Bloomberg Article: Intel Has Only Tough Options After Its Long and Stinging Fall From Grace
The Struggles of a Once-Untouchable Semiconductor Powerhouse: Why Intel’s Challenges Mirror Broader Industry Shifts
Over three critical days, Intel Corporation's board convened, weighing the company's uncertain future following one of its most disheartening earnings reports on August 1st. The disappointing growth figures, forecast failures, and a grim plan to cut 15,000 jobs have plunged the iconic chipmaker into deeper crisis. As share prices plummeted and confidence in the long-awaited turnaround dwindled, Intel finds itself at a crossroads. Now, the once-dominant leader must grapple with options that could fundamentally reshape its identity.
From Dominance to Decline: Intel’s Missed Opportunities
Founded in 1968, Intel rose to the pinnacle of the semiconductor industry, embodying Silicon Valley's innovative spirit. Its co-founder, Gordon Moore, gave the world the celebrated Moore's Law, which predicted rapid advances in semiconductor capabilities. But today, Intel's name is no longer synonymous with cutting-edge technology.
For decades, Intel’s tight control over both semiconductor design and manufacturing positioned it as a global tech leader. However, it has struggled in recent years, particularly in the high-growth artificial intelligence (AI) space. While Intel maintained dominance in data center chips, it severely lagged in the production of AI-focused semiconductors—an oversight that rivals like Nvidia and AMD exploited to capture market share.
Intel's shrinking revenue projections for 2024, now at $52 billion, a stark contrast to its 2021 peak of $77 billion, underscore the company’s long-term decline. With its stock tumbling over 60% in value this year, Intel is now the second-worst-performing stock on the S&P 500—a sharp fall for a company that once defined the semiconductor industry.
Leadership Under Siege: Gelsinger’s Dilemma
Pat Gelsinger's appointment as CEO in 2021 was heralded as Intel’s potential savior, but his tenure has been fraught with difficulties. Gelsinger was tasked with confronting an existential crisis: years of stagnation, production delays, and an industry shifting toward outsourced manufacturing.
Upon taking the helm, Gelsinger laid out an ambitious plan to revitalize Intel's manufacturing prowess and reclaim its leadership in semiconductor innovation. He declared that Intel would challenge both design-focused companies like Nvidia and foundry titans like Taiwan Semiconductor Manufacturing Company (TSMC). His vision came with a heavy price tag—tens of billions of dollars in investments into advanced manufacturing facilities, with the expectation that Intel would soon regain its footing.
But two years in, Gelsinger's ambitious plan appears increasingly out of reach. In its latest financial filing, Intel not only missed profit and revenue targets, but also suspended dividend payments and announced deep job cuts. The reality is that Intel’s core businesses are simply not performing well enough to fund the next stage of Gelsinger’s transformation strategy. Analysts now wonder whether Intel’s vision was ever achievable within the current business environment.
Bernstein analyst Stacy Rasgon summarized the sentiment succinctly: “The strategy made sense at the outset, but the business runway isn’t long enough anymore. Something has to change.”
Strategic Options: Which Path Will Intel Choose?
As Intel's board deliberates, several drastic options are on the table. Reports from insiders suggest that scaling back its multi-billion-dollar factory projects, selling off subsidiaries, or even splitting the company into separate entities are under consideration. Each option would mark a dramatic shift in Intel’s trajectory, and each faces significant obstacles.
Intel's foundry ambitions, for instance, have yet to yield significant external customers. Despite Gelsinger’s optimism about engagements with $15 billion in potential contracts, Intel's foundry services remain dwarfed by TSMC, whose foundry revenue is projected to hit $88 billion this year. Without a high-profile partnership with tech giants like Apple or Nvidia, Intel’s foundry business will likely continue to struggle.
A possible solution would be divestitures. Intel could look to sell off non-core units such as Mobileye, its autonomous driving subsidiary, or Altera, which makes programmable chips. Both units have faced significant challenges, including market declines and technological stagnation. Yet, selling them at a loss would be a bitter pill for Intel to swallow, especially given the $15 billion it invested in each.
Finally, there’s the nuclear option: splitting Intel into two separate companies—one focused on design, the other on manufacturing. While such a move would fundamentally alter Intel’s identity, it is increasingly viewed as a way to streamline operations and reduce financial pressures. However, separating design from manufacturing would raise concerns about whether either side of the business could thrive independently, particularly in an era where integration has been key to Intel’s value proposition.
Implications for the Semiconductor Industry
Intel’s struggles are emblematic of broader shifts in the global semiconductor landscape. For years, the industry has been transitioning from the U.S. to Asia, with Taiwan's TSMC and South Korea’s Samsung leading the way in manufacturing innovation. Intel’s decline reflects this shift and the growing difficulty for U.S.-based companies to compete in a market increasingly dominated by Asian giants.
The U.S. government, recognizing the national security implications of this trend, has attempted to support Intel through the Biden administration’s $50 billion semiconductor initiative. Intel’s new factory projects in Arizona and Ohio are cornerstones of this strategy, and any slowdown in these projects would not only damage Intel but also undermine America’s efforts to regain leadership in semiconductor manufacturing. Commerce Secretary Gina Raimondo has reportedly been lobbying tech executives to build their chips in Intel’s U.S. factories, but so far, Nvidia and others remain unconvinced.
A Hard Road Ahead
Regardless of which path Intel takes, the company’s future is fraught with uncertainty. With AI revolutionizing the semiconductor industry, Intel has limited time to adapt or face being left behind. Its inability to crack the AI chip market has already placed it fourth in a four-horse race, according to Gelsinger himself. Meanwhile, competitors like Nvidia have captured the most lucrative segments, further diminishing Intel’s prospects.
For Gelsinger, time is running out. His vision of a renewed Intel leading the semiconductor world once again is rapidly slipping away. As Intel faces its most consequential decisions in decades, the company that once symbolized American technological leadership must now confront the harsh reality of a changing industry.
Conclusion: Can Intel Regain Its Edge?
The decisions Intel’s board makes over the coming months will determine whether the company can recover or continue its decline. Pat Gelsinger’s strategy to reinvigorate Intel’s manufacturing might was bold, but it may have come too late. Whether through divestitures, a split, or a recalibration of its ambitions, Intel must find a way to stabilize its finances and pivot to a more sustainable model. The world—and Washington—is watching closely.
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