Is Intel a Falling Giant? Intel struggles, layoffs, 13th and 14th gen issues, disappointing earnings

Introduction

Intel’s story is the story of personal computers!

Intel was once the king of the semiconductor industry but lately Intel struggles, and things haven’t been going smoothly. It has faced some serious challenges. There have been layoffs, problems with their recent CPUs, and disappointing earnings that let down investors. From strategic missteps to missed opportunities, Intel’s story offers important lessons for the business and tech world.

In this post, we’ll Have a look at:

The factors contributed to the golden age of Intel
Which strategic shifts and missed opportunities negatively affected Intel
then we’ll dive into Intel’s recent struggles with its recently released CPUs, market value drop, and competition
then we’ll explore the role of politics in Intel’s story, and what the future might hold for this tech giant.
And last but not least, we’ll summarize the lessons learned.

Is Intel a falling giant, or can it bounce back?

The Golden Age of Intel

Golden Age of Intel (CC BY-NC-ND 4.0 , by Kazanofa OÜ)

Intel’s Pioneering Role in PC History

Intel’s legacy is deeply intertwined with the history of personal computing. The company’s innovations in electronic chips during the 70s, 80s, and 90s laid the foundation for the PC revolution. Intel’s microprocessors became the standard for personal computers, driving the industry’s growth and establishing Intel as a technological powerhouse.

In 1968, Robert Noyce and Gordon Moore co-founded Intel, driven by a vision of continuous innovation and world-changing technologies. The 1101, Intel’s first product, was a dynamic random-access memory (DRAM) chip.

Andy Grove

Andy Grove, one of Intel’s earliest employees and its CEO from 1987 to 1998, played a pivotal role in shaping the company’s success and becoming the world’s dominant semiconductor producer, with an intense focus on innovation.

For example, under his leadership, Intel focused on microprocessors instead of memory chips (DRAMs), as they were commoditized.

Grove propelled Intel to new heights by emphasizing innovation over formality, rigorous management, and strategic partnerships. The “Wintel” partnership with Microsoft was a game changer, as it created a de-facto standard for personal computing.

Moreover, Grove believed that “only the paranoid survives”. So, his Risk Management was very effective. He constantly pushed the company to anticipate threats and avoid their consequences.

Therefore, under his leadership, Intel revolutionized computing in 1971 by introducing the world’s first programmable microprocessor.

The 4004, 8008, and 8080 microprocessors paved the way for inexpensive computing.

By 1997, Intel controlled 87% of the market, outpacing competitors like AMD.

Strategic Shifts and Missed Opportunities

Leadership Changes and Consequences

After Grove’s leadership, around the year 2000, Intel began to drift from its original strategy.

Moore’s Law was left behind.

Moore’s law was coined by Intel co-founder Gordon Moore, predicting that the number of transistors on an integrated circuit would double approximately every two years with minimal rise in cost.

Moore's Law is Dead - (CC BY-NC-ND 4.0 , by Kazanofa OÜ) — Moore’s Law is Dead – (CC BY-NC-ND 4.0 , by Kazanofa OÜ)

Intel’s new leadership such as “Paul Otellini” and “Bop Swan” were from non-engineering backgrounds. They prioritized sales and marketing over innovation and R&D. This led to failure to anticipate key industry trends, such as the rise of GPUs and AI, which were capitalized on by competitors like Nvidia and TSMC. Meanwhile, Nvidia, TSMC, and other companies innovated, seized the opportunity, and evolved.

Missed Opportunities

Such missing opportunities are not new to intel in the last two decades.

For example, ASML is a key company that manufactures semiconductor production lines for companies like TSMC in Taiwan. Unlike other organizations, Intel missed the opportunity to invest in ASML during its rise in 1999.

It did not stop there. In 2013, the CEO, “Pop Swan” reduced Intel’s share in ASML from 15% to 4%.

So, in 2018, the Trump administration tried to fix this bad business decision with a political act. Trump blocked the sale of ASML technology to China, which is seen as another combat in the “technological cold war” between the US and China.

