Intel – Nightmare on Mission College Blvd

The rot runs deep.

• The “ouster” of Pat Gelsinger means that Intel will almost certainly be split up and could be absorbed into other companies meaning that the once all-powerful Intel brand may soon be just a memory.
• It is also a further sign that Intel lacks the corporate culture that would enable it to fight for its position after decades of cruising along at the top without having to do very much other than get the manufacturing right.
• This is also a gift for Qualcomm, Nvidia, AMD and MediaTek to come and take its business while Intel is tying itself in knots with its internal issues.
• Pat Gelsinger is “retiring” from Intel which I think in plain English means that the board forced him out after it lost confidence in his ability and his plan to return Intel to its former glory.
• This has happened very suddenly and with no successor in the wings, it is clear that this was not planned, supporting my view that Gelsinger has been forced out.
• This means that the plan to invest heavily and return Intel to the front line of semiconductor manufacturing with foundry and design remaining under a single roof is now out of favour with the board.
• This means that Gelsinger’s successor will most likely press ahead with a plan that breaks Intel up into separate pieces which I think spells the end of Intel as we know it.
• Intel’s greatness was based on the combination of manufacturing excellence and its ownership of the x86 design that had dominated PC and data centre processors for decades.
• With both of these under attack from all sides, its only real hope to survive was to make a success of Pat Gelsinger’s plan and while it has proved to be much harder than expected the migration to leading edge is on track.
• The problem has been the foundry business which was split out as a separate business earlier this year leading to the market realising just how much money the division is losing.
• Foundry is not expected to be properly competitive until 2026 when 18A should be running in volume but the board has clearly decided that the Gelsinger has run out of time.
• The real problem at the heart of the problems as I see it is cultural, as demonstrated by its response to the X Elite from Qualcomm.
• Looking at the recent trajectory of Intel’s chips prior to the X Elite, one can see incremental improvements keeping in step with AMD but not closing any of the gap with Apple’s M series.
• Then suddenly when its house is suddenly under threat, it awakes from its slumber and produces a chip (Lunar Lake) that offers a significant performance improvement and is far closer to the X Elite or M series than one would have predicted looking at its history.
• This suggests that Intel’s culture is reactive and somnolent and that any get and up and go that the company once had has long since gone after decades of cruising along at the top.
• Its ability to produce Lunar Lake demonstrates that if it had taken the initiative, it could have prevented AMD’s resurgence as well as made life much harder for Qualcomm and the Arm crowd in the PC market.
• A company with this attitude could have made a success of Gelsinger’s plan and his failure is his inability to reignite Intel’s competitive spirit.
• This is a truly dire state of affairs because fixing this malaise will be very difficult but not impossible as Satya Nadella has proven (although things were not nearly as bad at Microsoft when he took over).
• With Intel’s future very uncertain and its once great engineering culture in poor shape, Intel is easy pickings for its resurgent competition.
• I expect to see Qualcomm, AMD and MediaTek redouble their efforts in PCs and the data centre as Intel’s entire business appears to be up for grabs.
• I have often said that at 10x earnings, one should shut one’s eyes and buy Intel but because of the falling EPS estimate the valuation has never gotten there.
• With the company in this much trouble, there is no price at which I want to buy it.