Intel in an Age of American Exceptionalism
A case study of the failure of American protectionism.
Hey Everyone,
Watching Intel navigate 2024 has been especially cringe. INTC 0.00%↑
The stock is down 56 percent year to date (YTD).
Something super weird is going on.
Intel has outlined plans to split its foundry business into a separate subsidiary with its own governance structure within the wider group. When it spun off Mobileye it seemed like a good idea. Mobileye based in Israel, is down over 70% YTD. MBLY 0.00%↑
Massive Layoffs
Intel recently cut 15% of its workforce amid disappointing Earnings guidance. Back in August, 2024 Intel reported worse-than-expected quarterly results and issued light guidance for the current period.
On September 16th, 2024 Intel said it’s creating a separate entity for its foundry business, a structure that could allow it to raise outside funding. Is this what the board came up with to reduce costs?
Intel announced a $10 billion cost-saving plan, which includes significant workforce reductions and real estate downsizing. The chipmaker has spent roughly $25 billion on the foundry business in each of the past two years, but the entire company is imploding inspite of U.S. Government subsidies.
Help can Anyone Help me?
The company is turning to Commerce Secretary Gina Raimondo for help, and it’s not working for the most part. No special favors, let’s see Intel compete in a fair manner.
Intel has signed an agreement with Amazon’s cloud services division to manufacture custom artificial intelligence chips, which might raise the stock today temporarily. But we know how business works, Intel is in a very poor position and slipping behind its rivals.
Intel’s fate is wacky, and it might fail entirely soon. Intel is building foundry plants in four states as part of its project to increase domestic semiconductor manufacturing for other suppliers. In March, the Biden administration awarded Intel with up to $8.5 billion under the CHIPS Act. Let’s see how special favors by the U.S. state helps their ailing firms.
Will Sell Part of Stake in Altera
As part of CEO Pat Gelsinger’s effort to turn around the struggling chipmaker, Intel said in a memo to employees that it will also sell off part of its stake in Altera. Very confusing and not a good sign.
Gelsinger said the restructuring would allow the foundry business to “evaluate independent sources of funding,” and comes days after Intel’s board met to assess the direction and future of the company. This sounds like a death spiral. Part of American history is dying in 2024.
Beyond just considering outside funding, Intel is weighing whether to spin off the foundry business, possibly into a separate publicly traded company. It’s not going to work. These are the decisions you make at the eleventh hour that hastens your fall.
Intel deal with AWS
In a memo sent to employees yesterday (16 September), CEO Pat Gelsinger said that Intel and AWS will develop a custom semiconductor for AI computing on the Intel 18A. They will also develop a custom Xeon 6 chip on Intel 3, building on the existing partnership between the companies which has seen Intel produce processors for AWS. How is Intel even worth $90 billion as a market cap still?
Gelsinger, who embarked on a bold comeback effort for Intel in 2021, has had to scale back some of his ambitions in the name of efficiency. This is because Intel is losing, and badly.
They compete with the likes of TSMC, Samsung, Nvidia, AMD, Micron, Qualcomm and IBM, among others.
Sales Keep Shrinking
Inte’s sales keep shrinking. Intel made a number of announcements in the memo, which came after a pivotal board meeting last week. The company is under pressure to cut costs by $10bn as sales have shrunk in recent years.
But who stands the most to gain as Intel is in so much trouble? If I had to guess I’d say its TSMC and AMD.
Intel, once the biggest and most valuable U.S. chip company, has been surpassed by numerous rivals in recent years due to a series of missteps. I feel like we are near the end, and a part of America’s past. How quickly the giants fall and when they start to decline, nothing in the world can prevent it. Intel is easily one of the worst-performing tech stock in the S&P 500 this year, while rival chipmaker Nvidia is the second-best performer in the index.
Intel is building foundry plants in four states as part of its project to increase domestic semiconductor manufacturing for other suppliers.
The Great Pause
Intel will also pause its fabrication efforts in Poland and Germany “by approximately two years based on anticipated market demand,” Gelsinger said, and pull back on its plans for its Malaysian factory. U.S. manufacturing projects will remain unaffected, the company said.
These things together are an ominous time for a failing giant.
The U.S. government is bolstering its investment in semiconductor production due largely to the growing geopolitical risk around Taiwan, home to the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing. So why are they giving funds to a failing company? They should be giving more to TSMC, who are easily multiple years ahead of the rest of the world! It’s so idiotic and it’s American protectionism and a massive waste of funds.
I don’t see how Intel makes it out of the 2020s.
Intel CEO Pat Gelsinger, in a recent meeting with Commerce Secretary Gina Raimondo, voiced frustration over U.S. companies’ heavy reliance on Taiwan Semiconductor Manufacturing, the world’s largest contract chipmaker.
American cannot build anything. They do provide expensive GPUs though. They cannot build apps. They can build a monopoly on large language models though, outside of China, while constraining the growth of China that is already stagnating economically. Bravo. They can cut off Europe from a viable future in technology.
But one thing American cannot afford to do is pause American protectionism. So much for the free market. It was a ruse anyway. Intel deserves nothing but its natural place in free market competition.