What happened to Intel?

Intel shares plunged on news that the company would cut 15% of its workforce due to a sharp drop in revenue and Chip foundry business loses billions of dollars.

This is The company’s biggest drop in half a centuryAt the close of trading on Friday, shares were trading at $21.48 — a price not seen since 2013.

The company is working to bolster its reserves by cutting jobs and suspending its stock dividend. But even those moves may not be enough to return the old tech company to its once-vaunted position at the top of the industry, especially in the face of stiff competition, especially from Rival chipmaker Nvidia.

Intel’s bad week was actually more like a bad quarter: It started in April, when The company disclosed at an investor presentation Due to a series of bad decisions, its chip manufacturing division suffered a loss of $7 billion in 2023, and its revenue fell 31% in 2022. Cost cutting and other measures will save the company $10 billion by 2025. Chief Executive Officer Pat Gelsinger said:.

Semiconductor technology is critical to everything from cell phones to airplanes, and was the foundation of Intel’s business when it was founded in the 1960s. (Co-founder Gordon Moore coined Moore’s Law, which states that semiconductor power will increase exponentially over time, becoming smaller, more powerful, and less expensive.) But as the company’s recent announcements make clear, Intel is no longer the innovation leader it once was.

There are also concerns about the global semiconductor industry – shares of other major chip companies such as TSMC and Samsung also closed lower on Friday. Industry leader Nvidia reportedly faces antitrust probe by Justice DepartmentBut Intel’s situation is particularly difficult.

This isn’t the first time the company has implemented cost-cutting measures—Intel Massive layoffs In October 2022, after a brief upturn in the company’s fortunes due to the coronavirus pandemic.

“In February 2022, they released revenue targets, and I mean, I use the word ‘outrageous,’ they were outrageously high,” Stacey Rasgon“They sized their companies and their investments based on the level of revenue that came from the coronavirus,” a senior analyst at Bernstein Research told Vox, based on demand for technology that allows people to work from home or their children to go to school remotely — a business that collapsed almost as quickly as it rose.

But when current CEO Pat Gelsinger took over in 2021, he inherited a company that had just experienced a decade of ups and downs. “When he came in, the company was in trouble; they didn’t have a real competitive product to bring to market,” Futurum Group CEO Daniel Newman told Vox. Nvidia, led by Jensen Huang, dominated the field of artificial intelligence technology.

Intel Other recent big bets Its OEM business — There are three factories in the United States and three factories overseas that produce semiconductor chipswith other factories in Asia and Latin America for testing and assembly. But the process was not smooth; for example, Intel refused to invest in cost-effective extreme ultraviolet machines for its manufacturing plants and then had to outsource 30% of its manufacturing operations to competitor TSMC.

“Historically, Intel has been a company that’s been driving the forefront of technology,” Newman said. But before Gelsinger came on board, the company “missed the AI ​​transition,” he said — and companies like Nvidia, AMD and TSMC, which make semiconductor chips that can be used to accelerate AI technology, filled the market gap.

Nvidia, in particular, has become a dominant force. As my colleague Nicole Narea explainssome of its early technical capabilities in gaming graphics cards fit the needs of generative AI well. Starting in 2018, before ChatGPT came along, the company made a big bet on this possibility:

The company has developed an R&D and M&A strategy to benefit from the coming AI boom.

“They were playing games when no one else was playing games,” Newman said.

Intel is now trying to catch up Its Gaudi technologyBut at the same time, companies that used Intel products in the past are moving away from the company. For example, Apple switched from Intel processors to producing its own processors in 2020. Apple’s smartphones are reportedly built on Google’s — Intel isn’t even competing.

Intel will survive (for now) on the savings from layoffs and the suspension of its dividend. Government subsidies through the CHIPS Act and investments from hedge funds like Brookstone and Apollo (which have taken stakes in the foundry business) will also help.

“I think they’re a critical infrastructure company for the United States and the world,” Newman said. But getting back on track will depend on ensuring the foundry business is profitable.

“Even if they’re second or third, behind Samsung, we still need it — there’s such a need for AI change that no one can keep up,” Newman told Vox.

But even if Intel can crack second or third place, questions remain about AI’s place in tech and society — whether it needs to be more strictly regulated or is overhyped.

“In general, there’s a concern that the amount of AI is growing so fast that there’s a concern about its sustainability,” Rasgon said.

For now, the silver lining to Intel’s current situation is that it has no choice but to rise.