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The Tragic decline of Intel...


Intel

If you were alive during the 90s or 2000s, you surely remember that tune. It’s the anthem of Intel, the world’s most dominant chip maker, or at least, they were. Since then, Intel has had a pretty rough fall from glory. In fact, today, Intel barely ranks in the top 10 when it comes to the world’s largest chip makers. They come in behind Nvidia, TSMC, Broadcom, Samsung, ASML, AMD, Qualcomm, Applied Materials, and Texas Instruments.


And when you contextualize this with Nvidia’s performance, things look even worse for Intel. In fact, just 5 years ago Nvidia was only worth about half of Intel’s valuation coming in at $80 billion. But today, you can subtract Intel’s entire valuation from Nvidia’s, and Nvidia would still be worth over $2 trillion.

Worlds top 10 chip maker
Worlds top 10 chip makers

Intel isn’t just performing bad in comparison to the chip industry but the entire market. Intel is literally the worst-performing stock of the S&P 500 as we speak. And when you take a look at Intel’s stock performance over the past 25 years, it’s not surprising why. As of 2024, Intel is still yet to break their all-time high from the year 2000 during the dot-com bubble. In fact, Intel is currently down 57% since then, and that’s not even accounting for inflation. 1 dollar in 2000 is equivalent to $1.81 today meaning that the dollar has lost roughly 45% of its value. So, Intel stock isn’t really at $31.36. They’re actually at $17.32 in the context of their dotcom peak. In other words, Intel is actually down 77% in terms of real value over the past 24 years.



For the longest time, it was just Intel’s stock that was performing poorly. Fundamentally speaking, the company’s revenue and income were quite stable, but that too has changed in recent times. Within just the past 2 years, Intel’s revenue has crashed from nearly $80 billion to $53 billion. And as for the net income, well it’s even worse. Intel went from netting $24 billion per year to burning billions in the modern world of AI supercomputers. But what even happened? How did Intel go from being the king of computer chips to struggling for relevance? Well, let’s find out.


MARKETING OVER ENGINEERING:


Almost all of Intel’s downfall can be explained by their own arrogance and sense of comfort, but it wasn’t always like that. Back in the '70s','80s',and '90s',Intel was at the top of their game. You’ve probably heard of Moore’s law, the idea that the number of transistors in a chip doubles every 2 years. Well, Gordon Moore, the founder of Moore’s Law was also the founder of Intel, and as such, the company was always the biggest proponent of keeping the law alive and redefining what was possible. Engineers at Intel took an extreme amount of pride in their work as they were the crown jewels of the company.



But, the importance of engineers slowly faded at Intel throughout the 90s and especially the 2000s. Why you ask? Well, for the first time in chip history, branding mattered more than performance. Up until this point, virtually the entire chip industry was enterprise customers and PC enthusiasts whose main focus was price to performance. So, chip companies were highly incentivized to constantly improve their chips to stay ahead of the competition. But, heading into the 2000s, we saw the rise of the consumer PCs. The average consumer had little idea about cores or hyperthreading or clock speeds, but they did know this: . Intel was the brand they trusted and in terms of performance, the branding i3, i5, and i7 was all they needed to guide their buying decision. Intel had effectively cornered the consumer PC market, and they started to feel that marketing was more important than engineering.


By far the clearest evidence of this was in 2005 when they decided to appoint Paul Otellini as their first nontechnical CEO. Paul was a long-term sales and marketing executive, and the idea was that since Moore’s law was supposedly dying, Intel needed a marketing guy at the helm to keep growing the company. Now, to be fair, Paul actually did an excellent job given what he was tasked with. He heavily leaned down the company by conducting mass layoffs and focused all his efforts on sales and marketing leading to landmark deals like the one with Apple for Macs. There was just one tiny problem with this approach, Moore’s Law wasn’t actually dead, and with this new cutthroat corporate environment, Intel had effectively alienated much of the engineering community. None of this really affected Intel’s top or bottom line though. Intel’s branding and OEM partnerships were simply so strong that they weren’t really punished for falling behind.



Don’t be tricked though, this was no indication of real strength. It was just a thin veil that gave Intel a good amount of slack. But, this slack wouldn’t last forever. Eventually, the rest of the industry would pull so far ahead that branding alone was not enough to overcome the performance gap. The first major blow for Intel was the launch of AMD Ryzen in 2017. Ryzen’s top chips were not better than Intel's, but when it came to everyday consumer chips, AMD’s price-to-performance was leagues ahead.


The 2nd major blow for Intel came in 2020 when Apple decided to ditch Intel. At first, people were somewhat skeptical of Apple making their own chips, but after seeing the performance and more importantly, the insane efficiency of M1 chips, it was clear that the emperor, Intel, had no clothes. And keep in mind, this wasn’t just a bad generation for Intel. It was the result of decades of underinvestment and stagnation finally catching up.


