The Continued Downfall Of Intel

From the top of their game to a mountain of problems.

The situation with Intel has been getting worse. There've been multiple articles released since the start of September, showing the cascade of issues going on in the company. In an earlier letter, I wrote about how Intel has lost a lot of ground to AMD. In the 6 weeks since I wrote that, bigger problems have come up.

Here's what's coming up:

Stock Price History
Splitting Divisions
Management
Removal From Dow Jones
Intel Running Out Of CPUs For RMA
Merger Rumors
Intel's Future

The history of Intel's stock price will paint a better picture of what's going on with the company. Just this year alone, they've gone from ~$50 to ~$19, which now puts them at a market cap around $84B. Around April was the start of the first crash of their price. That was about the time news was coming out about how CPUs were mysteriously crashing.

Intel stock price year to date.

People who had 13th and 14th gen CPUs were figuring out there was some kind of problem with them, but the depth of the problems hadn't yet been figured out. The crash that happened at the start of August was when a lot more attention was being called to the issues. Power issues and oxidation (oxidation specific to early 13th gen SKUs) were the problems causing the failure of the CPUs, and once the issues are noticed, it's too late. The CPU has already started to fail and needs to be replaced. JayzTwoCents did a good breakdown of these issues in his video.

Lifetime performance of Intel’s stock price.

When we zoom out to look at the full history of Intel's stock price, they are in a worse position now than they've ever been in. The current price is as low as it was during the mid/late 90's with two issues - it doesn't consider inflation, and Intel and many other tech companies were experiencing rapid growth around that time due to the tech industry taking off. There was a slight dip around 1997 to $14, which when adjusted for inflation, would equal about $25 today.

Now that I've set the stage, let's look deeper at what's going on.

There was recent news about Intel considering splitting divisions in the company. They have their foundry division they are considering splitting off from the company. One of the jobs this division has is to make chips for other companies. There's a huge problem with this (which I'm sure they're well aware of).

In the previous letter I talked about how they laid off 15k employees, which also affected R&D. AMD has done an incredible job with the engineering of their Zen CPUs, which allowed them to close the gap with Intel, and all things considered, AMD is now the better buy. Intel is now worse off for getting rid of so much of their talent, especially when they need to focus on expansion.

If they decide to split their business, they're only going to make it harder to do what needs to be done - release better products. Putting the issues aside that their two newest generations have, Intel is losing to AMD in both performance and power consumption. If you compare a 14900k to a 7800X3D, the latter wins in both departments. It's not by a lot, but it still matters, especially when the price is equal.

Shareholders certainly aren't thrilled with the performance of the company over the past few years. Intel had AMD on the ropes between 2012 when Bulldozer released until 2017 when Ryzen released. Intel got lazy with innovation and now it cost a lot of people their jobs and a lot of investors have lost money.

That leads to the next component of all this - the leadership.

If you look at how companies are moving in Corporate America, there's a lot of emphasis being placed on sales and marketing, even for the executive teams. In and of itself, that's not an issue, since a business needs both to be able to survive, except that many businesses are prioritizing short term profits over better products and customer service. The problem is Intel isn't like most businesses. It's incredibly technical and the leadership should be a reflection of that. Here's the past few CEOs for the company:

Paul Otellini (2005-2013)
Brian Krzanich (2013-2019)
Bob Swan (2019-2021)
Pat Gelsinger (Current)

There was some news about a shakeup at Intel a few years ago and how Bob was being let go in favor of Pat, and the main reason was they wanted someone with a more technical background. It seemed the company must have realized the position they were in after Ryzen released and they saw a huge decline in their market share as AMD made rapid improvements.

In the prior letter about Intel, I talked in depth about how Intel stopped innovating as much while AMD only had Bulldozer to sell. There were new generations of CPUs releasing that would only improve by 5-10%, along with new chipsets, meaning customers needed to shell out money for CPUs and motherboards, making the upgrades expensive. Because AMD wasn't a great option at the time, people didn't have any other choice if they wanted performance than to pay a lot more for Intel.

As we've seen with Zen 1-4, CPUs can be improved rapidly if a company decides to do so. Intel has done it before as well. Ultimately, the layoffs and the issues at Intel, past and present, are solely the responsibility of their leadership, much of it being on past leaders.

I've seen some remarks about how the employees at Intel who were laid off must have been politically motivated hires and therefore were terrible at their jobs. That's not the case. Any company that has that much value wiped out within a year and lays off 15k people is getting rid of great talent. The other thing to point out is these issues have been going on for years, which puts them beyond the new political talking points.

