Intel (NASDAQ: INTC), the former stalwart of the semiconductor industry, has experienced a dramatic decline over the past decade. The once unrivaled producer of x86 CPUs for PCs and servers has watched its stock plummet by more than 50%. This descent has positioned Intel as a less competitive player compared to industry peers such as AMD, Nvidia, and Qualcomm.
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From 2013 to 2023, Intel’s revenue growth stagnated with a paltry compound annual growth rate (CAGR) of 0.3%. In contrast, AMD, leveraging Taiwan Semiconductor Manufacturing Company (TSMC) for production, boasted a CAGR of a robust 15.6% during the same period.
Examinining Intel’s Core Challenges
Intel’s struggles stem from a myriad of crises, including manufacturing setbacks, product delays, dwindling market share, and erratic strategic shifts under the leadership of three successive CEOs. The company missed the boat on the transition to mobile chips, overly focused on cost reductions, and prioritized share buybacks over tackling persistent manufacturing obstacles or developing innovative chips.
Its manufacturing woes began with stumbling transitions from 14 nanometer to 10nm chips and further fumbled with delays in moving to 7nm chips. These setbacks allowed competitors like AMD to gnaw away at Intel’s once-dominant position in the x86 CPU market.
Unlike trendsetting TSMC, which aggressively invested in research and development, Intel restrained its capital expenditures and allocated substantial funds towards buybacks and dividends. Previous CEO Bob Swan even flirted with the idea of transforming Intel into a fabless chipmaker, mirroring AMD’s model, to rectify its manufacturing challenges permanently.
His successor, Pat Gelsinger, pursued an alternative strategy of expanding Intel’s internal foundries to match the prowess of TSMC and Samsung. However, this ambitious plan incurred significant costs, partly mitigated by anticipated government grants. Yet, Intel faced competition from TSMC, which also secured governmental subsidies for its global facilities.
Does Intel’s Future Lie in Downsizing?
Under Gelsinger’s stewardship, Intel has jettisoned multiple divisions, including Optane memory, network switch chips, and various other non-core segments. The company has also divested parts of its NAND memory and automotive chip businesses. Recent murmurings suggest Intel may further streamline by divesting or spinning off its struggling foundry unit.
This potential pivot toward a fabless model, akin to AMD’s separation of GlobalFoundries in 2009, could recalibrate Intel’s operational focus and revamp its earnings trajectory. Nonetheless, such a move might relegate Intel to a position of dependency on external foundries like TSMC, mirroring AMD’s operational structure.
Additional speculations hint at a possible sale of Altera, an acquisition from 2015. However, such a disposition could weaken Intel’s competitive stance against AMD, which absorbed Altera’s counterpart, Xilinx, in 2022.
Reckoning and Redemption for Intel
While Intel has not officially confirmed these developments, the prevailing rumors suggest a departure from Gelsinger’s vision of achieving process supremacy by 2025. Instead, the company appears to be veering back towards Swan’s proposed transformation into a fabless entity.
Despite the potential benefits of downsizing to stabilize earnings, Intel’s recent strategic shifts and speculative moves underscore a period of wasted time and capital over the past three years. This refocusing could inadvertently elevate competitors such as TSMC and AMD in the industry landscape.
Investment Considerations in Intel
Investors eyeing Intel stock should factor in recent developments carefully. The company’s recent suspension of dividends and workforce reductions signal a pivotal moment in its trajectory. As Intel contemplates significant structural changes, stakeholders face a juncture that may shape the company’s future trajectory and competitive standing within the semiconductor industry.