54 Business The Economist February 20th 2021
a manufacturing revolution every other
year. Now “it has lost its mojo,” says Alan
Priestley of Gartner, a research firm, who
worked at Intel for many years. Its “ten na-
nometre” chips were originally pencilled
in for 2015 or 2016 but did not start trickling
out until 2019—an unprecedented delay.
The technology is still not mature. In July
Intel said the next generation of “seven
nanometre” chips would not arrive until
2022, a delay of at least six months.
Manufacturing stumbles have cost it
business. amd, its most direct rival, out-
sources production to Taiwan Semicon-
ductor Manufacturing Company (tsmc),
whose technology is now ahead of Intel's.
That means amd's chips are generally fas-
ter, and consume less power; its market
share has more than doubled since 2019.
A second challenge is the industry’s
growing specialisation—a problem for In-
tel’s traditional forte of general-purpose
chips, especially if desktop pcs continue to
stagnate. Technology giants, flush with
cash and keen to extract every drop of per-
formance for their specific purposes, in-
creasingly design their own semiconduc-
tors. In 2020 Apple said it would drop Intel
from its laptops and desktops in favour of
custom-designed chips. Amazon is rolling
out its “Graviton” cloud-computing proc-
essors, also designed in-house and made
by tsmc. Microsoft, whose cloud business
is second only to Amazon’s, is rumoured to
be working on something similar.
Intel has also failed to make any head-
way in smartphones, the most popular
computers ever made. An effort in the late
1990s to build graphics chips, which have
also proved handy for artificial intelli-
gence (ai), and to which Nvidia owes its
enviable valuation, petered out. Attempts
to diversify into clever new sorts of pro-
grammable or memory chips—in 2015 it
paid $16.7bn for Altera, which makes
them—have so far not paid off in a big way.
Mr Gelsinger has yet to say how he
plans to deal with the challenges. He does
not look like a revolutionary. He began
working at Intel aged 18, before leaving in
2009 to preside over emc, a data-storage
firm, and for the past nine years heading
vmware, a software firm. In an email to In-
tel’s staff after his appointment was an-
nounced he invoked its glory days, recall-
ing being “mentored at the feet of Grove,
[Robert] Noyce and [Gordon] Moore”, the
last two being the firm’s founders. Like
them but unlike his predecessor, Bob
Swan, Mr Gelsinger is an engineer, who in
1989 led the design of a flagship chip.
His first job will be to try to turn the
firm’s ailing manufacturing division
around. Intel already outsources the man-
ufacturing of some lower-end chips to
tsmc. Its production woes will force it, at
least temporarily, to send more business to
Taiwan, perhaps including some of its pri-cier desktop and graphics chips. Daniel
Loeb, an activist investor with a sizeable
stake in Intel, sent a letter to the firm’s
management in December urging it to
abandon factories entirely and restrict it-
self to designing chips that other firms,
such as tsmc, would make. On paper, that
looks attractive: Intel capital expenditure
in 2020 amounted to $14.2bn, almost all of
it on its chip factories. amd, meanwhile,
spun out its manufacturing business in
2009, and is thriving today. Nvidia has
been “fabless” since its founding in 1993.
Finding a buyer could be tricky, says
Linley Gwennap, a veteran chip-industry
watcher, precisely because Intel’s factories
are now behind the cutting edge. Most of
the world’s chipmakers, which might be
tempted by the fabs, are in Asia. Sincechips are a front in America’s tech war with
China, politicians may veto a sale to a non-
American bidder.
In any case, Mr Gelsinger has said he
will ignore Mr Loeb’s suggestion. In Janu-
ary the new boss said that, although the
firm may use more outsourcing for some
products, he intends to pursue the hard,
costly task of restoring Intel to its custom-
ary position at chipmaking’s leading edge.
He also seems minded to pursue his prede-
cessor’s strategy of diversifying into new
products, including graphics-to-ai chips.
“Our opportunity as a world-leading semi-
conductor manufacturer is greater than it’s
ever been,” he wrote. The direction of trav-
el, then, is not about to change. Intel’s sha-
reholders will have to hope that Mr Gelsin-
ger can at least get it back on the pace.F
rom “gold digger”to “Money, Mon-
ey, Money”, Vivendi’s shareholders
have lots of tunes to whistle as they stroll
to the bank. On February 13th the French
conglomerate announced plans to spin
off Universal Music Group, its most
valuable asset and the world’s largest
record label. Vivendi and Tencent, Uni-
versal’s Chinese co-owner, will each
retain a 20% stake, with the rest distrib-
uted among Vivendi’s shareholders.
Universal, which owns the rights to
those Kanye and abbaclassics, among
other discographies, will be the second
big label to go public. Warner Music
Group did so last June. Its value has since
risen by 28%, to $20bn. Vivendi expects
Universal’s to exceed €30bn ($36bn).
Eight years ago, when Vivendi turneddown €7bn for Universal from SoftBank,
a Japanese group, the offer looked gener-
ous. The recorded-music industry was
on its knees, revenues cut almost in half
by online piracy. Now the internet is
powering a revival, as streamers like
Spotify bring in subscribers. Universal
posted a 5% rise in revenues, year on
year, in the first nine months of 2020.
Industry sales should surpass their peak
in 1999 within three years.
By going solo Universal will shed the
“conglomerate discount” that weighs
down Vivendi’s shares, as would-be
investors in the music business are put
off by its parent’s tv, advertising, tele-
coms and other interests. The music
business is thirsty for capital. An exec-
utive at another label reports bidding
wars in which artists offered $200,000 to
sign in the morning command $500,000
by day’s end. Vivendi, for its part, is
looking at new media acquisitions, many
of which are going cheap.
Yet the listing also hints that recorded
music’s comeback may be nearing a
crescendo. Double-digit revenue growth
in recent years will drop to about 3% a
year by 2024, forecasts Bernstein, a
broker. Three in five American homes
now have a music-streaming subscrip-
tion, up from one in five in 2016. The
share won’t go much higher. Artists, as
well as platforms like TikTok, are press-
ing labels for a better deal on royalties.
“There’s a phrase in French: ‘The trees
don’t grow right up to the sky’,” says
Simon Gillham, who sits on Vivendi’s
management board. “There’s a right time
to cash in on the value you’ve created.”The record industryMusical shares
The latest listing of a major label shows the streaming boom is maturingKanye ponders Universal truths