Rivals Nvidia and Intel Might Join Forces to End Chip Shortage
Nvidia
and Intel may come together to manufacture more chips as shortages persist.
Ancient
Greek philosopher Plato once said, “The greatest wealth is to live content with
little.”
But economics
doesn't typically work like that. In the words of renowned British economist Charles
Robbins, "Humans want what they can't have."
Abundance
and scarcity are two sides of the same coin. Societies typically deal with scarcity
by increasing supply.
And if
there's one thing that's dominated news headlines when it comes to scarcity its
chips or semiconductors.
Makers
of semiconductors or chip manufacturers have been grappling with the impact of global
supply chain shortages that have led to a dearth of chips that are used in everything
from cars to home appliances for nearly two years.
The looming
crisis first started when Washington put sanctions
on China’s biggest telecoms equipment maker, Huawei Technologies Huawei,
amid spying allegations that the Chinese company has constantly denied.
During
the pandemic, factory closures further hurt this sector, because demand for chips
continued to rise for both remote work and entertainment.
Everyone
from automakers like Ford (F) - Get
Ford Motor Company Report and General Motors (GM) - Get
General Motors Company Report, one of the hardest-hit sectors
due to these chip shortages to tech companies like Apple (AAPL) - Get
Apple Inc. Report, which has started producing its own chips, to
semiconductor giants; are trying to find ways around this conundrum.
And Nvidia (NVDA) - Get
NVIDIA Corporation Report the largest chip company in America by market
value is open to exploring a deal with rival chipmaker Intel (INTC) - Get
Intel Corporation Report as it seeks to expand and diversify its
supply base.
Nvidia's ambitions
are to replicate the success that Asia's chip giant Taiwan Semiconductor Manufacturing
Co (TSMC) enjoys.
And the
company said it is sophisticated and mature enough to realize that "we have
to collaborate."
"They're
interested in us using their foundries. We're very interested in exploring it, and
being a foundry at the caliber of a TSMC, it is not for the faint of heart,"
said Nvidia Chief Executive Jensen Huang during a recent
company event.
"I'm
encouraged by the work that is done at Intel. I think that this is a direction they
have to go and we're interested in looking at the process technology," Huang
said.
Huang
added that these discussions with Intel could take a while to conclude and added
that its partnerships with TSMC and South Korean tech giant Samsung in particular
took years to cultivate.
"With
respect to Intel, Foundry discussions take a long time. And it's not just about
desire, but we have to align technology. The business models have to be aligned.
The capacity has to be aligned. The operations process and the nature of the two
companies have to be aligned. It takes a fair amount of time, and it takes a lot
of deep, deep discussion. We're not buying milk here. This is really about integration
of supply chains. And so we are very open-minded to considering Intel. And I'm delighted
by the efforts that they're making," he added.
Intel
already helps Nvidia in its supercomputing business.
"We've
diversified the number of nodes, we've diversified the number of foundries, and
Intel is an excellent partner of ours. Their CPUs [central processing unit], we
qualify their CPUs for all of our accelerated computing platforms. When we pioneer
new systems like we just did with Omniverse computer,
we partnered with them to build the first generation of the Omniverse
computers, our engineers worked very closely together," said Huang.
Nvidia refers
to "Omniverse" as its version of the metaverse and is making huge bets on artificial intelligence
alliances, the company recently shared on its investor day.
"So,
I think our relationship with Intel is quite long. We work with them across a whole
lot of different areas. Every single laptop, every single PC, every single server,
every single supercomputer we collaborate. Let's see on the software stack,"
Huang added.
Admittedly,
Nvidia wants to expand its supply base for manufacturing
chips.
"Our
strategy is to expand our supply base with diversity and redundancy at every single
layer, at the chip layer, at the substrate layer, at the assembly layer, at the
system layer, at every single layer," he added.
The company
said it enjoys working with partners that include bigwigs like Marvell Tech (MRVL) - Get
Marvell Technology, Inc. Report Broadcom (AVGO) - Get
Broadcom Inc. Report and Advanced Micro Devices (AMD) - Get
Advanced Micro Devices, Inc. Report.
"We try to take the not paranoid approach
when we work with partners, and we try to rely on them, let them know we're relying
on them, trust them, let them know that we trust them, and so far, it's served as
well."
Chip-making
is a costly proposition. Even more so when chips are in short supply.
Nvidia engages
in the design and manufacture of computer graphics processors, chipsets, and related
multimedia software.
The chip-making
colossus Nvidia reported capital expenditure of $976 million
towards property, plant, and equipment for the last twelve months ending January
30, 2022, according to data from FactSet.
At the
peak of the coronavirus pandemic, Nvidia's capital expenditure
jumped 130.7% and more than doubled to $1.12 billion for FY 2021 ended in January.
For FY2020, this number was $489 million FactSet data
shows.
TSMC's
capital expenditures for 2021 totaled a massive "$30 billion—up 66% from the
previous year and nearly triple the company’s average over the previous five,"
according to FactSet data cited by The
Wall Street Journal.