Intel's Path to Revival Under Gelsinger: Ambitious Goals and Real Challenges

Intel's Path to Revival Under Gelsinger: Ambitious Goals and Real ChallengesThree years ago, when Pat Gelsinger took the helm of Intel, he envisioned a comeback for the American industrial giant. However, his revitalization path quickly hit a major snag

Intel's Path to Revival Under Gelsinger: Ambitious Goals and Real Challenges

Three years ago, when Pat Gelsinger took the helm of Intel, he envisioned a comeback for the American industrial giant. However, his revitalization path quickly hit a major snag. While Intel struck a promising deal with TSMC, the semiconductor manufacturing behemoth, for TSMC to produce chips designed by Intel but beyond its own manufacturing capabilities, the relationship soured due to Gelsinger's missteps.

In May 2021, Gelsinger publicly stated, "We shouldn't put all our eggs in one Taiwanese foundry basket." TSMC downplayed the remarks in public, with its founder calling Gelsinger "a little bit rude." However, according to sources, TSMC privately indicated that it would discontinue the discount it offered to Intel. This meant that for a 3-nanometer wafer worth $23,000, Intel would have to pay the full price, significantly reducing the deal's profit margin. When asked about the matter, Intel maintained that TSMC is a crucial partner and that they have a "healthy business relationship." TSMC also emphasized that Intel is one of its significant customers.

Gelsingers offense to TSMC is only one example of the missteps he made during his tenure as Intels CEO. He inherited a company already struggling, having relinquished its manufacturing leadership position and ceded the lucrative smartphone and AI chip markets to competitors. Gelsingers arrival didnt seem to turn the tide, instead exacerbating the companys predicament.

Gelsinger placed great expectations on Intels manufacturing and AI capabilities, particularly among key customer groups. However, reality failed to match the expectations. Intel faced numerous setbacks, including contract losses, cancellations, and missed product deliveries. According to insiders, Gelsingers public predictions about AI chip deals were overly optimistic, exceeding Intels internal sales projections. Gelsinger also tried to transform Intel into a "foundry" like TSMC, producing chips designed by other companies. However, Intel's attempt to reclaim manufacturing leadership with its 18A advanced chip fabrication technology faced severe delays and technical bottlenecks, leading to several customers opting out of using the technology.

Intel emphasized in a statement: "Pat is leading one of the largest, most ambitious and important corporate transformations in American business history. We have made significant progress in our three and a half-year transformation and remain steadfast in our commitment."

In 2023, Intel's annual revenue shrunk to $54 billion, a decline of almost one-third compared to when Gelsinger took office. Analysts predict that Intel will post a net loss of $3.68 billion this year, its first annual loss since 1986. On Monday, the company's shares closed at $22.92, down 66% from their peak when Gelsinger took over. Intels plunging stock price sparked takeover interest, but the company vowed to undergo a restructuring and eliminate over 15,000 jobs. Intel stated that acquisition speculation wouldn't deter its resolve to execute its five-year transformation plan.

Under Gelsingers leadership, the company has undergone a complete business overhaul and secured substantial government subsidies worth $45 billion. Intel has emerged as a leader in AI PC chips and made "historic progress" in innovation. Regarding its 18A manufacturing technology, Intel asserted that it is stabilizing the production of high-quality chips and expects the technology to help Intel "return to process leadership" upon its official launch in 2025. At the same time, Intel refuted the negative commentary based on rumors, leaks, half-truths, and extensive internet interviews.

Toshiya Hari, a semiconductor analyst at Goldman Sachs, pointed out that as long as TSMC continues to provide excellent service to its clients, there's no reason for them to take a chance on Intel's manufacturing. He emphasized: If you care about performance this year and the next few years, you wouldn't do it! However, Gina Raimondo, the US Commerce Secretary, disagreed. She stated in September that US manufacturing was the "insurance policy" for supply chains, with key chip designers paying the premium and "should want leading-edge chips made in America."

Intel's missteps have also impacted US industrial policy. Gelsinger had vowed to build a foundry network, a move that instilled hope in the Biden administration, believing that Intel would help bring chip production back under American control. In response, a White House spokesperson stated that President Joe Bidens CHIPS Act aims to strengthen the semiconductor supply chain by investing in dozens of companies, not a single company. Intel has secured over $11 billion in proposed subsidy commitments under the Act.

In 1979, at the tender age of 18, Gelsinger embarked on his Intel career. Over the next three decades, he not only played a pivotal role in the company's evolution but also had the privilege of learning from the legendary Andy Grove, Intel's former CEO. During his time at Intel, Gelsinger became the company's first Chief Technology Officer, a position he held until 2009 when he left due to internal restructuring.

However, Intel underwent significant changes during Gelsinger's absence. The once prevalent "Grove Culture" - encouraging employees to challenge each other with data-driven arguments - gradually faded. Meanwhile, Intel missed some crucial market opportunities. It clung to its traditional strengths by providing chips for desktops and servers, failing to grasp the historic chance to produce chips for iPhones or fund AI company OpenAI.

In February 2021, Gelsinger returned to Intel and brought renewed vigor to the company. His return was met with enthusiasm from investors, with Intels stock price jumping nearly 7% on the day the appointment was announced. Employees also celebrated the return of the technology guru. Gelsinger knew that Intel needed to move forward with its plans at a "torrid" pace. He often wore a black T-shirt emblazoned with the word (the same T-shirt is available at the Intel company store) and was seen in public. Witnesses revealed that the energetic CEO would perform push-ups and jumping jacks before speaking at Intel events, showcasing his determination and vigor.

Less than two months into his role, Gelsinger wagered Intel's future on building a global foundry network capable of challenging TSMC. In March 2021, he announced a $20 billion investment in two factories in Arizona. In July of the same year, he stated that Intel would develop five manufacturing processes over four years, including the 18A technology under development. He hoped that these technologies would restore Intel's manufacturing leadership. Additionally, Gelsinger actively lobbied for congressional subsidies for US chip manufacturing. In January 2022, he joined President Biden in announcing a further $20 billion investment in two factories in Ohio. He remarked that Intel's investment in the state could reach $100 billion, aiming to create the "largest semiconductor manufacturing site in the world."

"Five Reasons to Believe in Intel"

During the global COVID-19 pandemic, chip sales flourished, driven by consumers' extensive purchases of technology products. However, by the spring of 2022, with rising product prices and employees returning to offices, the market supply and demand dynamics reversed, leading to an oversupply. In this backdrop, Intel's PC chip revenue slumped by 25% in the second quarter of 2022. At the same time, Intel's market share in data center chip sales was chipped away by AMD, while companies like Amazon and Google increasingly opted for in-house chip designs.

In the face of this adversity, Gelsinger called for unwavering belief from his employees. In his routine video messages, he outlined "Five Reasons to Believe in Intel" and urged his staff to "believe from the heart that Intel's best days are ahead." Intel stated that Gelsinger has always "maintained a fine balance between optimism and a sober awareness of the challenges ahead," a fine balance that has helped him to maintain his optimism when it comes to attracting clients. According to three sources, Gelsinger personally oversaw a deal with Alphabets self-driving car arm, Waymo, which promised Intels AI chips a significant role in its future. However, the deal ultimately fell through.