Intel, the world's largest producer of x86 CPUs for PCs and servers, was once a bellwether of the semiconductor sector. But over the past decade, its stock has dropped more than 50%, becoming less valuable than AMD, Nvidia, and Qualcomm. Manufacturing problems, product delays, market share losses, and strategic shifts under three different CEOs contributed to Intel's decline. The company missed the shift to mobile chips, focused too much on cutting costs, and opted for share buybacks over resolving manufacturing issues or investing in new technology.
From 2013 to 2023, Intel's revenue growth was a stagnant 0.3% CAGR, compared to AMD’s robust 15.6% CAGR, thanks to outsourcing to Taiwan Semiconductor Manufacturing Company (TSMC). Recent reports suggest Intel is considering drastic measures to rightsize its operations. This includes possibly spinning off its foundry unit, a move similar to AMD's spinoff of GlobalFoundries in 2009. If Intel goes fabless, it would rely on third-party foundries like TTSMC, echoing AMD’s business model but potentially undermining its long-term competitiveness.
Another rumor suggests Intel might sell Altera, which it acquired in 2015. However, this divestment could weaken Intel against AMD, which has successfully integrated Altera's top competitor, Xilinx. Intel's integrated device manufacturer model, where it designs, manufactures, and markets its own chips, once differentiated it from fabless rivals like AMD and Nvidia. However, it fell behind TSMC and Samsung in developing smaller, denser, and more power-efficient chips.
A difficult transition from 14nm to 10nm, followed by delays in 7nm technology, hampered its market position, leading many PC makers to favor AMD's CPUs. Intel’s market share dropped from 82.5% to 61.8% between 2016 and 2024, while AMD's share rose from 17.5% to 35.4%. Former CEO Bob Swan considered making Intel a fabless company but was succeeded by Pat Gelsinger, who aimed to revitalize Intel's foundries. This strategy relied heavily on government subsidies, which TSMC also secured for its overseas plants.
Gelsinger's focus on expanding Intel's first-party foundries has been costly and faces numerous challenges, including a significant revenue miss in its latest earnings report. To streamline its business, Intel has offloaded various segments, including Optane memory chips, network switch chips, 4G/5G solutions, pre-built servers, and cryptocurrency mining units. It sold its NAND division to SK Hynix and spun off Mobileye. In August, Intel suspended its dividend and announced a 15% workforce reduction to save up to $10 billion by 2025.
These actions indicate a potential shift back to Swan's fabless model. Although Intel hasn’t confirmed the rumors, abandoning Gelsinger's ambitious plans and adopting a fabless model could stabilize earnings but largely diminishes the strategic gains of the past three years. This shift likely benefits competitors like TSMC and AMD, making Intel's efforts to shrink its business a critical element to watch.
