, I’m going to go Parallel in those teams, right, the four, three team is in Parallel with the 20A, 18A team, this TikTok model. And as we’ve done that, I’ve had to whip out my wallet as well. And we’ve really increased the capital, as well as the R&D and team that we’ve put in place, so we’re investing in it.
One of the things, Intel as well, didn’t do before was we weren’t engaging with the industry. We know everything, just drop the equipment off at the dock and we’ll take care of it, right, at that point. But this embrace now of the industry leaders. And when I met with Peter Wennink, the CEO of ASML, I said, “So Peter, all of your best engineers stop in Oregon, and you don’t need to have them go on to Asia.” And his answer was, “Hey, with COVID that’s easy. I can’t even travel there anyway.” So. But it really is this embrace of the industry in a fundamental way.
And then, right, as we put those pieces together, what we found was that our components research team, they didn’t stop. While we sputtered in our manufacturing and integrating into manufacturing, I had a rich pipeline of innovations. Those were like, we could reach into that and start pulling those forward very rapidly with our RibbonFET. That about every decade there’s a new transistor architecture, this is it. And our power via new technique for delivering power on it, embrace of EUV, we were, right, essentially betting against EUV and now we’re fully embracing it. Lithography and then the 2.5, and 3D packaging.
And those four together, new transistor, power delivery, lithography and packaging gives us all the tools that I can sit here today and say, not only are we confident of five nodes in four years, one of those is now done right, we believe that we can go super Moore’s law for the rest of the decade. Meaning that, more than doubling every two years. Today, our biggest chip has a hundred billion transistors, that puts us on track to be a trillion transistors by the end of the decade. Just phenomenal what we’re working on.
Daniel Newman: Yeah. The results seemingly are there and the path has been laid out, which I think, when you took the job was what everyone was looking for. To some extent you came in fairly aggressively with IDM, you laid out IFS, you had your developer event and you were bringing back the geek. And it’s a combination of the geek and the grovian sort of execution that you’ve really built your tenure on here.
And then of course, you’ve got the whole world kind of saying, “Hey, okay. Can they do it?” So you came in with the say-do ratio now.
Because what happened was, is for a short period of time… I mean, you remember you guys were at 98% of the server market, I mean, just unbelievable. Close to 90% of the client market you had, but you got caught on a few and people just started to… And so now you’ve laid it out, but then it’s like, are they believing it yet?
Pat Gelsinger: Yeah.
Daniel Newman: So the one thing, I don’t know if you can speak to this, but so you’re saying though that you truly believe that those four to five points that you just laid out are going to enable you to not only move, cause that no doubt will move, but move faster than everyone else, and you’re confident in that.
Pat Gelsinger: Yeah, absolutely. And Ann Kelleher, who leads this area for us, utter confidence in her leadership. But it’s a little bit of trust and verify, I only look at the defect charts every week. Right, it’s, “Are we on track? Where are we at 7? Why did we get some bad lots there? Tell me…” I mean, we are just being meticulous on all of the data associated with this, and the response from the teams. And maybe the other thing to view this, this is the team that did every transistor innovation for the last three decades. Do you think they’re motivated to get their pride back, to get their honor back? I mean, they are so fired up, right. If I told them to take a week off, they wouldn’t listen to me, right. You know it’s just like you, right. They are back to be that unquestioned leader in the industry with such zeal, enthusiasm, and passion.
And of course, every day we’ve laid out for the market clear deliverables of Intel 7, Intel 4, 328, 18A, and how we’re going to go do that. So yeah, my confidence is growing every day in our ability to execute. And of course, killer products like Alder Lake, our client product for desktop, and mobile Intel 7 is ramping very well. So we’re giving solid proof points to the marketplace and the skepticism. Hey, I’m okay with that because we are executing our say-do or grovian execution is coming back. So yeah, we’re going to do just fine on this.
Daniel Newman: Oh yeah, absolutely. In the long term though, it’s kind of, people hopefully are starting to see it, Pat. In the short term, the question is how do you get them to come on board now?
