Intel’s independent streak will come to an end
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, Dec 2 (Reuters Breakingviews) -A management shakeup will give new meaning to Intel INTC.O Inside. Pat Gelsinger, whose 40-year career at the chipmaker harkens back to its glory days, has abruptly decamped as CEO. The move portends bigger changes, including a good chance the company winds up inside another one.
Once bolstered by a virtuous cycle of manufacturing dominance fed by market clout, Intel distinguished itself in an industry that increasingly separated fabrication and design. When Taiwan Semiconductor Manufacturing Co 2330.TW pulled ahead in production prowess, however, competitors gained access to superior technology, turning the virtuous cycle vicious.
Gelsinger struggled to turn things around. A projected 32% gross margin for 2024, according to Visible Alpha estimates, pales against its pre-pandemic 59%. A near-monopoly in personal computers, powered by its x86 technology standard, is set to fall to an 80% share by revenue. Intel lost even more of the market for servers to arch-rival Advanced Micro Devices AMD.O.
Worse, x86 specifically and PCs in general are the past. Roughly 400 million will be sold in 2024, research outfit IDC says, versus 1.2 billion smartphones. Nvidia’s NVDA.O graphics processing units, meanwhile, run the data centers used to develop artificial intelligence.
It didn’t have to be this way. Apple AAPL.O CEO Steve Jobs wanted Intel to make chips for the iPhone, but his MacBook supplier worried about the new handset’s sales potential. In 2005, Intel’s board nixed the idea of buying Nvidia for just $20 billion, the New York Times reported. Talks fizzled to inject $1 billion into OpenAI for a 15% stake, according to Reuters, and Sam Altman’s startup is now valued at nearly $160 billion.
The future, according to Gelsinger: Manufacturing services for peers. He was overmatched, however, by the investment required, despite receiving billions in government support and financing from asset managers such as Brookfield. Intel earmarked just $12 billion from its own coffers for 2025 capital expenditures, a third of TSMC’s sum, per Visible Alpha.
Interim Chair Frank Yeary promises to focus on Intel’s own products instead. The newly appointed provisional co-CEOs also highlighted manufacturing, a division set to lose roughly $15 billion this year. Despite reaffirming the importance of technological “leadership,” it all reads like retreat.
Even so, the company’s $56 billion in projected 2025 revenue is of value. Rivals like Qualcomm QCOM.O or buyout shops are among the possible suitors for pieces or all of Intel. U.S. regulators eager to preserve domestic manufacturing and national champions probably would be amenable to solutions that stabilize Intel. Once a popular branding campaign, Intel Inside is destined to become a business model.
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CONTEXT NEWS
Intel said on Dec. 2 that CEO Pat Gelsinger had retired from the chipmaker and stepped down from its board of directors, effective Dec. 1. Although the company did not provide any reason for the departure, Bloomberg reported – citing unnamed sources – that the board became frustrated by the lack of progress in winning back market share and gave Gelsinger the option to retire or be removed.
Chief Financial Officer David Zinsner and division head Michelle Johnston Holthaus will become interim co-CEOs, while independent board chair Frank Yeary serves as interim executive chair. The board has formed a search committee to seek a permanent replacement for Gelsinger.
Intel's gross margin nose-dives https://reut.rs/3Zq6qgI
Editing by Jeffrey Goldfarb and Pranav Kiran
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