[Apple Shockwave]⑮ The Farm Boy Returns... Dreaming of the 'Silicon Heartland'

Gelsinger Loses Successor Battle Painted by 'Editor' Grove
CEO Rival Meloni Suddenly Falls Due to Stroke
Intel Stuck in CEO Turmoil... Falls to Second-Tier Company
Gelsinger Dreams of Semiconductor Revival in Central, Not Western, Region

Editor's Note[Apple Shockwave] is a content series that examines the upheaval caused by Apple entering the semiconductor market. You might wonder why Apple is involved in semiconductors. Apple is no longer just a company that makes smartphones and computers. After long efforts starting from its founder, the late Steve Jobs, Apple has designed world-class semiconductors used in mobile devices. If Intel was the leader in the PC era, Apple has become the top predator in the semiconductor ecosystem of the mobile era. Amid the global semiconductor supply chain crisis and massive investments in semiconductor production facilities, we will carefully examine the upheaval and prospects in the semiconductor market brought about by Apple Silicon to broaden our readers' insights. Apple Shockwave will visit readers every Saturday. After more than 40 installments, it will be published as a book.

Pat Gelsinger, CEO of Intel, is full of energy. During an event, he was even broadcast doing push-ups and physical training exercises. It is clear that his energy and passion have been a great driving force in semiconductor development.

Joining Intel as a teenager and becoming the first Chief Technology Officer (CTO) in his early 40s would have been impossible without such passion. He steadily moved toward his dream of becoming the "future Intel CEO." However, Gelsinger experienced his first setback at Intel after the "fathers of Silicon Valley" who had nurtured him left. The passionate engineer who dreamed of becoming CEO left the company, voluntarily or involuntarily. Gelsinger's failure is not a simple matter. It was also a decisive moment marking the beginning of the decline of Intel, then the world's largest semiconductor company, and the semiconductor superpower, the United States.

Intel CEO Pat Gelsinger is doing push-ups ahead of his keynote speech. Photo by Pat Gelsinger Twitter

When Gelsinger returned to Intel in 2021, the United States was finally able to embark on semiconductor reshoring. Let's look at how the personnel changes of one company led to the decline of the U.S. semiconductor industry.

'The 'Perfectionist' Grove and the Winner of the Successor Competition

In September 2009, during the height of the global financial crisis, Intel suddenly announced changes in management and the merger of business units. The person who left Intel was Gelsinger. After five years as CTO, the PC and server CPU divisions he led were merged with the mobile chip division.

This was an important decision hinting at changes in Intel's top management. While Gelsinger left for the storage equipment company EMC, Sean Maloney became Senior Vice President overseeing PC, server, and mobile divisions.

Maloney and Gelsinger competed for the next Intel CEO position, but Maloney was confirmed as the winner by the personnel decisions at the time. Rumors that Maloney would be the next CEO turned out to be true.

Gelsinger, from an Amish farm in Pennsylvania, competed with Maloney, who was from the UK, for the next Intel CEO position.

After the founder era, Intel encouraged competition to nurture the next leader. Former Chairman Andy Grove chose Gelsinger, who had been giving presentations to him, and called him to his office by phone. Grove then directly pushed and encouraged Gelsinger. Having learned from the "father of Silicon Valley," Gelsinger grew from a country bumpkin to Intel's top technologist. Gelsinger still cites Grove as his mentor.

Grove also steadied Gelsinger when he was wavering. When Gelsinger was about to leave Intel to attend a PhD program at Stanford University, Grove said this and assigned him to develop the 486 CPU.

"You may learn flight simulators there, but here you can fly the plane."

Maloney also clearly had sufficient qualifications to become Intel CEO. He joined Intel in 1982, three years after Gelsinger. He was well known as a manager who was eccentric but strongly criticized and nurtured juniors, having closely assisted Grove for three years. One can imagine how much Maloney was tempered by Grove.

Sean Maloney, former Intel Executive Vice President, had secured the position of Intel CEO but retired due to health issues. His downfall represents a significant setback for the U.S. semiconductor industry.

Maloney's background was completely different from Gelsinger's. He was from the UK. A young man who enjoyed rugby, swimming, and skiing crossed the Atlantic to California for semiconductors. Maloney's nicknames, "Master Communicator" and "Troubleshooter," show his stature. He was trained as tomorrow's CEO step by step, holding positions such as head of sales and marketing groups and Chief Sales and Marketing Officer.

Maloney and Gelsinger appeared to have different views on Intel's business direction. Maloney led Intel's WiMAX communication network business, which Intel spearheaded. Gelsinger was negative about investing in the WiMAX business. He believed more funds should be invested in CPU research and development (R&D), which he led.