Pat Gelsinger: Yeah.
Daniel Newman: Because I guess you could kind of say for the investor class, they’re probably looking at you saying, “This looks a lot better, it sounds a lot better. I’m seeing the path, but can I wait to enter into 23 and 24?” And of course you want to start bringing them in now, don’t miss the rocket ship, don’t miss the takeoff. There’s been some stories of other semiconductor companies that sat, they were repressed, repressed, repressed, and then they rocketed. Can’t time it.
Pat Gelsinger: Yeah.
Daniel Newman: So hopefully they’re starting to get it. David Zinsner, yesterday, your CFO, super impressed. And I have to be honest, I’ve been to a ton of investor days, don’t generally walk away going, “The CFO. The CFO was impressive.”
Pat Gelsinger: Whoo hoo.
Daniel Newman: But that was a big decision to make a change there, you brought him in, and one of the things he talked about, because you earlier mentioned kind of that the Street’s, some of these sell-side [pros] you’re talking to, pressuring you on margins, and he came out and kind of said, “I’ve got a lot of different levers to pull to add margin.”
Pat Gelsinger: Yeah.
Daniel Newman: Bringing in someone like him, this more strategic sort of thought, almost thought leader. He was up there on the stage, he sounded like you, passionate. What was sort of compelling there, and how do you feel about making that move?
Pat Gelsinger: Yeah. Part of it was George had been in the role for a number of years, but he wasn’t the five year CFO. Right, he’s 65, and I’m looking for my five year team because we know we got a lot to get done over the next several years. And so, right, George came to the conclusion, “Hey, it’s time for me to step out.” Right, at this point, this is his last CFO role.
And then we went to the market and Dave just was the top of the list, right. And he has the depth of semiconductor experience, talking to the Street, the financial discipline and rigor associated with that. When running a memory company, hey you count the pennies, baby, to be successful in memory. So all of those characteristics, his vision, his leadership, organizational dynamic. I was really thrilled to bring him on the team. And obviously this is getting to be a pretty world class team now when you look at all of the talent that we bring. Been able to add to it, so I feel so excited for that.
And the vision that he laid out to the Street, it’s transparent. We set low bars that they can have confidence in, guardrails that we’re going to manage the business against, and going to Wall Street and saying, “That’s right. My margins are going to be down for the next three years and then they’re going to go up for the following reasons.” Right, and the Street says, “Well, when do I get on the bus?” And [he] says, “Well, hey, the growth is starting and we’re laying out those growth agendas for you and we’re going to invest in the capital required to do it.”
And frankly, I am so proud of the company and the board of directors for giving me authority to do that. Because we’re saying to Wall Street, “Hey, if it goes down for a couple of quarters, okay, we have plenty of cashflow. We’re going to invest because it’s the right thing. It’s the right thing for the industry, the company, the nation, the world. And if you’re not ready to get on the bus yet, we’re okay with that because we’re going to keep doing the right thing.”
Daniel Newman: Yeah and like I said, I walked away I was kind of floored. Because again, I listen to a lot of CFOs, very smart people, clearly to get into that role you have to be. But when you start to hear them and go, that’s like having almost a second CEO, it’s having another person that’s thinking about the bigger picture and then able to articulate it to, by the way, a class of people who really care about what they have to say.
We have a few minutes left, I’ve got a couple of questions. I’m going to kind of try to have you pack them in so we can get this. You mentioned kind of digging into the six parts of the business and offering a greater level of transparency. I think everyone out there wants that to see how is discrete graphics or the GPU business going to be. How are you going to compete with NVIDIA, and just growing the overall business. Talk a little bit about what brought you to make that decision.
Pat Gelsinger: Yeah. And clearly as we looked at this, we said the six businesses, our client business, our data center business, our network and edge business, our accelerated graphics and high performance computing, the foundry and MobilEye. And we look across the six, not much change in the client business, but we had an integrated graphics business, right. And we had all the technology to launch, and one of the fastest growing segments. It’s like, what a shame that we haven’t been doing this. We’re going to do it, right. And I have a leader in Raja who is just on fire for it.
