Kauai Car Rentals and Pat Gelsinger's vision for Semiconductors

Kauai Car Rentals and Pat Gelsinger's vision for Semiconductors

The egregious cost of car rentals in Kauai made me realize the impetus behind Pat Gelsinger's focus on improving semiconductor manufacturing in the United States and Europe.

The former head honcho of my employer VMware is now the chief wrangler at Intel. Even from a distance you can see that this was a job that Pat Gelsinger has probably aspired of all his life. Infact Yahoo! Finance has this amazing article about Pat's journey to this amazing pinnacle in Silicon Valley. I don't know how companies chose CEO's, and have little to no idea about how corporate visions are set. But it is clear to anyone observing that Intel's latest choice of CEO comes with a giant paradigm shift in it's strategy. And Pat has had no qualms of charging forward with drastic shifts in how Intel has approached it core semiconductor business. With speed and grit that customers and employees at VMware have become very familiar.

In my 30,000 feet takeaway from Intel's new IDM 2.0 strategy, the most intriguing change seems to be how and where semiconductors would be build in the future. Intel will be increasing the use of 3rd party foundries like Samsung, tsmc etc. which is clearly unavoidable given the company's infamous mistakes and delays in the past. But what truly stood out in Pat's announcements in late March 2021 was the plans surrounding Intel Foundry Services with the hopes of becoming a major chip manufacturing player, potentially making customers out of its competitors. (Remind you of what Pat did at VMware yet???). And these strategy announcements came with a major investment of $20 bn in a Arizona factory and the vision of building more manufacturing units in the US and Europe to shore up its own manufacturing needs and enable the vision of its foundry service.

But for those following Pat on twitter, we know his reasoning behind this paradigm shift at Intel. The tech visionary has well articulated the need to shore up semiconductor manufacturing in the United States and Europe and reduce dependence on Asian foundries which currently produce a major share of chips for the world. And he has gone beyond that to engage with White House, the Department of Commerce and the European Union to point out possible chip shortages in the market if semiconductor manufacturing is not shored up across the western hemisphere. And all of this doesn't even start to cover the security aspects of depending completely on other countries for chip manufacturing and the insecurity caused by losing critical manufacturing abilities at home.

Pat's vision is not just a roadmap for Intel's future but for the future of semiconductor industry around the world. And I will be honest with you, my small mind couldn't understand the imperative behind such a strategic shift at first. I was left wondering how the board at Intel bought into such an expensive and long-term vision from Pat. Once again I have to confess, I have no idea how boards and CEOs and corporate strategies work. But as an engineer working at the bottom of the tech totem pole parts of the value proposition of this strategy and Pat's public effort to draw in American and European governments to his effort to shift the semiconductor manufacturing strategy baffled me. My experience at VMware tells me to trust Pat Gelsinger, but the bold moves proposed by IDM 2.0 made me wonder.

That is until I started planning our family vacation to Kauai for September 2021 with the hopes of celebrating our fourth wedding anniversary in the garden islands which have remained elusive to me and my wife in our last many visits to Hawaii. Now finally I was looking forward to using my American Airlines miles to score a great deal on the tickets. This would also have been our much needed break from being surrounded by the same four walls for the last year and half of pandemic. I was excited about planning this trip, until I saw the cost of car rental for a 10 day period. It was about $1400 for a basic economy. And our dream of driving a Jeep would have cost us about 500-600$/day. This was ridiculous. I understood there was pent up demand for travel to Hawaii as the pandemic restrictions ended, but the spike in car rental just didn't make sense compared to relative stability in the cost of flights and accommodation. And this was not just for Kauai, car rental costs had spiked to egregious levels in all the Hawaiian Islands. I read an article about tourists renting U-Hauls as an alternative to skirt the high prices of island car rentals. After considering the ridiculous image of visiting Kauai beaches and hiking spots in a U-Haul trip I quickly abandoned that travel tip.

My analytical brain couldn't make heads or tails of this strange phenomenon. But some quick googling made me realize that this was a simple supply and demand problem. During the tourist downtime precipitated by COVID-19, Hawaii car rentals had sold off the their unprofitable cars costing them precious dollars in space and maintenance cost. Ok, so this is a temporary situation, if I wait the rental prices should go down soon. It is not like the rental companies won't acquire new cars as the tourists starts streaming back.

I wish some of the market problems were ever so simple. I was shocked to learn that this was going to be a long term problem caused by shortages in chip manufacturing. YES!! YOU HEARD IT RIGHT: CHIP MANUFACTURING!!!. The first thought in my head was: Pat Gelsinger is a genius.

If you already didn't know: most modern cars rely heavily on chips in their builds. Not just any chips, but thousands of specialized chips in every car. They serve as control units for every part of your car ranging from headlights to gear boxes. But the pandemic had radically changed the demand structure for chips across the world. Car productions had to be pared down by every major manufacturer because of the over supply of used cars in the market (partially caused by car rental companies) and the lack of demand for transportation solutions while people were stuck in their homes. In addition the demand for appliances like TVs, smartphones, laptops, and any other smart device that you could use from the comfort of your home had skyrocketed. And all of this in turn lead to semiconductor foundries around the world focusing their capabilities to meet the increased demands for specialized chips that go into these appliances. And though post-pandemic many analysts estimate the demand for new cars going up (think about the hawaii car rental companies trying to buy more cars to meet the tourist demand and all the families that want a new reliable care for their post-pandemic summer road trip), car manufacturers are going to find it hard to get the semiconductor foundries across Asia rising up to the challenge of meeting their chip demands quickly. That is to say, Hawaii will be inaccessible to me and my wife for at least a while. But that is ok, we have decided to meet head-on our Governor's call to travel and stay within California.

Here is the point: West's utter dependence on Asia for chip manufacturing is a supply, security and skill risk. Pat Gelsinger has profoundly understood this and given the opportunity has set out to change this landscape for good. And while I didn't really understand what Pat was up to in the beginning my research into the high cost of car rentals in Kauai has sadly made the immediacy of this problem very very clear to me.

Rooting for Intel, Pat, tsmc and other companies and government agencies planning to shore up semiconductor manufacturing in a more geographically and strategically distributed manner. My Hawaii vacations and future anniversary celebrations depend on it.