Intel faces the risk of being acquired, due to strategic mistakes?
The fact that a tech giant like Intel is facing the risk of being acquired shows that strategic mistakes and the explosion of artificial intelligence (AI) have put the company in a difficult situation.
From the peak to the brink
Recently the newspaper Wall Street Journal Qualcomm has reportedly offered to buy Intel. While the deal is far from certain, it represents an unprecedented decline in Intel’s 56-year history.
The problems began with manufacturing flaws before Pat Gelsinger took over as CEO and worsened when he pursued an expensive restructuring strategy without anticipating that the AI boom would shift demand to chips made by rival Nvidia.
“The shift to AI has been a death blow for them over the last two to three years,” said Angelo Zino, an analyst at CFRA Research. “Intel has not been able to meet the new demand.”
Intel has dominated the world’s semiconductor market for decades. Its chips are found in nearly every personal computer and server.
Intel is one of the few companies that designs and manufactures its own chips, and has been the market leader in both areas.
But when Mr. Gelsinger took over in early 2021, Intel was falling behind its Asian rivals in the race to produce high-performance chips.
Mr. Gelsinger, a longtime Intel veteran and the company’s first chief technology officer, has laid out a plan to restore Intel to the status it enjoyed under previous leaders such as Andy Grove and Paul Otellini.
He plans to catch up with Asian rivals such as Taiwan’s TSMC and South Korea’s Samsung Electronics. He also plans to invest heavily in Intel’s manufacturing operations, and expand the provision of chip manufacturing services to companies that only design chips, such as Qualcomm.
Expensive bet
Mr. Gelsinger used Intel’s financial resources to build up its contract manufacturing business. He was in talks to buy GlobalFoundries for about $30 billion the summer after taking office, but the deal fell through.
Intel eventually opted to acquire Tower Semiconductor for more than $5 billion, but the deal also fell through when it failed to gain approval from Chinese regulators.
While costs are rising, the AI boom has spurred demand to shift to Nvidia’s graphics processing units (GPUs), chips better designed to handle complex AI systems.
As tech companies around the world scramble to buy Nvidia’s AI chips, many Intel processors remain on shelves without buyers.
Under such pressure, Mr. Gelsinger was forced to cut costs to maintain his restructuring strategy. Intel has cut thousands of jobs since 2022 and reduced its dividend last year.
But that hasn’t been enough. Last month, Mr. Gelsinger announced that he would lay off 15,000 people, cut costs by another $10 billion next year and suspend its dividend.
Narrow outlook
While Intel’s prospects for a recovery are getting narrower, it’s still possible. Analysts say cost cuts could help Intel weather the storm, although its falling stock price has increased the likelihood of the company becoming a takeover target.
Stacy Rasgon, an analyst at Bernstein Research, said Intel’s future depends on the success or failure of its next-generation chip manufacturing technology, which is expected to begin production next year.
This technology could help Intel regain its technological leadership and improve profit margins.
Intel’s biggest problem, however, is that its core chip business is not expected to recover quickly, as spending on AI chips continues to surge.
For Qualcomm, acquiring Intel could help it expand into new segments of the chip industry.
Qualcomm currently focuses on chips for mobile phones and has expanded into automotive and Internet of Things (IoT) chips in recent years.
However, it is unclear whether Qualcomm will retain Intel’s manufacturing business, as it is a complex and expensive area that Qualcomm does not typically engage in.
With its future uncertain, Intel is facing one of the most difficult times in its history, and the choices it makes will determine the fate of the once-leading semiconductor company.