US-based chipmaker Intel Corp.'s fall from market dominance to takeover target is a tale marked by missed opportunities and rising expenses.
In 2020, Intel was the second-largest semiconductor corporation by market capitalization, trailing only Taiwan Semiconductor Manufacturing Co. Ltd. Since then, the US-based chipmaker has fallen from No. 2 to No. 14, upstaged by rivals unburdened by manufacturing costs and eager to design for new enterprise priorities, including machine learning and artificial intelligence.
The Wall Street Journal recently reported that QUALCOMM Inc. is seeking to acquire Intel as it aims to broaden its reach into markets beyond mobile, including desktop computing and datacenters. Intel declined to comment.
Qualcomm, the seventh-largest semiconductor company today, supplies chips for Apple Inc.'s iPhone. Intel once had a shot at the mobile contract: Former Intel CEO Paul Otellini in 2013 expressed regret over walking away from negotiations with Steve Jobs to supply iPhone chips.
More recently, the rise of artificial intelligence and the subsequent surge in demand for NVIDIA Corp. Graphics processing units (GPUs) caught Intel off guard. Demand for GPUs often comes at the expense of Intel's x86 CPUs as more enterprise customers shift budgets to support artificial intelligence. While CPUs are general-purpose processors that can handle almost any type of calculation, GPUs are specialized for complex calculations and computing tasks, such as machine learning or AI. On Sept. 24, Intel launched two AI chips, the Xeon 6 CPU and Gaudi 3 AI accelerator. In unveiling the chips, Intel noted that 73% of GPU-accelerated servers use Intel Xeon as the host CPU.
Intel also resisted an industry trend toward separating chip design from manufacturing. While Advanced Micro Devices Inc. spun off GlobalFoundries Inc. in 2009, Intel clung to its strategy of designing and manufacturing chips in-house. Intel CEO Pat Gelsinger bet the company on developing foundry services for outside chip designers, positioning Intel to compete directly with TSMC and Samsung Electronics Co. Ltd. This shift toward increased investment in manufacturing has become a geopolitical imperative, fueled by US government subsidies to revive domestic chip production. However, the strategy significantly deteriorated Intel's financial position.
Foundry development has driven a substantial increase in Intel's capital expenditures, which rose from about 16% of revenue in 2020 to 44% by the second quarter of 2024, according to data from S&P Global Market Intelligence. Concurrently, significant losses incurred by the foundry caused Intel's EBITDA margin to plummet from 50% at the start of 2020 to 12% in the second quarter of 2024.
"The foundry move was a necessary one — for which Intel is being subsidized by the CHIPS Act — but it will take a long time to execute," said John Abbott, a semiconductor analyst at S&P Global Market Intelligence 451 Research. Abbott believes likely customers for Intel Foundry are defense and government customers. "I don't see the hyperscalers or Intel chip rivals like AMD/NVIDIA being able to use them — unless something happens to TSMC."
This month, Intel said it plans to make Intel Foundry an independent subsidiary inside of Intel. This builds on an earlier move that separated the profit and loss and financial reporting for Intel Foundry and Intel Products.
"A subsidiary structure will unlock important benefits. It provides our external foundry customers and suppliers with clearer separation and independence from the rest of Intel," Gelsinger said in a Sept. 16 message to employees. "Importantly, it also gives us future flexibility to evaluate independent sources of funding and optimize the capital structure of each business to maximize growth and shareholder value creation."
Intel shares have fallen about 50% since 2020, while the S&P Semiconductors Select Industry Index surged more than 110%.
