Intel was trading at just under $30 at the start of the month when it released lackluster results. It only took one trading session to bring down the stock by almost $10, wiping away billions of dollars. The stock is still at levels that were last seen over a decade ago.
“Our costs are too high, our margins are too low,” wrote Intel CEO Pat Gelsinger in a note to employees.
And what was Intel’s solution to this existential crisis? Slash as many as 15,000 jobs and suspend Q4 dividends for the first time since the early 90s. Queue bourse bloodbath.
Missed opportunities
The chip giant’s August 1 results were the latest in a series of lackluster performances. They also show how the company’s fortunes have taken a dive in contrast to its peers such as NVIDIA, AMD and Taiwan Semiconductor Manufacturing Company (TSMC).
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Intel’s current position is a far cry from the 1990s when it dominated the market, making chips for personal computers.
But it was this obsession with PCs that caused it to miss the bus for making chips for other form factors, particularly smartphones.
In his biography on Apple founder and CEO Steve Jobs, Walter Isaacson talks about Jobs’ visit to then-Intel CEO Paul Otellini. Apple wanted Intel to make chips for the not-yet-launched iPhone. As we know that deal never happened, and Apple even stopped using Intel processors in its Mac computers in 2020.
“In the client computing sector, Intel faces intensifying competition from Arm-based solutions that offer superior power efficiency,” says Manoj Sukumaran, senior principal analyst at Omdia. “The recent launch of Qualcomm’s Snapdragon X Elite further challenges Intel’s dominance in the Windows ecosystem.”
Floundering foundry
Intel also took a lot longer to separate its chip design and manufacturing processes. It kept making its own chips, even when a majority of its peers, if not all, had switched to a fabless model, outsourcing their building to foundries like TSMC.
In fact, one of the first major decisions of Intel’s current CEO Gelsinger was to separate the design and manufacturing into two distinct businesses. Intel is still building chips in its foundries, but they are now also taking orders from other silicon designers.
Industry analysts have been reserved in their praise for the move. This is primarily because they fear it’ll take Intel several years before their foundries can take on the current leader in the space, TSMC.
Reportedly, earlier this year in April, during an investor meet, Intel said its chip manufacturing unit had raked up $7 billion in losses in 2023. The loss was in addition to a 31 percent decrease in revenue from 2022.
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“While Intel’s foundry business shows promise, it’s still in its early stages,” says Sukumaran. He explains the company could “potentially re-establish” its process leadership thanks to its adoption of High NA EUV technology.
“But Intel must first address critical issues in its product roadmap and market positioning to maintain its current standing in the industry,” says Sukumaran.
No go AI
As if its smartphone and fabless blunders weren’t enough, Intel was also slow to move in on the AI front.
OpenAI reportedly approached the chip giant to buy a stake, as it would help reduce their dependance on NVIDIA. But just like with the Apple deal earlier, executives from both companies couldn’t find common ground.
Intel now does have specialized silicon for AI, which it claims is good enough to take on NVIDIA’s segment leaders.
“The company’s difficulties extend to the AI computing market, where its GPU and AI ASIC offerings have failed to gain any significant traction,” notes Sukumaran.
Intel’s Ponte Vecchio GPUs serve the high-performance computing (HPC) market, and Gaudi line of products cater to the AI market. However, Sukumaran says both these products have failed to find large adopters.
“This missed opportunity is particularly striking given Intel’s long-standing relationships with key players in the AI space,” adds Sukumaran.
According to reports, Intel expects the Gaudi AI processors to bring in about $500 million of revenue in 2024. This is a far cry from the billions NVIDIA rakes in every quarter. Even AMD, its old foe from the PC days, expects its AI silicon to bring in $4.5 billion before the end of 2024.
Work cut out
Soon after its poor results and bleak outlook, Intel was sued by its shareholders. They argue the company had deliberately concealed problems, which led to weak results and extreme cost-cutting measures.
The shareholders are particularly upset about Intel sinking in billions of dollars in its foundry business despite its poor shape.
“Intel faces significant challenges as it strives to regain its competitive edge in the semiconductor industry,” says Sukumaran.
“The company’s struggle to maintain leadership in chip fabrication processes has impacted its product competitiveness and market influence, particularly in the lucrative datacenter CPU business, where AMD and Arm-based solutions have made substantial inroads.”
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