It was the result of years of stagnation because it seemed like they were prioritizing profits over customer experience. The employees get their marching orders from leadership and have no say in how the company is ran. It's off base to blame the workers for the issues. The leaders need to take full accountability and many of them were the ones who should have been let go.

Just over a week ago, news came out about how Intel could be removed from Dow Jones because of the terrible performance of their stock. The article mentions causes such as missing the AI boat, which has some effect on the matter, but much of it is due to the 13th and 14th gen CPU issues.

My personal take on the matter is the company won't be allowed to fail if things were to get to that point. It will either get taken over or the US gov will bail them out, due to the massive dependence it has on Intel, both for chips supply and for geopolitical reasons.

Just two days after the Dow Jones article released, another article dropped, talking about how Intel is running out of CPUs. Now that people are catching onto the issues with these CPUs, they are trying to get them replaced. As I mentioned earlier, once the issues start with these chips, it's too late to do anything to fix them. They are on their way to failure.

Because of the news cycles talking about the problems with these, people are trying to replace them and are being told they could be waiting about a month to get a replacement. The issue here is twofold. Customers are being left with a bad experience and potentially without a working computer for upwards of a month, and this is taking away chips that Intel could be selling, but are having to use for RMAs. The customers affected by this are going to be looking a lot more favorably towards AMD after having to deal with these issues.

An article from Reuters released on the same day as the RMA news, saying there were two unnamed sources talking about the possibility that Qualcomm wanted to buy pieces of Intel. Later articles mentioned this was fake and no discussions of an M&A were taking place. Here's my input on the matter.

First, let's consider the circumstances. Intel is in bad shape and is talking about selling part of their business. Qualcomm is a juggernaut in the chips industry. They have the means (money) and multiple reasons to do it - acquiring tech, talent, and new markets for Qualcomm. Have a look at this article, which shows how their chips compare on Windows vs. competitors. Qualcomm is aiming to have a huge presence in the PC market and getting a piece of Intel would allow them to get there even faster and improve their product stack.

Second, it's smart for any discussions of an M&A to be called fake. Corporate America has it's own set of processes and when it comes to M&A, it could be a disaster for a deal to have any discussion of it made public. When these kind of deals happen, an army of lawyers, analysts, and accountants from both sides have to examine every single part of the business and the deal. Due diligence is a critical piece of the process and having any information about this made public creates a lot of problems.

Third, from a more specific legal angle, this could draw unwanted attention from regulators. When Microsoft was trying to buy Activision, they ran into a lot of legal problems in the process, both from regulators in the US and the UK. Keep in mind Activision is a gaming company, not an internationally critical semiconductor manufacturer. Given the nature of Intel, it's questionable if the Feds would even allow a sale to take place.

Hope isn't lost for Intel yet. AMD had a huge uphill battle and managed to take a huge portion of the market in 7 years, and Intel could gain it all back just as fast (though incredibly unlikely). No company is too big to fail and the current CEO, Pat Gelsinger, is well aware of it.

Intel is getting ready to roll out their 15th gen chips - Lunar Lake (mobile) and Arrow Lake (desktop). Rumors of performance aren't something I put much stock in, especially since they tend to be grossly inaccurate, but let's say they're true in this case. Arrow Lake is rumored to be about 16% faster in single core performance and about 20% faster in multi core performance. They also seem to be getting the power usage dialed in as well. If all this turns out to be true, the upcoming CPUs are going to be competitive and I might pick one up for myself. Also, if the rumors are true, it will help Intel slightly that Zen 5 was a bit of a dud. I was hoping to see a much better performance boost or at least a bigger drop in power usage.

As far as the board goes, there was a reason they chose Pat to be at the helm. He's got an impressive technical background and has the chops needed to move the company in the right direction. It takes years to see a shift in the chips industry due to the nature of it and Pat seems to be getting it done. The only thing I can hold against him is the layoffs, but that's not something he has 100% control of and much of the responsibility lies on leadership who isn't there anymore.

Wrapping Up

Regardless of the tone of my Intel letters, I don't want them to go under. Less competition always hurts the consumer and makes for a worse product experience. The reason we've seen such huge increases in performance over the past 6 years in tech is thanks to the stiff competition going between Intel, AMD, and Nvidia. From scuttlebutt going around about upcoming hardware, it sounds like we're going to continue to see some great product releases.

Anyway, that's a wrap. Have a good weekend and I'll see you next Saturday! 🍻