Business Must Go On

What does Intel know that the rest of the semiconductor industry seems to be ignoring?


Intel’s decision to invest $7 billion in 32nm fabs is possibly the best example yet that in spite of a drop in projected sales, technology companies need to invest in the future. We live in a cyclical business, and cycles begin and end.


Intel is better positioned than most semiconductor companies. It has the largest R&D budget—it’s hard to think of IBM as a chip company, even though it has a larger R&D budget. It also has been sitting on a pile of cash, and it knows exactly what’s needed to push down to the next process nodes because it’s the only processor maker that still relies exclusively on its own fabs to develop a digital manufacturing process.


Intel also knows that if it doesn’t jump on the next process node—it’s already doing core research at 10 nanometers—then someone else might steal its market. That’s Intel-think for paranoia. The company doesn’t really have any rivals left in its core markets. But it does have plenty of new market it’s looking to tap—everything from replacing microcontrollers in automotive and industrial applications to embedded processors, where it will plant future, extremely low power versions of its Atom processor.


But Intel is the start of the cycle. As the largest chip company, when it cuts back on spending the industry feels the pinch. It’s not just a matter of a cutback in consumer spending. People still need computers, whether they’re in data centers or smart phones. Ultimately the companies that produce chips at advanced process nodes will need capital equipment to build them. And they will generate sales throughout the electronics ecosystem that will drive another period of boom and bust.


Some booms will be larger than others. Some downturns will be deeper, like the current one. But if history is any indication, once the machinery gets going again it will run for years. And companies that don’t invest along the way in new tools, new equipment and new technologies could find themselves sitting on the sidelines when the next boom cycle begins.


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