In the competition between the two for the CEO position of the world's top semiconductor company, a decisive variable appeared: Paul Otellini, then CEO. Otellini, the first Intel CEO who was not an engineer, began to ignore Gelsinger. After Otellini took the CEO position, Gelsinger was again assigned to develop CPUs for servers and PCs. This was when Intel was shaken by AMD's pursuit. Gelsinger promoted the now-common multi-core CPU and the "tick-tock" strategy (alternating yearly between process improvements and core improvements). Gelsinger later revealed that his relationship with Otellini was not good after he resigned from Intel. Otellini's favor shifted to another person: Maloney.

Maloney specialized in the mobile field within Intel, leading projects such as the Ultra-Mobile PC (UMPC). Intel's choice of Maloney for the mobile era was not a strange choice. Maloney also recognized the importance of China and led business in Asia. Maloney's wife is of Chinese descent, so he naturally had a deep understanding of China. Understanding the rapidly growing Chinese business was a great strength.

Amid Maloney's rise and conflicts with the CEO, Gelsinger left Intel after pouring 30 years of passion into the company. He headed not to Silicon Valley, where he had lived for 30 years, but to Boston, on the opposite side of the U.S. continent. Moreover, it was not a semiconductor company but EMC, a data storage device manufacturer. EMC trained Gelsinger as CEO. He received management lessons and learned to read financial statements. Three years later, Gelsinger returned to Silicon Valley as CEO of VMWARE, a virtualization specialist. At a company that embarked on a growth trajectory with the new trends of cloud and virtualization software, Gelsinger transformed from an engineer into an excellent CEO.

Stroke of the Next Intel CEO Candidate... Changing the Semiconductor Landscape

The problem occurred at Intel. One year after Gelsinger left Intel, Maloney suffered a stroke. Normal work was naturally impossible. He dramatically recovered to some extent and returned to work but could not serve as CEO. The CEO candidate Gelsinger was already gone from the company. They had to look for someone else, but it was impossible to find a CEO candidate as well-trained by Grove as Maloney and Gelsinger.

Otellini decided to retire earlier than planned in 2013 and handed over the reins to then Chief Operating Officer Brian Krzanich. Many point to this as the starting point of Intel's decline. Cutting R&D budgets and workforce reductions became Krzanich's trademarks.

Even though Intel generated enormous profits, the CEO who inherited it prioritized cost-cutting over future investments. He abandoned the introduction of extreme ultraviolet (EUV) equipment, which Andy Grove had sown the seeds for, and even announced that Moore's Law was dead. Without further investment in fine processes, Intel became a toothless tiger. TSMC and Samsung continued massive investments and surpassed Intel in fine processes. AMD, once considered a mere follower of Intel, overturned its founder's statement "The man is the fab" by transitioning to fabless and stood alongside TSMC ahead of Intel. Although the stock price rose, it was hollow inside.

Even internal experts who made correct judgments became disillusioned. A representative example is Aicha Evans, who was in charge of Intel's communications modem division. After Intel acquired the modem division from Germany's Infineon, she was tasked with switching chip manufacturing from TSMC to Intel. Her opinion that Intel fabs, specialized in high-performance CPUs, were inferior to TSMC, specialized in ARM designs, was ignored by Krzanich. Instead, she was met with scornful ridicule accusing her of underestimating Intel's manufacturing capabilities.

In 2018, Krzanich stepped down from the CEO position he had held for six years after it was revealed he had an office romance with a subordinate. Rumors circulated in Silicon Valley that Intel's board could no longer tolerate Krzanich's management and used the scandal as a pretext to remove him. Then, for another three years, Bob Swan took over the collapsing Intel, but the pace of decline accelerated further.

Intel had nowhere left to retreat. After even Apple parted ways with Intel, in 2021 Intel's board recalled one person: Gelsinger, who had left 12 years earlier. The farm boy who had dreamed of becoming Intel CEO but had not fulfilled his ambition returned to pursue his dream.

Gelsinger shared the vision with President Joe Biden, who is from the same region. The plan was made to transform the underdeveloped "Rust Belt" into a new semiconductor hub?not Silicon Valley but the Midwest?to produce the latest semiconductors used in the U.S.

Gelsinger recently said this in a commencement speech at Carnegie Mellon University in Pittsburgh, known for its engineering school. Pittsburgh is in Gelsinger's home state of Pennsylvania but is also part of the Rust Belt region around the Great Lakes.

U.S. President Joe Biden (left) and Intel CEO Pat Gelsinger are attending the groundbreaking ceremony of the Intel semiconductor plant in New Albany, Ohio, last September, smiling brightly as they talk. Photo by Pat Gelsinger Twitter

"We are now building a silicon heartland."

This is a meaningful expression. It is a declaration to transform cities that have become slums from once-thriving industrial zones leading America's resurgence into semiconductor hubs. The goal of the silicon heartland is not just Intel chip production. It is a production base in the U.S. for American companies manufacturing cutting-edge chips designed in the U.S.?chips that go into Apple iPhones. This is the goal of Gelsinger and President Biden.