The Fall of Intel's Might: An Examination

Intel Corporation (INTC), a major player in the semiconductor industry, has been facing challenges in recent years. The company, once at the forefront of Moore's law, has seen a decline in revenue and EBITDA over the past 3 years, with a revenue decline of over 10% CAGR and EBITDA decline of over 28.65% CAGR [2][3]. This decline has been accompanied by a decrease in the company's gross margin, operating margin, and net profit margin [2].

The stock value reflects these struggles, with Intel's stock having seen a decrease of over 66% from its 2021 highs and being approximately 25% lower than 10 years ago [2]. Intel's current valuation includes an EV/EBITDA of 14.39, a P/B of 0.98, and a price to cash flow of 9.47, which are relatively low compared to the sector median [2].

One of the key factors contributing to Intel's struggles has been increased competition from rivals like TSMC and Nvidia. Reports suggest poor yields for Intel's Panther Lake manufacturing process, which may indicate difficulties in scaling competitive manufacturing technology [5].

In an effort to turn around its performance, Intel is pursuing several measures. The company is in discussions with the U.S. government to take up to a 10% equity stake (~$10.5 billion) in Intel, converting Chips Act grants into ownership. This aims to provide capital support and political backing to revive the company, especially the ambitious Ohio fab projects [1][4][5].

Intel is also targeting reductions in operating expenses, aiming to cut $17 billion non-GAAP operating expenses in 2025 and $16 billion in 2026. The company plans to achieve this by reducing its workforce by approximately 15%, aiming to reach a total of 75,000 employees [2][3]. Additionally, Intel anticipates absorbing significant restructuring and impairment charges to improve efficiency [2][3].

Technological and execution improvements are another focus area for Intel. The company emphasizes the urgent need to meet technical milestones to achieve parity, especially in AI and cloud computing chips. Intel must deliver competitive products to attract customers for its foundry services and justify investor confidence beyond policy-driven support [5].

The leadership of Intel is also under scrutiny. With senior executives retiring and calls for the CEO's removal by prominent figures, Intel’s board is under pressure to stabilize and strengthen leadership [2][4].

Intel's new CEO, Lip-Bu Tan, is focusing on cost-cutting and CapEx rollback instead of heavy capital for innovation. This strategy is aimed at improving capital efficiency [1].

In addition to these measures, Intel is scaling back its global expansion with the closure of manufacturing projects in Poland and Germany. The company is also planning to cut around half of its management layers as part of the workforce reduction [1].

The Data Center and AI (DCAI) segment focuses on high-growth enterprise and cloud markets, with products like Intel Xeon Processors and Gaudi AI accelerators. The Client Computing Group (CCG) is Intel's primary business, focusing on designing and selling PC components. Key products include Intel Core processors and the Intel Evo platform [1].

The Network & Edge segment, though integrated with CCG and DCAI, plans to be spun off and focuses on network-optimized processors for infrastructure like 5G, routers, and switches [1].

Intel has partial ownership in Mobileye, a company specializing in computer vision and machine learning technology for ADAS and autonomous driving. The company also still owns 49% of Altera, a company that designs and sells Field-Programmable Gate Arrays [1].

Intel's Foundry is a key part of the IDM 2.0 strategy, offering wafer manufacturing, design services, and advanced packaging for clients like Microsoft and Amazon [1].

Recently, Intel released mixed quarterly earnings with a revenue of $12.9B, an Adj. EPS of -10 cents, and a GAAP EPS of a loss of 67 cents, mainly due to restructuring and impairment charges [2]. Despite these challenges, Intel anticipates Q3 revenue to be between $12.6B and $13.6B with a gross margin of around 36%. The company anticipates a breakeven non-GAAP EPS for the quarter [2].

Intel's turnaround depends on executing on technology development, leveraging government support strategically, regaining customer trust in its manufacturing prowess, and stabilizing leadership amidst strong market competition and geopolitical factors [5]. Without achieving competitive product performance and attracting real customer volumes, the investment and restructuring alone may not restore growth [5].