Comparison with Microsoft
Market capitalization was the same 12 years ago
In my post two years ago, “The rebirth and fall of 4 major technology stocks in 10 years” I mentioned a number to let investors understand how miserable Intel is now:
In the past ten years, with the same market capitalization, one company has ascended to the top of the global market capitalization (referring to Microsoft), and its stock price has increased 12 times. Another company has fallen from the global semiconductor throne, repeatedly giving up all the crowns it once held (referring to Intel).
I believe few people have noticed this fact! Twelve years ago, Intel and Microsoft had the same market capitalization.
Now the difference is 36.5 times
What now? As of August 28, 2024, Intel’s current market value is only more than 83.68 billion US dollars, while Microsoft’s is 3.05 trillion US dollars, a difference of nearly 36.5 times.
Capital spending will be cut by 17%
Proposals to be put forward by Gelsinger and others following Intel’s disastrous second-quarter earnings report in August could include plans to further reduce capital spending on the company’s factory expansions.
That could include plans to pause or completely halt its $32 billion German factory, a project that has reportedly been delayed.
In August, Intel said it expected capital expenditures to be cut to $21.5 billion in 2025, down 17% from this year, and issued a weaker-than-expected third-quarter forecast.
Divest key companies’ stake
Including holdings in important companies such as Mobileyes and Arm to raise cash, it liquidated its shares in Arm in the second quarter. Please note: Intel is the major shareholder of these two important listed companies, holding a combined 88% stake in Mobileyes.
In June 2023, Intel also sold its minority stake in IMS Nanofabrication to Bain Capital, valuing the unit at $4.3B.
Possible M&A target
Market value is unreasonably low
Because the current market value of Intel is too low, and it is ridiculously low, it is not proportional to Intel’s market position, technology and embedded value (this part is not the focus of this article, I may write another article in detail if I have the opportunity).
Activist investors are sharpening their knives
On August 24, 2024, people familiar with the matter revealed that as the company’s stock price has repeatedly plummeted, in order to avoid the coveting of stock market vultures, Intel is working with advisors including Morgan Stanley to help itself resist attacks from activist investors.
Sale of Altera
Intel may accelerate the divestment of the Altera unit that Intel acquired for $16.7 billion in 2015. The company originally planned to sell part of its shares for an initial public offering in the future, but has not yet determined a specific date.
But Altera, which could also be sold outright to another chipmaker interested in expanding its product portfolio, has quietly begun exploring a possible sale, with infrastructure chipmaker Marvell among the potential buyers in such a deal.
Peers are also likely to acquire
Not only that, there are also rumors in the market that Broadcom, which has spared no effort to acquire large companies in recent years (see my post of “Significant changes in Broadcom’s business approach“), is considering acquiring Intel.
Coincidentally, on September 20, 2024, according to the “Wall Street Journal” report, Qualcomm has contacted Intel regarding a wholly-owned acquisition. The news significantly exceeded previous market rumors. In early September this year, multiple media reported that Qualcomm planned to acquire part of Intel’s chip design business. At that time, the two parties were also in the early stages of intentional contact with the transaction.
Stop paying dividends
In 2023, Intel first lowered its dividend from 0.365 to 0.125, cutting the dividend by one-third.
When the financial report for the second quarter of 2024 was announced, the company directly announced the cancellation of dividends.
Brain drain
The loss of many high-level core cadres, including high-end talents, has also further plunged Intel into trouble.
According to “eenewseurope”, the two co-founders of Habana Labs, Davi Dahan and Ran Halutz, have left Intel and founded another artificial intelligence company called Touch in Tel Aviv, Israel. In 2019, they sold Habana Labs to Intel for $2 billion. Both entered Intel at that time. Intel later launched the Gaudi series of AI processors based on Habana.
In addition, Intel’s four senior CPU design veterans, shortly before Intel announced 15% of its global layoffs, had left their jobs to establish a new chip startup, Ahead Computing, planning to engage in the research and development of RISC-V core IP. Work.
Layoffs
The number of employees is expanding too fast
Intel CEO Kissinger will take over the company again in 2021 to carry out a revitalization plan. The plan, also known as the IDM 2.0 strategy, aims to revive Intel’s global leadership in semiconductor manufacturing and expand the company’s foundry business.
As part of the revitalization plan, Intel will add at least 20,000 new employees by 2022. Earlier this year, Intel’s total number of employees was close to 125,000, surpassing the combined number of U.S. AI computing giants Huida and TSMC. The number of employees on some projects is even five times that of its counterparts such as American chip design giant Advanced Micro Devices.
