Intel CEO Ousted: The Truth Behind the Fall of a Giant and the Path to Revitalizing Japan's Semiconductor Industry

Intel, once a dominant player in the semiconductor industry, is now facing hardship. Three consecutive quarters of net losses from July to September 2024, and the de facto dismissal of CEO Pat Gelsinger on December 1st. This giant's decline symbolizes the drastic structural changes in the rapidly changing semiconductor industry, and at the same time, it can be said to hold the potential for the revival of the Japanese semiconductor industry.

Factors Contributing to Intel's Decline: Clinging to Vertical Integration and Slow Response to the AI Shift

The reasons for Intel's decline lie in the "vertical integration" model that the company has long maintained. This model, which integrates planning, design, and production, was once a source of competitiveness. However, against the backdrop of the spread of smartphones and the rise of AI technology, "horizontal division of labor" has become the mainstream in the semiconductor industry.

Horizontal division of labor is a business model in which processes such as design, manufacturing, and assembly are divided among specialized companies. Companies called foundries, such as Taiwan's TSMC, which specialize in manufacturing without design, have emerged, and fabless companies like NVIDIA, which specialize in design, have made strides in the AI chip market.

Intel's adherence to the vertical integration model resulted in a slow response to change. In particular, the overwhelming performance and prevalence of NVIDIA's GPUs in the AI chip market have been a major blow to Intel. Although it launched the "Gaudi" series of AI accelerators, it fell short in terms of versatility and software maturity compared to GPUs and failed to gain market support.

Gelsinger's Challenge and Setback: The Limits of the "IDM 2.0" Strategy

Pat Gelsinger, who became CEO in 2021, launched the "IDM 2.0" strategy, aiming for Intel's revival. This can be described as a hybrid model of vertical integration and horizontal division of labor, combining the development of cutting-edge manufacturing technologies, entry into the foundry business, and the flexibility for product divisions to utilize the foundries of other companies.

Gelsinger made huge investments to improve manufacturing technology and expand the foundry business. However, these efforts did not progress as expected, resulting in huge losses. Dissatisfaction among PC and server vendors, Intel's customers, regarding the decline in product competitiveness led to the CEO change.

Path to the Revival of the Japanese Semiconductor Industry: A Lifeline in Horizontal Division of Labor

Intel's decline and the rise of horizontal division of labor can be seen as a major opportunity for the Japanese semiconductor industry. Japanese companies, which once dominated the world with a vertical integration model, lost their international competitiveness after the bursting of the bubble and the Japan-US semiconductor friction. However, they still possess high technological capabilities in specific areas, such as materials and manufacturing equipment.

Japanese companies, including Rapidus, are accelerating their entry into the foundry business, aiming to establish cutting-edge semiconductor manufacturing technologies. Intel's example shows the limitations of the vertical integration model while suggesting a lifeline in horizontal division of labor.

Japanese companies can regain international competitiveness by leveraging their strengths and clarifying their roles within the horizontal division of labor. It will be important to build an ecosystem by collaborating with world-class companies in each field, such as materials, manufacturing equipment, design, and manufacturing.

Summary: Turning Change into Opportunity

Intel's CEO dismissal symbolizes a major turning point in the semiconductor industry. The shift from vertical integration to horizontal division of labor is reshaping the industry's overall power structure, creating new competition and cooperation.

The Japanese semiconductor industry needs to change and turn this change into an opportunity, without being bound by past successes. By maximizing its strengths and strengthening global partnerships within the new trend of horizontal division of labor, it has the potential to once again play a leading role on the world stage.