When Pat Gelsinger took over as CEO of Intel in 2021, the company had “lost its way,” he says. For Gelsinger, who was returning to the chipmaker where he’d once been CTO, the plan was to invest and rebuild.
Since then, he’s had to add to that list of priorities the need to navigate growing geopolitical risks and snowballing competition in hot areas like artificial intelligence. In an Oct. 17 interview conducted in advance of Thursday’s earnings report, Gelsinger sat down with Barron’s Andy Serwer to talk about China, Israel, the Chips Act, and more.
The following conversation has been edited for length and clarity.
Barron’s: Chipmakers are very much in the news—Advanced Micro Devices (ticker: AMD), Arm (ARM), Nvidia (NVDA), Taiwan Semiconductor (TSM). Talk to us about exactly where Intel fits in to this competitive landscape.
Pat Gelsinger: Clearly I came back to Intel (INTC) over a period of time [when] Intel had lost its way, lost its leadership, lost its engineering. Or, in the words of our famous founder Andy Grove, we had lost our “Grovian” culture—this maniac, data-driven engineering-centric view. So what have we been doing? Rebuilding the company. Two and a half years ago we began what I call the IDM 2.0 journey. Intel was the integrated design and manufacturer, now under IDM 2.0 we’re going to design, manufacture, and we’re going to be a foundry, or manufacturer, for other people’s chips as well. So a major strategic shift.
It also became a major capital cycle. We were underinvesting in factory. We are going to aggressively invest in the build-out of factories for the future. So a big capital investment. Also, a rebuilding of our technology leadership. We’ve done every major transistor invention for three decades— do it again and get back to transistor and process leadership, but also rebuild the engineering disciplines. Products that the competitors fear and customers love. So all of those things and two and a half years in? I say we have a passing grade. We’re rebuilding the company and also driving some pretty major shifts in the industry as well. CHIPS Act, and reshoring, and rebalancing of supply chains; this has become a major geopolitical as well as technology and business story.
Part of the business is the Programmable Solutions Group, which is a business you’re looking to spin off. Talk to us about what that means and how that fits into the strategy.
When I came back to the company, looking at the assets of the company, I said we’re going to build two companies inside of one: manufacturing and foundry, and fabulous products like an AMD or
Nvidia
and TSMC. We’re going to do both of those, but I also looked at the assets of the company and said, ‘Where are we not getting the most value, most execution or shareholder return?’ So we spun out Mobileye. Very successful and we did that a year ago. I announced that we had a technology equipment company, IMS, for mask writing and equipments. And so we’re creating another company in that area. And Intel had acquired Altera, eightish years ago, and we underperformed with it as part of Intel so I said, we’re going to set that up to again be an independent company, but continue to leverage Intel and our manufacturing capabilities.
So essentially I’m creating two companies plus three satellite companies. We’re really reshaping the entirety of the Intel entity. And I’m quite excited about the progress that we’re making with PSG. We’ve announced that we will be separating it in the early part of next year and hope to do an IPO of it in two, three years.
I want to talk about your global footprint, because it’s a risky world out there. You have manufacturing and fabs around the globe, including some exposure in Israel. How do you think about global risk in that context?
This has been a huge agenda in my period as CEO. The world needs balanced and resilient supply chains. And with that it’s pretty straightforward. We can’t have one port, as we saw in the Covid crisis, and the world stops. We can’t have one island where we’re dependent. I have major construction projects under way today: Ireland, Israel, Poland, Germany and the build-out in the U.S. with our Chips Act proposals in Arizona, Oregon, New Mexico and Ohio, and in Malaysia and Vietnam. Balanced across Asia, U.S. Americas and Europe.
We were one of the first companies in Israel. Next year will be year 50 for Intel in Israel. What an extraordinary story of them really emerging as they call it the start-up nation that they have, in leadership, technology, and numerous domains. I also have a manufacturing site there. So for us this is deeply personal. [I’ve had] well over 100 visits to Israel over my career, many personal friends that I have there, business colleagues that have become lifelong, intimate friends of mine and my family. So this is very important to us, but they’re operating with extraordinary resilience. And we continue to see our operations perform well even today.
China is another area where you have exposure, relationships, and manufacturing facilities. In this new environment where there’s tension between the U.S., and chips have become a focal point, how are you thinking about that?
It’s clearly one of these great geopolitical overtures that has enormous implications as you think about industries broadly, but in particular, 25% or so of all semiconductors are used or consumed in China and it delivers another 25 to 30% of the supply chains of the world. So half of all semiconductors are used in or flow through China. It’s not like we can decide in the U.S., let’s stop doing China—that’s half the market! So our policies, our thoughts on this regard need to be very long-term, strategic, intentional. We can’t let that just become, are we going to like or not like a particular policy in the U.S. or China or Europe. No, we must be engaged in this, it is a vital piece of the global supply chains.
That said, there are concerns, and I say hey, we want to maximize exports every day of the week including China, half of the semiconductor market of the world. We want to be very thoughtful about how technologies flow and we need to be finally aligned with our allies. To me those three parts: manage the technologies, align with our allies, but maximize our export is the right long-term policy for how we treat China and this part of the world. As we look at it today, this is precarious. We haven’t been operating this way for decades. All the sudden Covid caused us all to wake up and realize: Oh my we’re dependent on these supply chains, how did that happen? Well, it was 30 years of policy that led us to this point.
We’re seeing a lot of building of chip capacity here in the United States. You mentioned several projects that you have going on, can that manufacturing really be competitive in terms of producing chips that are affordable for industry?