MISSING EVERYTHING:


As much as Intel has fallen behind in the desktop industry, that only tells half the story. At the end of the day, Intel still controls about half of the desktop industry, and they still dominate the laptop market. Just goes to show you how strong Intel’s desktop branding and partnerships really are, but here’s the thing, that hasn’t really saved Intel. Why? Well, because the consumer computer chip market is becoming an increasingly marginal part of the overall chip market. For starters, global computer shipments have been falling for over 10 years now. But even putting that aside, the chip industry has simply grown to be way larger than just computers. In fact, there were 4 major new sectors that developed over the past 20 years and Intel missed out on each and every one of them starting with of course the smartphone industry.



This one doesn’t even need an explanation. After the launch of the iPhone in 2007, smartphones blew up. TSMC, Samsung, and Qualcomm were fighting tooth and nail trying to win this market and Intel wasn’t even there.


Moving onto SECTOR NUMBER 2, we have the gaming industry. Ironically, this is an industry that Intel still controls to this day from a CPU side of things. But, for some reason, Intel never took GPUs all that seriously. Even though GPUs were the number 1 piece of hardware that gamers spent money on. Even AMD was trying to compete in this market since 2006 despite the fact that they were on the brink of bankruptcy. For some reason though, Intel didn’t even release their first discrete GPU till 2021 and even that was only for OEMS.


Moving onto SECTOR NUMBER 3, we have the cryptocurrency mining industry. This trend did wonders for Nvidia and it was arguably the pivotal point at which Nvidia switched from being a niche gaming GPU maker to being a mainstream player. This was largely thanks to how much the crypto-mining boom skewed the prices of GPUs. The hope was that after the mining boom cooled down, GPU prices would also cool off, but they never did. In fact, the exact opposite happened. Nvidia created a whole new sector of chips dedicated to maximizing mining performance, and once again, Intel was nowhere to be found.



And that brings us to the last and likely the most crucial industry that Intel is missing out on as we speak:

THE AI INDUSTRY:


Now, to be fair, this is an industry that Intel is pursuing extremely seriously, but it’s simply very difficult for them to compete. Here’s the thing, the only reason Nvidia is so dominant in the AI industry is because they went through so many evolutions of GPUs already. From gaming GPUs to mining GPUs to data center GPUs, Nvidia has over 30 years of experience just making and evolving GPUs. So, for Intel to jump straight into the AI battle without any of this prior experience, well, let’s just say, it’s an extremely difficult uphill battle.


A RAY OF HOPE: So, what happened to Intel? Well, they got too comfortable both in terms of advancing their chips and in terms of expanding to booming adjacent sectors, but there is a ray of hope. Over the past couple of years, Intel has been slowly fixing one issue after another starting with their leadership. Paul Otellini was obviously not the best choice for CEO, but neither were their next 2 choices. After Paul retired in 2012, Intel made Brian Krzanich the new CEO. Now technically, Brian had an engineering degree, but he never really worked in engineering. He was a supply chain guy just like Tim Cook, and he would eventually be forced out after having a relationship with an employee. And the next CEO they brought in was a true MBA businessman and lifelong finance executive, Bob Swan. Little to say, that didn’t work either.


But finally, in 2021, Intel appointed Patrick Gelsinger as the new CEO. Unlike his 3 predecessors, Patrick had 30 years of experience as a chip architect at Intel and he had a highly successful tenure as CEO at VMware as well. As such, Patrick was the perfect combination of engineering leadership and business. But while Patrick was no doubt the right guy for the job, the turnaround has been anything but easy. The first thing Patrick worked on was resetting the company's morale and engineering roots. 20 years ago, Intel brought in Paul Otellini because they thought that Moore’s law was dying. But today, Patrick’s motto is “Moore’s law ain’t dead until the periodic table is exhausted.” And this sort of mindset and vision has naturally flowed through the entire company. Patrick has also embarked on massive R&D projects like this €33 billion investment in the EU and this $100 billion investment in the US. This is one of the main reasons why Intel’s financials are looking so poor. They’re taking massive losses trying to catch up, and there’s still quite a bit of pain ahead.



In the most recent quarterly call, Patrick told investors that they’re on track to catch up by 2026. On one side, that’s nice to hear, but that also means that Intel has at least 7 quarters of pain ahead just to catch up. After that, they actually have to convince the market to give them another chance which is far easier said than done. As Warren Buffett famously said, "We can afford to lose money -- even a lot of money. But we can't afford to lose reputation -- even a shred of reputation." And when it comes to Intel, that’s all they’ve been losing over the past 25 years from an engineering standpoint, an investor standpoint, and a consumer standpoint. One thing’s for sure though, there was no way that Intel was gonna leapfrog their way to compete with the likes of Nvidia without going through such a reformatory period. So, for Intel’s sake, it’s good that they’re going through this now rather than later. But, will this massive bet actually pay off? Only time will tell, and in the meantime, the state of Intel is worse than ever.


  • In short, Intel pulled a Boeing.


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