The data center business, obviously critical cloud enterprise, but we sort of had all of the nuggets for networking and edge sort of buried inside of it. So, this huge trend to the intelligent edge, we’re going to capitalize on that. And I was able to hire Nick, a world class leader, professor, innovator in that space to lead that business for us. So network and edge, huge opportunity for us there.
Of course, we’ve launched the foundry business, right? Pretty bold, pretty brazen in that area. And then MobilEye, the leader in ADAS, now moving into the whole AV segment and a world class leader with Amnon and doing it.
So these six businesses, we said they’re going to be reportable segments. So the Street’s going to get all the visibility, “Hey, how you doing? You said you’re going to be greater than a billion dollars this year in the discreet graphics business. Are you doing it?” “Well, we’re going to show every quarter how we’re doing against it and across all six of those business with transparency, commitment.” And how do I manage them? The same way the Street will see them.
Daniel Newman: And that is actually, maybe part of the answer to that question I asked you earlier about how you get people on the bus earlier.
Pat Gelsinger: Yeah.
Daniel Newman: Right. They start to see these results being broken out into segments. Sometimes when you have everything put together too much, it’s like, well, we did a big pull forward on server, make a giant beat this quarter, but was it real. Is there really new demand or was it a supply opportunity that came through, whatever it is. Now they’re going to say, “Hey, this business is growing, this business is growing, this business is growing.” And by the way, it’s not just those sort of core regular business.
So I always love to ask a final question, Pat, and I think you’ll have fun with this one. So you spent the day with the buy-side, with the sell-side, with the tech analyst, and if there’s one thing I’m still not certain is that, do they appreciate the story in its entirety? And if you had a chance to say, here’s what I think they’re missing about Intel and that I’m hoping they understand sooner than later.
Pat Gelsinger: Yeah.
Daniel Newman: What would you say?
Pat Gelsinger: Well, compared to where we’ve been, I’ll just in transparency say we earned the market’s distrust because we hadn’t executed for a long time, and slips in process technologies. And so you have this new team, this new strategy laying out at this point, so I’m very respectful of some of those questions.
But now, our harshest critics are saying, “Okay, that’s the right strategy.” Right, and it’s just a question of when and can they execute that strategy? Well, first I’d say they really need to understand the significance of some of these geopolitical comments. You know, this must work for the nation, the industry, the world, and I need their support to go do that, right. It really is that important to the pathway for the economy, for our national defense, for the security of the world, it is so important. And I want their notes to say that. This is really important for every aspect of the technology and the economy.
Second, we’ve been say-do for the last year. What we’ve said, we’ve done. We said, “Hey, we’re going to deliver Intel 7.” We did it. Alder Lake, best product, ramping rapidly. So the skepticism I think is now overdone because we’re proving that we are executing according to what we said we would. And then as we’ve laid out the financial guidance for the year, here we said, “Hey, this is the picture now for the next five years and so on.” He says “Well, how do I have confidence in that?” Well, because we’re doing what we said we would, right. We’re executing against it, we’ve built with, Dave, flexibility into the business model that as I summarized as we finished the investor day yesterday. The turnaround train is leaving the station, get on board before you miss this opportunity. Because this is a rocket ship that is going to change the industry, change the world and build this iconic Intel. As I like to say, our best days are ahead.
Daniel Newman: I don’t think I could end it better than that. Pat Gelsinger. Thank you so much for joining Making Markets. I look forward to having you back soon.
Pat Gelsinger: Very good.
Announcer: Thank you for tuning in to Making Markets.
Enjoy what you heard? Please subscribe to get every episode on your favorite podcast platform. You can also watch us on the web at futurumresearch.com/makingmarkets.
Until next time, this is Making Markets, your essential show for market news, analysis, and commentary on today’s most innovative tech companies.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
