Intel used to be the largest chip company in the US, but in the past few years it has gradually been surpassed by competitors such as Nvidia, Qualcomm, Broadcom, Texas Instrument and AMD.
Intel’s ambition to turn the situation around is increasingly distant after the company announced its first quarter business results. Although revenue is no longer shrinking and Intel is still the largest manufacturer of microprocessors for desktop computers, Intel is still the largest manufacturer of microprocessors for desktop computers. desks and laptops, first quarter sales were lower than forecast, only reaching 12.72 billion USD. Intel also estimates second-quarter figures to decline further, due to weak demand.
Closing the trading session on April 26, Intel shares fell 9%, reaching their lowest level since the beginning of the year.
These news show that CEO Pat Gelsinger’s job is still very challenging. This year is his fourth year leading Intel.
However, analysts say that Intel’s problems are the cumulative result of decades. Before Gelsinger returned to the company in 2021, Intel lost its chip manufacturing advantage to rival TSMC (Taiwan, China). Currently, they are spending billions of dollars to regain what they lost.
“The number one priority is to quickly close the technology gap, caused by a decade of underinvestment,” Gelsinger said to investors on April 25. He said the company is still on track to catch up with rivals, by 2026 at the latest.
However, investors are still skeptical. This year, Intel is currently the worst technology stock in the S&P 500 index, with a decline of 37%. Meanwhile, the two top growth codes are Nvidia and Super Micro Computer. Both benefited from soaring demand for Nvidia’s AI servers.
Super Micro Computer, Nvidia and Intel stock price movements since the beginning of the year. Graph: CNBC
Intel used to be the most valuable chip company in America. But currently, the company’s capitalization is only 1/16 of Nvidia. Intel is currently even smaller than Qualcomm, Broadcom, Texas Instrument and AMD. For decades, they were the world’s largest semiconductor company in terms of sales. But recently, its revenue decreased for seven consecutive quarters and was surpassed by Nvidia last year.
Gelsinger is betting on changing its risky business model. Intel will now not only produce itself, but also process it for other chip companies. However, to successfully attract customers, Intel needs to regain its leading position.
Other semiconductor product manufacturers are in need of alternatives to TSMC, so as not to depend on a processing partner. US officials, including President Joe Biden, still consider Intel to be the core of the microprocessor supply chain here.
“Intel is a large, iconic company and has been a leader for many years. I think this company is worth protecting. And they must regain their competitive advantage,” Nicholas Brathwaite – Investment Fund Manager Celesta Capital said.
However, Intel has not shown progress in the past few years. “Over the past 2-3 years, I think we have all heard them saying that next quarter will be better than this quarter,” said Akshara Bassi – analyst at Counterpoint.
Experts say that Intel has made many mistakes over the years. They missed the wave of mobile chips when the iPhone launched in 2007. They also stayed out of the AI race, in the context of companies like Meta, Microsoft and Google ordering large quantities of chips from Nvidia.
Missed the opportunity from iPhone
When Apple developed the first generation of iPhone, then-CEO Steve Jobs went to meet former Intel CEO Paul Otellini. The two sides discussed whether Intel could make chips used in iPhones.
However, Jobs later decided not to use it, because Intel was “quite slow” and Apple did not want the chip to be sold to its competitors. Otellini said the two sides could not agree on price and intellectual property rights, author Walter Isaacson said in his biography “Steve Jobs”.
Finally, Apple used Samsung chips when it launched the iPhone in 2007. Apple bought American chip company PA Semi in 2008 and launched its self-developed chip in 2010.
Today, almost every modern smartphone uses Arm architecture chips instead of Intel’s x86 chips. Arm chips made by Apple and Qualcomm consume less power than Intel chips. This makes Arm chips more popular on battery-powered devices.
Intel then tried to enter the smartphone market. They launched a chip called Atom, used in the 2012 Asus Zenphone. However, this smartphone did not sell well and was discontinued in 2015.
Missing out on the mobile chip wave kicked off Intel’s decade of decline.
Transistors
Intel CEO Pat Gelsinger at the World Economic Forum in Switzerland in January 2024. Image: Reuters
Microprocessors will work faster if they have more transistors. Intel’s first microprocessor, produced in 1971, had 2,000 transistors. Intel chips are now in the billions.
Intel has always maintained an advantage of nearly two years ahead of its competitors. However, after 2014, things started to get worse. Plans to create 10 nm chips were ruined due to complex manufacturing steps. In less than a decade, they have slipped from being a generation ahead of their competitors in chip technology to being a generation behind.
TSMC has been producing 5 nm chips since 2020 and 4 nm in 2022. Currently, TSMC’s best chips are produced on the 3 nm process. Meanwhile, Intel is currently only at 7 nm.
In the computer field, this helps Intel’s direct competitors that are outsourcing to TSMC, such as AMD and Nvidia, with advanced chip products. From having almost no market share in the server CPU segment a decade ago, AMD is starting to gain market share from Intel.
By 2022, this company’s CPUs will be present in 20% of servers sold. Sales also increased 62% that year, according to Counterpoint Research’s 2023 estimates. AMD’s capitalization also surpassed Intel’s the same year.
Miss the AI wave
OpenAI’s launch of ChatGPT in 2022 has created a global artificial intelligence wave, helping Nvidia triple its sales in the past year. Businesses also spend more heavily on expensive servers.
However, while chip companies are optimistic about prospects thanks to the AI fever, Intel is considered too slow in the race. In January, Hans Mosesmann, an analyst at Rosenblatt Securities, commented: “AI seems to appear everywhere except Intel.” And Russ Mould, Investment Director of AJ Bell, assessed: “Intel is at risk of being left behind compared to rivals Nvidia and AMD in the field of AI.”
Intel also makes an AI chip, called Gaudi 3. They forecast revenue from Gaudi 3 to reach $500 million this year, mainly in the second half of the year. Meanwhile, AMD is estimated to earn $3.5 billion per year from AI chips. Analysts in a FactSet survey estimate that this segment of Nvidia will have revenue of $57 billion in the second half of this year.
However, Intel still has a chance to turn the tables. The US government is wanting to revive domestic chip production, after letting most production move to Asia – where labor costs are lower and officials have more generous incentives. Washington last year activated the Chips Act, which funded $53 billion for domestic chip production. US President Joe Biden then also visited an Intel factory in Ohio.
On April 25, Intel said it was still on track to catch up with rivals by 2026. However, the price to pay is not cheap. Intel last quarter recorded an operating loss of $2.5 billion in the outsourcing segment. Revenue reached 4.4 billion USD. Last month, Intel also said its operating loss in the outsourcing segment last year was $7 billion.
These numbers show that the company is spending huge costs on infrastructure and equipment to produce more advanced chips. “Machining is very expensive. That’s why most of Intel’s competitors choose to outsource to TSMC,” Bassi said.
However, Intel’s business will flourish if it regains its leadership position in producing the smallest transistors. On April 25, Gelsinger said that demand for Intel’s 3 nm chip, which will be released this year, is currently quite high.
“We’re building trust with customers. They look at us and say, ‘Wow, Intel is back,'” Gelsinger said.