Intel: Just You Wait. Again

by Jean-Louis Gassée

In 2009, after a 30-year Intel career culminating in the CTO job, Pat Gelsinger leaves Intel. In early 2021 he returns as CEO with an ambitious reconquest agenda. It’s now two years later and Intel’s latest numbers are alarming.

Once upon a time, the Wintel portmanteau evoked images of world hegemony by Microsoft with its Windows operating system, and Intel with its x86 processors chips. The two companies came to dominate what we now see as modern technology’s Second Revolution, Personal Computers, machines we could lift with our arms, brains and credit cards.

But some of Intel’s chiefs were hesitant about the Microsoft congress. While they enjoyed the torrents of dollars and could lull themselves with feelings of superiority. But not of eternity, they were always looking for other mother lodes.

This always-on search, animated by CEO Andy Grove’s Only The Paranoid Survive philosophy, led to flirtations with bubble memory, server farms, and toys (no joke), to say nothing of a failed adoption of HP Precision Architecture called the Itanium chip (soon renamed Itanic), and the widely ridiculed adventure in wearables.

Despite the missteps, opportunity kept knocking at Intel’s door In 2005, the opportunity came in the person of Steve Jobs. Having successfully transitioned Apple’s Macintosh product line to x86 CPUs, Jobs wanted Intel to build the microprocessor for a new line of smartphones. But Paul Otellini, Intel’s CEO at the time, “didn’t see it”, as he graciously admitted later. The iPhone processor contract went to Samsung and then, after the aggressive Korean giant became too much to handle, to TSMC, culminating in the immensely successful homegrown Apple Silicon adventure.

As iPhone sales took off, analysts inspected its innards and found an ARM CPU that was much more power-efficient than anything Intel’s x86 chips offered at the time. Undeterred by the comparison, a succession of Intel CEOs chanted the same mantra: Just You Wait. The company’s superior chip design and manufacturing technologies will soon catch up and surpass the competition, Intel will ride the smartphone wave just as it once dominated the PC world!

Over time, as nothing of the sort happened, the bravura became an embarrassment. In January 2021 the act became unbearable and Intel’s Board finally replaced CEO Bob Swan (the company’s former CFO!) with Pat Gelsinger, a true technologist and a man of impeccable personal virtues. (Of no insignificant note, Gelsinger had had a 30-year tenure with Intel, leaving the company in 2009 for no publicly known reason. I’d love for readers to shed light on the real reasons for his departure.)

Right away, Gelsinger instigated big changes and publicized an ambitious agenda. He started with a grumbling allusion to re-injecting good old “Grovian” discipline into Intel’s culture. In parallel, Intel abandoned its older chip-making (lithography) technology and moved to the Extreme UV (EUV) process adopted by more successful competitors such as world leader TSMC. This led to the christening of IDM 2.0, the new generation of Intel Devices Manufacturing.

More changes: Intel would no longer limit itself to making chips for its usual x86 clients, the PC and Cloud server makers. To effect this re-orientation, Gelsinger created the Intel Foundry Services (IFS) business unit, an entity dedicated to making chips designed by other companies. IFS manifest destiny was competing with the likes of the world-leading TSMC foundry. To better publicize ambitious IFS goals, Gelsinger went back to the old Just You Wait war cry and gave himself the goal of regaining Apple’s business by becoming the foundry for Apple Silicon CPU chips. It was a pleasantly ambitious aspiration, couched in terms that acknowledged past errors and lauded Apple’s performance and fitted Gelsinger’s leadership style.

Two years later, where is Intel?

This past week, Intel announced its largest quarterly loss ever, $2.8B with a 36% revenue decrease compared to last year’s same quarter. (More details on Intel’s latest earning’s presentation can be found here.) As a result Intel stock fell to $31/share, compared to $64 two years ago, right after Gelsinger took the helm.

One explanation comes to mind: The dismal state of the PC market, down 30% or more. This is attested by Microsoft’s earnings presentation this past week, with Windows OEM revenue showing a 28% decrease.

But the state of the market can’t explain everything. For example, Microsoft’s Cloud business with Azure and related activities grew 27%. This should have correlated to a healthy pull for Intel’s Data Center snd Artificial Intelligence (DCAI) server products. Historically, this chip category has fetched high prices and generated Intel’s highest margins, so we can imagine the alarm over a drop of 39% in DCAI revenue. Just as bad, operating income fell by 137% to a negative 14% operating margin. This could portend a stronger than anticipated Cloud industry move away from the x86 architecture.

Concurrently, the company’s revenue for its new IFS foundry business decreased by 24% to an insignificant $118M, with a $140M operating loss gingerly explained as “increased spending to support strategic growth”. Other Intel businesses such as Networking (NEX) products and Mobileye — yet another Autonomous Driving Technology — add nothing promising to the company’s picture.

This doesn’t prevent Gelsinger from once again intoning the Just You Wait refrain. This time, the promise is to “regain transistor performance and power performance leadership by 2025”.

Is it credible?

We all agree that the US tech industry would be better served by Intel providing a better alternative to TSMC’s and Samsung’s advanced foundries. Indeed, We The Taxpayers are funding efforts to stimulate our country’s semiconductor sector at the tune of $52B. I won’t comment other than to reminisce about a difficult late 80s conversation with an industry CEO when, as an Apple exec, I naively opposed an attempt to combat the loss of semiconductor memory business to foreign competitors by subsidizing something tentatively called US Memories. But, in this really complicated 2023 world, what choices do we actually have?

For years I’ve watched Intel’s repeated mistakes, the misplaced self-regard, the ineffective leadership changes for this Silicon Valley icon, for the inventor of the first commercial microprocessor, only to be disappointed time and again as the company failed to shake the Wintel yoke — while Microsoft successfully diversified.

I fervently hope Pat Gelsinger succeeds. His achievement would resonate deeply, it would bring to mind another historic turnaround: Steve Jobs’ 1997 return to the Apple he had “left” in 1985.

— jlg@gassee.com