Case Study: Intel’s Responsibility to the Nation

Aug 04, 2020

Corporate actual responsibility entails an obligation to the nation to reinvest in its “industrial commons” and make strategic decisions that improve its economic trajectory.

Long a giant of American innovation and high-tech manufacturing, the Silicon Valley-based chipmaker Intel has made a conscious priority of bolstering American competitiveness in a strategic sector. Many technology firms have decided that physical assets and manufacturing know-how are unnecessary in a knowledge-based economy and pursued strategies that seek to minimize capital investment. Intel, by contrast, has built and maintained its competitive advantage through a strategy of vertical integration in manufacturing, excelling in the design, fabrication, and marketing of its own products. It is now the world’s largest and most valuable semiconductor chipmaker and the only one that has kept a large portion of its production in the United States.

The chipmaking industry is unique in the degree to which success requires not only designing new and better products, but also designing new and better tools to make those products. Governed by “Moore’s Law,” named for Intel co-founder Gordon Moore, the industry has consistently managed to double the number of transistors that could fit on a chip every two years. Yet many chipmakers have pursued a “fabless” business model, in which they design and sell semiconductors, but outsource fabrication to foundries based most commonly in Asia. Not Intel; the American chipmaker has operated and expanded its own foundries in the U.S. and around the world.

Under the long-time leadership of iconic CEO Andy Grove, Intel remained a perennial investor in the American industrial base, whether through expansion of its own domestic production facilities or through collaborations with the U.S. government. “All of us in business,” Grove claimed, “have a responsibility to maintain the industrial base on which we depend and the society whose adaptability — and stability — we may have taken for granted.” Through the 1980s, as Japanese mercantilism threatened American hegemony in high-tech sectors, Intel was at the forefront of American efforts to secure its technology supremacy. Most notably, it was heavily involved in the U.S. government’s SEMATECH (Semiconductor Manufacturing Technology) program, a public-private consortium of leading American chipmakers launched in 1988 to revitalize the American semiconductor industry. Intel’s co-founder, Robert Noyce, led the program through its early years, and its success became a model for future public-private efforts in high-tech research and development. The “flagship technonationalist venture” has since been widely credited within American industry for cementing U.S. semiconductor leadership at a crucial time.

Grove was also a vocal, public critic of offshoring and the failure of American firms to invest in domestic production. The Hungarian-born engineer emerged as a Cassandra of American manufacturing and economic policy, warning that underinvestment and offshoring would hobble American innovation and destroy the livelihoods of millions of Americans. He challenged the prevailing belief that an innovation-based, “knowledge” economy could grow sustainably without a domestic manufacturing base to scale its innovations. “Without scaling,” Grove argued, “we don’t just lose jobs—we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate.”

Intel remains one of the world’s leading investors in R&D and has prioritized American competitiveness in its strategic decision-making. In 2017, the company announced that it would invest an additional $7 billion in existing production facilities in Oregon, Arizona, and New Mexico. (For a sense of scale: in 2019, foreign direct investment in establishing or expanding U.S. operations, across all industries, totaled just $4 billion.) Then-CEO Paul Otellini explained that Intel “made a conscious decision to expand these factories here because we believe that investing in the future of American discovery isn’t just the right thing to do, it is an essential business decision if we want the United States to continue to be the engine of new ideas and technical leadership.”

Now, as the COVID-19 pandemic has exposed the fragility of America’s critical supply chains, Intel is already considering a new public-private collaboration with the U.S. government to restore the nation’s high-tech supply chains. In a letter to the Pentagon, CEO Bob Swan expressed Intel’s readiness to support efforts to build a commercial foundry and “ensure continued US technological leadership.” While it remains to be seen what (if any) efforts the federal government will pursue, Intel has been at the center of discussions about strengthening the American semiconductor manufacturing base.

But Intel has also met an inflection point. Recent production delays for a state-of-the-art, 7-nanometer chip have forced Intel executives to contemplate outsourcing fabrication to its Taiwanese rival TSMC, who now leads the industry in chip development and has invested in U.S. production facilities.

The nation’s economic competitiveness doesn’t have to be sacrificed to maintain technological innovation or corporate performance—to the contrary, they can go hand in hand. Andy Grove’s Intel upheld its obligations to the nation while maintaining its competitive advantage in an intensely competitive, innovation-driven, global market. The near future will test whether Intel still abides by those lessons.