Too many redundant employees
Some former Intel senior executives, including Lip-Bu Tan, are opposed to the current team operating model. They believe that the company’s current team structure is too bloated, leading to problems such as weakened employee motivation and low management efficiency. “At least 30,000 people should have been laid off a few years ago.”
Lip-Bu Tan hopes that the company can lay off employees in a targeted manner and focus on dismissing middle-level managers who have no actual performance. At the same time, the focus of manufacturing operations needs to return to being customer-centric rather than unnecessary bureaucracy. However, the board of directors did not adopt Lip-Bu Tan’s relevant proposals.
In the end, Lip-Bu Tan, a member of Intel’s board of directors, was dissatisfied and resigned.
Necessary layoffs
By the end of 2025, the amount of annual reductions is expected to be between 8 billion and 10 billion US dollars, such as the following major layoffs:
- After announcing layoffs starting in October 2022, Intel will lay off about 5% of its employees in 2023.
- In January 2023, a salary cut of more than 5% was announced for mid-level and above employees. It also suspended bonuses and performance bonuses.
- In August 2024, Intel will cut 15% of its workforce – approximately 15,000 jobs.
- In August 2024, Intel requires its channel and marketing departments to reduce costs by 35% by the end of the year.
- In August 2024, Intel laid off employees globally, and the fate of 5,000 employees in Ireland was uncertain, with compensation of up to 19 months’ salary.
Start to divestiture
- In 2021, Intel will sell its SSD business and Dalian factory to SK Hynix
- In 2024, Intel liquidated ARM shares in the second quarter and still lost US$120 million in stock investment
- In 2023, Intel will sell part of its holdings in Mobileye to raise approximately US$1.5 billion and will still retain approximately 88% of its shares in Mobileye.
- Intel sells minority stake in IMS Nanofabrication unit to Bain Capital in 2023 in $4.3B deal
- In 2023, Intel will sell its complete server business to MiTAC
- In 2022, Intel sold its drone light show business and was bought by Musk’s younger brother
Plans to split into five companies
For details, please see the description of my post of”Intel is spinning into five separate companies“
Foundry business
Serious losses
Intel announced the results of its manufacturing department on April 25, 2024, announcing a loss of US$7 billion in its foundry business in 2023, which was further worsened than the loss of US$5.2 billion in the previous year. Intel CEO Pat Gelsinger predicted that the foundry business would reach breakeven in 2027, causing Intel’s stock price to plummet.
Competitor to manufacture core products first time
TSMC’s revenue from Intel may reach US$8-9 billion in 2025, which will make Intel the second largest customer of TSMC’s N3 process. Lunar Lake computing chips (including CPUs, GPUs, NPUs, etc.) are manufactured using TSMC’s N3B process node.
Note: TSMC has long manufactured many products for Intel, including non-core products such as independent display chips. But it is only in recent years that Intel began to ask its rival TSMC to manufacture core products such as Meteor Lake, Lunar Lake, Arrow Lake, etc.
Fund rivals
Spending a lot of money, they keep saying they want to catch up with TSMC. But for the first time, Intel has outsourced its core desktop and laptop processors to rivals, outsourcing about 30% of its production capacity to TSMC. This is tantamount to accomplishing nothing, spending a lot of time and resources, and making no progress at all. Instead, it uses money to fund its opponents. This move further angers investors and makes them uncontrollable.
Investor class action lawsuit
Investors are clearly unhappy with Intel’s leadership team, and Intel faces a class-action lawsuit accusing it of not properly disclosing losses in its manufacturing unit when it reported 2023 results in January 2024. The lawsuit, filed by law firm Levi & Korsinsky, calls on Intel investors to join the class action.
Related articles
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- “How’s IBM performing these years?“
- “How does IBM make money? What’s next?“
- “The rebirth and fall of 4 major technology stocks in 10 years“
- “A series of Intel decisions led to where it is today”
- “Top vendors and uses of GPU“
- “Gelsinger faces a impossible mission, time is running out“
- “Will Intel go bankrupt?“
- “How bad is Intel right now?“
- “Intel is spinning into five separate companies“
- “Will Intel go bankrupt?“
- “How does Intel make money? and the benefits to invest in it“
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- “Why is AMD’s performance so jaw-dropping?“
- “Qualcomm diversifies success, no nonger highly dependend on phone“
- “How does nVidia make money, Nvidia is changing the gaming rules“
- “Significant changes in Broadcom’s business approach“
- “How does the ubiquitous Arm make money? Why its stocks is not popular?“
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