Intel, once a towering giant in Silicon Valley and the semiconductor industry, is bleeding profusely and its leaders are struggling to stem the flow.
The company, which just three years ago was earning three times as much as reigning chip champion NVIDIA, has lost 60% of its market capitalization this year and is expected to post just half of NVIDIA’s revenue in 2024. The company suffered a net loss of $1.61 billion last quarter, and analysts are predicting further losses in the year ahead.
Where did Intel, which remains a household name in personal computing, go wrong?
Intel’s financial troubles can be traced back to a series of bad decisions that resulted in $7 billion in losses for its chipmaking unit in 2023, along with a 31% decline in revenue from the previous year.
Chief Executive Pat Gelsinger announced cost-cutting measures aimed at saving $10 billion by 2025, but the effectiveness of these strategies remains uncertain.
In August 2024, Intel announced that it will lay off 15% of its workforce With revenues plummeting and losses at its chip foundry business making it the biggest writedown in the company’s history, the company’s share price plummeting to levels not seen since 2013.
In an effort to stabilize its finances, Intel is also suspending its stock dividends, raising concerns about its ability to regain its status as an industry leader.
Intel shares have fallen 60% this year.
(Source: Yahoo! Finance)
Founded in the 1960s, Intel built its reputation on semiconductor technology, a cornerstone of modern electronics. Its co-founder, Gordon Moore, predicted the exponential growth in semiconductor power known as Moore’s Law. However, Intel has fallen behind in innovation, largely due to fierce competition from companies like NVIDIA, and it’s paying the price — literally.
Competitive landscape
The semiconductor industry is undergoing rapid change, particularly with the rise of artificial intelligence technology. NVIDIA, in particular, has emerged as a leader by capitalizing on the demand for AI-optimized chips.
Intel’s failure to adapt to this change has left it vulnerable, as rivals such as AMD and TSMC have stepped in to fill the void. Intel’s attempts to enter the foundry business — setting up manufacturing plants in the U.S. and abroad — have also faced setbacks, including outsourcing a significant portion of production to TSMC.
The biggest problem, however, is that Intel’s biggest customer remains the company itself, hampering the financial viability of its foundry business. The division posted an operating loss of $2.8 billion in its most recent quarter.
The AI transition
Intel’s struggles are exacerbated by the opportunities it has missed in the AI sector. While NVIDIA has strategically positioned itself for the AI boom, Intel is now struggling to catch up with its own AI-focused technologies, such as Gaudi.
This gap widened further as former Intel customers, including Apple, opted for proprietary solutions (the M series of chips), further eroding Intel’s market share.
Intel’s sudden decline is eerily reminiscent of the rise and fall of Cisco, a dominant player in Internet networking in the early 1990s. If it happened in the 1990s, Cisco had something to do with it. Cisco achieved remarkable growth, reaching a peak share price of $80 in March 2000, giving it a market capitalization of $569 billion. Within a year, Cisco’s stock plummeted 85% despite its continued revenue growth, from $19 billion in 2000 to nearly $50 billion in 2021.
Today, Cisco, valued at just over $200 billion, sells networking hardware, software and telecommunications equipment, among other things, but it has lost the instant brand recall it once enjoyed.
Despite these challenges, Intel is not entirely out of hope.
According to Bloomberg, Intel is exploring restructuring options, including the possible separation of its product design and manufacturing businesses, as well as the cancellation of certain factory projects.
The company can count on savings from layoffs and government subsidies from initiatives like the CHIP Act. Hedge fund investments also provide some financial cushion.
Experts suggest that while Intel may not regain its former glory, it can still play a crucial role as a critical infrastructure provider in the semiconductor landscape.
Read also: Nvidia mulls joining OpenAI’s latest funding round
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