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Intel Leverages Manufacturing Capabilities to Compete

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How Intel sets itself apart

In the previous part of this series, we learned that Intel (INTC) is investing heavily in R&D (research and development) to tap into the data center and IoT (Internet of Things) spaces. In this part, we’ll look at what differentiates Intel from its rivals.

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In-house model

While many of its peers conduct research and development in-house and outsource manufacturing to third-party fabrication facilities, or fabs, Intel undertakes both of these activities in-house.

What’s more, Intel uses a “tick-tock” model of innovation, where “tick” represents advancements in process technology and “tock,” advancements in microarchitecture.

The company’s fabrication facilities in the US, China (FXI), and Israel, combined with advancements in process technology, give Intel complete control over power, cost, and size.

Intel’s technology model

As seen in the above chart, with every new microprocessor, Intel upgrades technology in four areas:

  • performance
  • energy efficiency
  • new capabilities
  • advanced form factor

Intel’s integrated device manufacturing allows it to introduce these new technologies in the market faster than its competitors. Shifting to more advanced manufacturing process technology entails huge startup costs. Nevertheless, the benefits of these advancements outweigh the costs.

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Future of semiconductor manufacturing

Currently, silicon fabs use 300 mm, or 11.8 inch, wafers—a thin slice of semiconductor material such as silicon, upon which integrated circuits are fabricated. The cost of these fabs can only be borne by companies generating revenues in the range of $9 billion to $12 billion. This would force many companies, including Freescale (FSL), NXP Semiconductors (NXPI), Broadcom (BRCM), and Advanced Micro Devices (AMD), to go fabless.

As technology advances, silicon fabs would use 450 mm, or 17.7 inch, wafers that would require a company to generate $15 billion in revenues to stay afloat. Only a few large companies, including Intel, Samsung (SSNLF), and Taiwan Semiconductor Manufacturing Company (TSM), would be able to run 450 mm manufacturing sites.

You can get exposure to Intel with the First Trust NASDAQ Technology Dividend ETF (TDIV). Intel constitutes 7.18% of TDIV.

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