Intel’s stock fell amid news that the company would lay off 15 percent of its workforce amid a sharp drop in revenue and Billions in losses in its chip foundry business.
it is The company’s biggest decline in half a century; At Friday’s closing bell, shares were trading at $21.48 — a price not seen since 2013.
The company is scrambling to shore up reserves by introducing layoffs and suspending stock dividends. But even these moves may not be enough to return the veteran tech company to its once-dominant place as an industry leader, especially in the face of stiff competition from rival chipmaker Nvidia.
Intel’s bad week was more than just a really bad quarter: It started back in April, when The company disclosed during an investor presentation That is its chip manufacturing unit, which posted a loss of $7 billion in 2023, a 31 percent decline in revenue from 2022. Cost-cutting and other measures will save the company $10 billion in 2025, According to CEO Pat Gelsinger.
Semiconductor technology—which is critical to everything from our phones to operating airplanes—was the foundation of Intel’s business when the company started in the 1960s. (Co-founder Gordon Moore was responsible for Moore’s Law, which theorized that semiconductors would become exponentially smaller, more powerful, and less expensive over time.) But as the company’s recent announcements indicate, Intel is no longer the innovation leader it once was. .
There are also concerns over the global semiconductor industry – shares of other major chip companies such as Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung were also lower at the close on Friday and Industry leader Nvidia reportedly faces an antitrust investigation by the Department of Justice. But Intel is in a particularly difficult position.
How did things get so bad for Intel?
This isn’t the first time a company has had to implement cost-cutting measures – Intel has Mass layoffs in October 2022, after a brief, Covid-driven hiatus in the company’s fortunes.
“In February ’22, they had revenue targets that – I mean, I use the word outlandish, they were ridiculously high,” Stacey Rasgon, senior analyst at Bernstein Research, told Vox. “They were shaping the company and shaping the investment to that Covid revenue level,” based on the need for technology that allowed people to work from home or for kids to go to school remotely — a business that collapsed as quickly as it took off.
But the current CEO, Pat Gelsinger, inherited a business that had been stumbling for a decade when it launched in 2021. They didn’t really have a competitive product to bring to market,” while Jensen Huang’s Nvidia dominated the curve in AI technology, Futurum Group CEO Daniel Neumann told Vox.
Intel’s Other recent big bets It has foundry business – Three facilities in the United States and three overseas for manufacturing semiconductor chips, with other facilities in Asia and Latin America for testing and assembly. But that got off to a rocky start; For example, Intel refused to invest in cost-effective extreme ultraviolet machines for its manufacturing facilities, then had to outsource 30 percent of production to a rival company, TSMC.
Intel is no longer ahead of the pack when it comes to technology
“Historically, Intel has been a company that pushed the cutting edge,” Newman said. But during Gelsinger’s tenure, the company “missed the AI transition,” he said — and companies like Nvidia, AMD and TSMC, which are making semiconductor chips that can be used to accelerate AI technology, have flooded the market.
Nvidia, in particular, has become a dominant force. As my colleague Nicole Naria explains, some of the technical capabilities of its earlier work on graphics cards for gaming have translated well to the needs of generative AI. Starting in 2018, before ChatGPT came on the scene, the company bet big on that possibility:
The company has structured its research and development and mergers and acquisitions strategies to benefit from the coming AI boom.
“They were playing the game when no one else was,” Newman said.
Intel is now trying to catch up Its Gaudi technologyBut in the meantime, companies that used to use Intel products are moving away from the company. Apple, for example, switched from Intel processors to making their own processors in 2020 and Apple is said to rely on Google to build intelligence – Intel wasn’t even in the running.
Intel will survive (for now), on money saved from layoffs and dividend breaks. Government subsidies from the CHIPs Act, and investments from hedge funds like Brookstone and Apollo, which have bought foundry businesses, will also help.
“I think they’re an important infrastructure company for the United States and the world,” Newman said. But getting back on track will depend on ensuring that the foundry business becomes profitable.
“Even if they’re number two or number three behind Samsung, we still need this — this demand for AI change, nobody can go fast enough,” Newman told Vox.
But even if Intel can slot itself into that number two or three spot, there are still questions about AI’s place in the tech sector and society — whether it needs to be more tightly regulated, or whether it’s being overhyped.
“For AI in general, people are just nervous that the numbers have gotten so big, so fast, you just worry about sustainability,” Rasgon said.
For now, the silver lining in Intel’s current situation is that there’s nowhere to go but up.
