Gelsinger faces a impossible mission, time is running out

Table of Contents

Current CEO Gelsinger

Pure blood

Current CEO Patrick Gelsinger takes most of the credit. He was no simple figure; he designed Intel’s 80486 processor in the 1980s. He is the first chief technology officer in the history of Intel. He is a rare Intel CEO with pure Intel pedigree, business, management, and listed company. He once worshiped Andy Grove, who is recognized as the greatest and longest-serving CEO in Intel history, as his work and life mentor, and he determined to become the CEO of Intel very early in his career.

Strong background

After working at Intel for 30 years, he successively served as the CEO of VMware, which was acquired by Broadcom (ticker: AVGO), and the president and chief operating officer of the EMC division of Dell (ticker: DELL), and was re-employed in February 2021. Returned to Intel to take over as CEO.

Steering the ship in the storm

I mentioned in my previous article “Intel’s current difficult dilemma” that Intel has had three CEOs in five years, and the company is under internal and external pressure. This phenomenon was basically stable until Gelsinger took office.

When he took over, it was a critical moment for the United States to realize that semiconductor production must be moved back to the United States, to end the monopoly of semiconductor production in Asia and TSMC, and to impose an embargo on Chinese semiconductors. Originally, Intel should have been the natural candidate to assist the United States in this semiconductor policy, but times have not changed. At this time, Intel is no longer what it used to be. Not only is it no longer the market value king of global semiconductors, it is also no longer the leader in global semiconductor sales. It lags behind TSMC (ticker: TSM) and Samsung Electronics in terms of semiconductor manufacturing technology.

The impossible misison

Not the same Intel he left

Basically, the Intel that Gelsinger received when he returned this time was already in a mess, and it was no longer the same as the Intel when he left. There are many reasons for this. But if Gelsinger can successfully reverse the company’s fortunes, he will definitely be the hero. If nothing unexpected happens, Gelsinger will leave his name in Intel’s corporate history.

Change is extremely difficult

Intel is not an ordinary company, it is another symbol of American national strength. This is not an easy task. When Intel’s business scope is very large, bad habits have been established for a long time, easy money has been enjoyed for too long, the internal culture is deeply rooted, and employees generally have a arrogant and self-feeling attitude. This is the key factor that caused the company’s decline.

Three wrong decisions

In an interview with Indian media Digit, current CEO Patrick Gelsinger publicly admitted that Intel had made the following three important wrong decisions in the past 20 years, which led to the company’s current situation. Frankly mentioned that he felt Intel missed three major business opportunities: the failure to develop the smartphone chip business, the cancellation of independent display chip GPU research and development in 2010, and the failure to focus on building large-scale wafer foundries.

Note: The research and development of independent display chip GPU that Gelsinger refers to is the famous Larrabee project. The independent display chip GPU is the core basis for Nvidia(ticker: NVDA) to have a monopoly on artificial intelligence.

Head to head comparison

Just thirteen years ago, the total market values of Intel and Microsoft (ticker: MSFT) were evenly matched. At that time, the two companies were closely related and were known as the Wintel Group. The two companies monopolized the market of personal computers. As for software and hardware, the side effect is that the two are so used to each other that they are unaware of the mobile computing that is happening and is changing the world of technology.

The difference is that Microsoft woke up earlier and quickly replaced the incompetent CEO Ballmer with Nadella, who has now reborn Microsoft. It embraces cloud computing, software subscriptions, and the emerging artificial intelligence to lead again. The global technology industry, and its market value has long threatened Apple, which has dominated the list for a long time.

Regarding this part, please see the detailed analysis of my other article “Satya Nadella brings Microsoft back to glory”.

Capital market performance

Almost doubled in 2023

In 2023, Intel’s stock price rebounded from the bottom, rising 90.1% throughout the year. It is hard to imagine that less than a year ago, Intel’s stock price-to-earnings ratio was only 6 times, the stock price was only 24.73 yuan, and the yield rate was 6%. You read that right, these numbers are correct.

A painful year

2022 will be a painful year for the chip giant. The shortage of semiconductor production capacity that began in 2021 is still raging. The global economy has been hardest hit by the recent inflation crisis, limiting demand for high-end electronics using Intel components.

Archrival Advanced Micro Devices (ticker: AMD) is doing all the right things in this challenging market, taking market share from Intel in key areas such as desktop computers and data center servers. As a result, Intel’s financial performance often falls short of Wall Street’s expectations. In 2022, Intel’s stock price fell 48.7%; the company’s stock price almost fell to a bottom that could no longer fall.

Not because Intel performed well

The doubling of the stock price in one year after the previous year’s halving was not entirely due to Intel’s good performance in 2023. Although the company’s long-term prospects have greatly improved, the stock price has roughly returned to the level at the end of 2021.

Lower inflation and a generally stronger global economy have helped Intel regain its footing. Additionally, a strategic shift under Chief Executive Patrick Gelsinger is starting to pay dividends, with more orders for its third-party chip manufacturing services and the launch of some impressive products. The company has regained some lost market share from Advanced Micro Devices, while demand for chips is also expanding.

It is worth noting that Intel’s biggest stock price rise in 2023 will come from macroeconomic news, not the company’s own performance and operations. Shares surged 31% in March 2023 and another 23% in November 2023, both of which were driven by lower inflation and business growth in other parts of the semiconductor industry.

Conclusion

Gelsinger must understand that time is running out for him:

On August 2, 2024, after announcing the suspension of dividends and laying off 15% of its workforce following the release of its second-quarter financial results, the stock price fell 26% in one day, the worst day since 1974.
From the beginning of 2024 to the end of August, the company’s market value dropped by nearly 60%. When the stock price was as low as 18.46, it was terrible.
As the market value dropped to just over US$80 billion, the company was rumored to be cooperating with Morgan Stanley to discuss how to resist the potential crisis of stock market vultures or activist investors taking the opportunity to control the company or even annex Intel.
At the end of August, it was reported that the company was working with investment bankers to help get through the most difficult period in the company’s 56-year history. The company was discussing various options, including possibly spinning off its foundry business and canceling the new factory. Plans may also include potential mergers and acquisitions, or even sales.

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