Missing the AI trend

To make it even worse, intel missed the AI trend too.

Unlike Nvidia, Intel believed that CPUs would fit and serve AI better than GPUs. And one of Intel’s biggest mistakes was when the CEO “Bob Swan” dismissed the deal to acquire a 30% stake in OpenAI in 2018.

Bob did not see that AI would be commercially viable soon. This decision has been costly, as AI has emerged faster than expected as a critical growth area in the tech industry.

Two Key Lessons to Learn

Two Key Lessons to Learn Here …

Changing Management from a visionary to a pure administrator is never good. It was a mistake for Apple when they replaced Steve Jobs and was problematic in the case of Intel.

Similarly, abandoning innovation is never good. We know that Nokia hurt itself severely with such a choice, and we see it now in the case of intel.

Intel Struggles

Declining Market Leadership

While Intel still holds a 70% market share in laptop chips, it has lost its innovative leader position, especially in GPUs and AI chips. In contrast, the effectiveness of AMD’s innovation-driven strategy was valued and highlighted in 2022, when AMD surpassed Intel in market value.

Layoffs, Share Price Plummet & Market Value Loss

This year, 2024, Intel’s share price declined dramatically, dropping 43% in just five sessions and losing 60% of its value since the start of the year. This decline wiped out approximately $120 billion from Intel’s market capitalization, which underscores the severity of the company’s current challenges.

Now, share prices face such situations frequently, and investing in shares in the long term is advised. This means not reacting based on whatever happens in a couple of sessions. However, we can realize why this value drop is a warning signal and dramatic by seeing the market’s wide fear of recession and the following Intel-specific factors:

1) Meteor Lake processors affected Intel’s bottom line greatly. And the company lost 1.6 billion Dollars in the 2nd quarter of 2024.

2) Intel’s reputation has been negatively impacted due to the issues with its latest CPUs, the 13900K and 14900K.

Both CPUs have faced performance issues due to thermal throttling. This means they tend to overheat under heavy loads, causing them to slow down to prevent damage.

Additionally, the CPUs consume a lot of power, which makes them inefficient and have higher operating costs.

So, Intel is struggling to compete with the more efficient and cooler-running processors from competitors like AMD.

3) Intel’s management concluded operational and liquidity issues. So, they aim to cut costs by $10 billion by 2025. This includes suspending Intel’s stock dividends, and reducing spending on R&D and marketing.

4) The cost cut includes laying off 15% of its workforce. These layoffs is about 18,000 employees by 2025.

Most of these cost-cutting decisions were perceived as bad news by most investors. Because, for example, when cutting R&D spending, Intel will be even less competitive in the long run.

The Role of Politics and Global Competition

U.S. Government Support for Intel

During the last 40 years, Asian authorities supported TECH companies with almost free land and tax breaks. Now the US is late to the race, as their latest support to the industry was during the space race.

The interruption by Trump’s administration in 2018 was not a single occurrence.

In response to Intel’s struggles, the U.S. government has provided significant financial support to help the company regain its competitive edge. The Biden administration has already extended $8.5 billion in grants, with the potential for an additional $11 billion in loans to boost the company’s domestic semiconductor chip output.

Although the US markets this interruption as fair support, it is not different than the support provided by the Chinese authorities to their industries. The real difference is the US claims that its markets are free and follow supply and demand.

This support is part of a broader effort to re-localize semiconductors’ production, reduce reliance on Asian manufacturers, and build a technology alliance too. For example, in 2023 and 2024 the US allocated huge land in Texas to build semiconductor plants of Samsung, Texas Instrument, and Nvidia.

So, will such a TECH alliance be effective in the long term?

The short answer is, No.

Honestly, this question has no definite answer, as it is too early. However, among other analysts, I don’t see a promising output of such an alliance. Because the USA is not a reliable ally, just like they tried to block the sale of ASML technology to China, while ASML is a Dutch company that was never a competitor or threat.

Further, the US interests and politics change unexpectedly and quickly, yesterday it was Trump and the riot, today it is Biden and the war, tomorrow it could be a trade conflict with the EU.

