Karl Kempf, Intel's Money-Saving Mathematician

Intel is the largest chip company that still designs and manufactures its own products. Semiconductor plants cost about $5 billion each, and some of the equipment has to be ordered three years in advance. Guessing wrong about future demand is very expensive: Being overly optimistic can lead to hundreds of millions of dollars in idle machinery, while underestimating means billions in lost revenue. The chipmaker’s in-house mathematician, Karl Kempf, realized that trying to improve predictive models was no use. Forecasting is “the hardest problem in math,” he says.

So Kempf started writing equations. He designed a financial contract giving Intel the option to buy a specific piece of machinery at a specific time. The company pays its suppliers a modest amount of money upfront for the contract. If it ends up not needing the machine, the chipmaker loses the money or the supplier can find another buyer. But the contract ensures Intel has access to the equipment it needs when it’s needed.