Intel's Vietnam Assembly and Test (VNAT) factory implemented a critical change last year. An "innovative approach to substrate processing" in Vietnam enabled Intel to produce millions of additional products, while competitors were squeezed by supply constraints. The effect on the balance sheet has been impressive. It is estimated that VNAT was responsible for over $2 billion in revenue upside for Intel, helping the company better meet customer demand during a difficult period.
This week, Intel thanked everyone at its Vietnam site for their contributions and credited the success to its vertically integrated business model.
The key change made at VNAT was to set aside some factory floor space to attach all the required capacitors to chip substrate material. An investment was made to buy and train on machinery required for this preparatory but essential step to making finished computer chips.
Previously, chip substrate arrived at Intel's chipmaking factory with capacitors placed ready on one side by the supplier. Intel would then place the capacitors on the other side and use the substrate for the processor. Please also understand that different products require different capacitors in different locations on the substrate. Thus Intel would have to order a quantity of substrate for Chip A, B, C and so on – and it wouldn't be able to chop and change between substrates if it ran out of one or another.
VNAT geared up to take in the substrate that hadn't been processed by the supplier, with no capacitors in place. This reduced a significant processing burden from suppliers, making it easier for Intel to acquire substrates and be flexible with the stock it took in. "By bringing this capability in-house, we are able to complete chip assembly more than 80% faster, while at the same time freeing up the substrate suppliers who are constrained on capacity," noted VP and GM of Intel Products Vietnam, Kim Huat Ooi. Intel's blog post doesn't specifically mention any cost savings on its substrate acquisitions, but it must have enjoyed a saving on this, as it would save the supplier time/money and incur an in-house cost.
Intel's in-house processing of both sides of the substrates began in May 2021, and the team responsible for this process is satisfied that they have already created a scalable manufacturing process that "matches that of our substrate suppliers" in quality terms.
The upshot of VNAT doing all the capacitor placements on substrates in-house was that it "enabled millions of additional units amid supply constraints," claims Intel. Judging from the timings stated above, these benefits were likely seen first with the launch of Alder Lake chips.
Intel's success throws its approach into contrast with the difficulties facing chip companies like AMD and Nvidia which have less vertically integrated businesses. The red and green teams don't have chipmaking factories to reconfigure if they see any opportunities for efficiency gains or cost savings. However, they also don't worry about owning hugely expensive to build (and maintain) production facilities.
During the last year, with pandemic-related shortages, Intel purportedly gained $2 billion of revenue thanks to its level of business integration and the new in-house substrate processing. But, with the cyclical nature of the semiconductor business, those big chipmaking plants may be a drain on Intel's business in the not-too-distant future. When we move from shortage to oversupply, semiconductor fab margins can fall precipitously. Some business leaders and analysts think the global chip shortage will end soon, while others reckon it could be 2024 or later. However, no one believes that it will last forever.