In 1965, Intel co-founder Gordon Moore made a world-defining prediction: From then on, the number of transistors on chips would double every two years. The prediction came true with mathematical precision for decades, doubling the power and shrinking the size of microprocessors. It eventually became known as Moore’s Law.
However, in recent years, the paradigm has been running into physical and theoretical limits, with transistors the size of a few atoms and increasingly difficult to miniaturize. Moore’s Law, once infallible, is slowing down because of the difficulty of keeping up with this frenetic pace. Something similar is happening to your company, which is going through one of the most difficult periods in its history. Intel is struggling to keep up.
The American multinational has missed the artificial intelligence revolution and it is costing it dearly. In its latest quarterly accounts, it presented losses of 1.6 billion dollars, expects its revenues to continue to fall in the next quarter and has suspended dividend payments. Its shares have collapsed by almost 60% in the last six months. The collapse is similar to that suffered during the Internet bubble.
Even the 15% cuts in its workforce announced this summer by its CEO, Pat Gelsinger, which will result in the layoff of more than 10,000 employees worldwide, have failed to halt the decline. Intel, until recently the largest and richest company in the semiconductor industry, is on the verge of falling below $80 billion. The contrast with its newest and largest rival, Nvidia, is striking. The latter earned more than $16.599 million in its most recent quarter and is valuing itself at $2.6 billion, even though it is no stranger to investors’ growing doubts about AI.
This is why Gelsinger is reportedly considering an even deeper restructuring of the company. According to Bloomberg, Intel is analyzing several scenarios with Morgan Stanley and Goldman Sachs, including the most drastic: a separation of its chip design activities from the manufacturing of these components.
According to Reuters, the plan could include the sale of its Altera division (which designs programmable chips and which Intel acquired in 2015 for around $15 billion), but for now it has no plans to completely separate its two main businesses.
Gelsinger is expected to present his plan to the board of directors in the coming days, with which he hopes to reduce expenses by another 30 billion euros. Intel did not respond to questions from elDiario.es about its possible split into several companies. Nor did it specify how many Spanish employees could be affected by the layoffs.
Major investments in chip factories in the US and EU
The dismantling of your company is a process that several technology and electronics giants have had to go through, due to not being able to adapt to new market conditions, such as IBM, Toshiba or General Electric. However, in the case of Intel, this could directly affect the huge investments that the multinational has undertaken to build chip factories in the United States and the EU, for which it was going to receive large subsidies.
In Europe, the American multinational had committed to the German government to launch a mega-production plant for around 47 billion euros, of which the Germans would provide around 11 billion in public money. Part of this money would come directly from Brussels, as part of the community policy aimed at recovering part of the world’s chip production and avoiding further disruptions in the supply chain such as those that occurred during the pandemic.
In the United States, Intel was going to put about $100 billion on the table to build new factories in Arizona and Ohio, as well as to modernize existing ones in New Mexico and Oregon. Joe Biden was going to reward this bet with about $20 billion, including about $8.5 billion in direct aid and another $11 billion in loans.
Intel’s crisis has now cast doubt on those plans. Reuters reports suggest the multinational is considering whether the cost cuts it needs to make include the German plant, whose deal was seen as a success in both Berlin and Brussels.
“It is possible that Intel’s CEO will say that the company no longer has liquidity for this type of project. But in my opinion, I think they will choose not to separate and try to execute them, although more slowly,” says Esteve Almirall, professor of operations, innovation and data sciences at Esade. “The situation is complicated because they have invested money that they did not have and the prices of microprocessors are no longer what they were two or three years ago, because the supply has increased a lot,” he continues.
The expert also points out that the media and political orientation has changed. “Now it is no longer so much about manufacturing microprocessors, but about helping SMEs train their own artificial intelligence models, a sector very captivated by Nvidia and in which it will be very difficult for them to enter,” he says.
The separation between chip design and manufacturing at Intel has already happened at the technical level. The company has been reporting separate financial results for the two divisions since the first quarter of this year and has built a wall between workers. The goal, he explained, is to ensure the technological secrets of customers on both sides, since Intel designs its own chips but also produces those designed by other companies.
“Intel’s story is curious because in recent years it has been plagued by absurdities, even though its people are very prepared and intelligent. “They found themselves trapped in a model in which they capture less and less value,” Almirall explains: “First they lost their cell phones, then their modems, then their data centers, and the last thing that happened to them was that they missed the disruption of AI, which Nvidia took.
Nvidia, however, does not make its own chips. One of Intel’s “assets” at this intersection, the professor explains, is to become “the TSMC of the United States.” The Taiwanese company has also signed agreements to build factories outside its home country, but is reluctant to export its cutting-edge technology outside its country. This situation could prompt the next American administration to support Intel, in the midst of a geopolitical conflict with China and in the midst of Beijing’s growing desire to regain control of the island, which it considers part of its territory.