The Global Semiconductor Supply Chain

If you wonder, how does the global semiconductor supply chain look today?

It is complex and geographically dispersed, which incentivizes the U.S. government to attempt rebuilding it.

While the U.S. remains a leader in chip design, assembly machines are produced by ASML in the Netherlands, and the semiconductor chips are produced mainly in Asia, particularly Taiwan’s TSMC using African raw materials.

The Future of Intel and the Semiconductor Industry

Challenges in Rebuilding the U.S. Semiconductor Industry

Now, how about the future?

Can the semiconductor industry in the USA boom once support is provided?

The short answer is “No”. Because rebuilding the U.S. semiconductor industry faces significant challenges.

For instance, the latest Nvidia chips feature over 200 billion transistors, reflecting the rapid pace of technological advancement. While the U.S. can invest in factories and equipment, competing with the innovation and expertise found in Taiwan and China will be a daunting task.

Let’s see some figures that support this theory:

In 2022, How many Patents in natural sciences were filed in the USA versus China?

China led globally with a staggering 4.2 million registered patents, with a 24% growth from 2021, many of which were invention patents.

In comparison, the United States filed around 505,000 patents.

How about the skilled workforce in science and technology?

China had over 77,000 graduates from STEM PhD programs. In comparison, the US had approximately 40,000 STEM PhD graduates. About 42% of them were non-U.S. citizens.

The Challenging Business Model of Intel

Intel’s Business Model is considered complex. In the previous century, it was reasonable. But as businesses, technology, and the global economy evolved, their business model is too big to be managed effectively, too slow in terms of innovation and time-to-market, and too risky.

Why is Intel’s business model too risky?

Because Intel adopts a vertical business model to compete with Apple in utilizing the chips in electronic devices, TSMC in producing the Chips, Nvidia in designing chips, and ASML in manufacturing cutting-edge production lines.

It is a recipe for mediocrity, like a supermarket that partners with restaurants to use its goods, transports, and is agriculture and manufactures all its products too.

Intel still insists on its legacy business model by building several fabrication plants (fabs). Intel’s CEO “Pat Gelsinger” implies that the Pandemic’s lockdown proved the importance of securing the supply chain. Hence to be secured for the next 50 years by the localization in the US.

Unlike Intel, AMD has no manufacturing facility. Because AMD’s strategy was about designing cheaper alternatives and outsourcing everything else.

Intel’s Efforts to Reclaim Leadership

The good news is Intel has begun to take steps to address some of its current challenges. This includes:

Halting its costly expansion (of 25 billion dollars) plans in Israel, an apartheid state that is always at war. For political reasons, Intel said it is to adapt its big projects to the changing schedules and international changes.

Focusing on cost-cutting measures, like canceling an Expo. This might be is revealing for investors

Releasing new AI-focused chips, such as Gaudi-3 and Xeon. Both rely on using VPU (Visual Processing Unit), though they have yet to match the performance of competitors like AMD.

Lessons Learned from Intel’s Decline

Intel’s decline serves as a cautionary tale. So, what can we learn from Intel’s lesson?

Lessons Learned - (CC BY-NC-ND 4.0 , by Kazanofa OÜ) — Lessons Learned – (CC BY-NC-ND 4.0 , by Kazanofa OÜ)

Do NOT abandon Innovation – look at what happened to Nokia.
It can be disastrous when Leadership prioritizes marketing and sales, at the expense of R&D and quality. And remember Apple’s lesson.
Embrace new tech trends early, or risk falling behind.
Adapting the business model to the times is crucial. Otherwise, a disruptor may kick a giant out of business, as Netflix kicked Blockbuster out of business.

Netflix crushed Blockbuster - (CC BY-NC-ND 4.0 , by Kazanofa OÜ) — Netflix crushed Blockbuster – (CC BY-NC-ND 4.0 , by Kazanofa OÜ)

Conclusion

As Intel attempts to navigate its current challenges with the support of the US authorities, Intel’s future will depend on its ability to pivot and innovate. Whether it can regain its leadership in the semiconductor industry remains to be seen.