That’s a great question and that’s at the heart of the Chips Act. Fundamentally if I were building that Ohio factory or any of the other ones that we’ve mentioned in Asia it would be 30 to 40% less expensive. When you’re putting $150 billion of capital to work, you can’t be 30 to 40% uncompetitive. What the Chips and Science Act was designed to do—close that gap so that we could bring this manufacturing back to America and rebuild what I would call, instead of the Rust Belt, the Silicon Heartland, bringing back manufacturing at scale and construction and technicians and the full gamut of the workforce. These manufacturing and fabrication facilities our studies have shown they generate ten jobs for every job that we create. Close the cost gap, build this momentum of energy, of investment, research, and skills creation and job creation.
Generative AI, artificial intelligence, is a huge end market for chips going forward and I’m wondering how Intel plays there.
We get to play two ways. One is, I have my generative AI chips, and we said, build AI into everything, build it into the PCs, build it into the edge computer so that when you walk into the manufacturing or the distribution, it’s doing facial recognition or being able to do security monitoring. Every application and every enterprise data center mining that data will become AI-efied. So we have components that will fit into every one of those different application areas. So build our products AI everywhere and in every product that we build.
But secondly, we’re going to be a foundry for the chips that don’t get built by Intel and I get two bites of the apple here. Because is Google going to stop building their chip to only use mine? Maybe not. Are they going to founder with us? Maybe so. So we do have opportunities to open our manufacturing and technology envelope to every company in the industry, and say, come on in we’re open for business to be your foundry or your chip provider.
What about the supply-demand balance when it comes to chips? Some people have suggested there’s a glut now after there was a shortage during Covid.
The semiconductor industry is a long lead time, capital intensive industry: the only way to run factories is 101% full. So you have demand and supply signals going up and down. We had the huge Covid surge, and as a result of those characteristics the industry has always been cyclical. I would quote Gordon Moore, he said we have supply demand balance exactly two moments in time: one moment on the way up, one moment on the way down. But today the industry is about $600 billion dollars. The estimates are that it’s a trillion dollars by the end of the decade. It takes me four to five years to build a major new factory location. If I believe we’re going from $600 billion to a trillion at the end of the decade, I must be making those capital investments now, even if there might be some near-term supply-demand imbalances. I am absolutely convinced this is so critical for the future. We’re building for the trillion dollar industry at the end of the decade.
What does the labor picture right now look like for you in the U.S.?
My biggest shortage right now is actually in skilled construction workers for the factories that we’re building and that’s the big shortage that we face right now. I need more plumbers and electricians and concrete workers because we’re building. But keeping the best workforce, particularly in technology, if you’re a great engineer you are in demand. You always have been and you always will be. But as we build and rebuild manufacturing it’s going to be a lot of technicians that I need to be training for.
A piece of the Chips and Science Act was very much on workforce development. And this is something [with] a lot of resonance. Even on this trip, I’m stopping in at Purdue, we’ve seen extraordinary interest in the Midwest schools and that was really a big enthusiastic piece of our Ohio site announcement. All the Midwest schools said, hey, we’re going to partner. Ohio State and Michigan State, they’ve been mortal enemies for 100 years. They’re partnering on workforce development. And to me this idea has really resonated: The Rust Belt is dead, the Silicon Heartland and the talent, the skills emerging to support that.
I want to shift gears a little bit and ask about you. You are a person of faith, a religious person, and I’m wondering how that manifests itself at work or if it does it all.
Clearly I’ve been very public about my faith views. I’ve written a book about juggling God, family, and faith, about faith-work-life balance. Intel’s been recognized as the most faith-friendly company by the U.N. for two consecutive years. It’s part of who I am as a leader, but I also realize that my faith perspectives are not yours. Almost 80% of humanity puts their faith views as one of their top three priorities for their life, and if almost 80% of humanity puts it in the top three, then I need to put it in the top three as well as an employer from a diversity and inclusion perspective. I want your whole self, your ethnic views and your faith views to be accepted. Not just accepted, I want them to be reinforced and highlighted because that’s when I get the whole self to the workforce.
I also believe I’m on a mission. I’m on a calling, God put me in this job. He’s prepared me for 40 years of my career to be this person leading this company at this time to rebuild the iconic Intel, to rebuild the technology industry, and fundamentally to rebuild manufacturing on Western shores. That is a calling that I think I uniquely wake up each day, and I say, you know, thank you God for giving me the skills, the training, but even more importantly the wisdom and your guidance to go do this job every day.
Why should investors buy or hold Intel stock?
When I took the job my wife asked me two questions: How much are you going to have to work and how long are you going to have to work. On how long I said, it’s not less than five years to turn around this company. So here we are two and a half years in, halfway point on that journey. We are starting to see the financials look better. The products that we’ve worked on for the last two and a half years, well, they’re executing better. They’ve regained market share. They laid out this audacious plan to get back to technology and transistor leadership.
Clearly there’s been some doubt, debate, whether we could pull off this audacious plan. Two and a half years into it the green shoots are starting to become proper seedlings. The evidence is building that the greatest turnaround, but not only the greatest turnaround, the most important turnaround in the industry—if not the entirety of the business world today—is now taking shape. This is an opportunity. That’s what I’m passionate about. I think we’re starting to develop real evidence that yes, in fact, we’re going to pull it off. Get on in and join us.
Thanks, Pat.
Write to Stevie Rosignol-Cortez at stevie.rosignol-cortez@dowjones.com
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