From rise to fall – just one chip. What’s happening with Intel?
Intel's early dominance in computer manufacturing led to complacency. Initially, the company missed the opportunity to develop a chip for the iPhone, and later allowed its manufacturing capabilities to fall behind those of Taiwanese TSMC.
Subsequently, the company was unable to capitalize on the AI boom and is now facing record losses. Since the beginning of 2024, its stock has lost 60% of its value, and its capitalization is only 5% of that of Nvidia (97 billion dollars compared to 2.9 trillion dollars).
This has led to the biggest crisis in the company's 56-year history: the corporation is forced to lay off employees, freeze large projects, and spend billions to recover lost ground. What seemed unimaginable a decade ago may become reality: Intel plans to acquire its competitor Qualcomm.
From Leadership to Decline
Intel was founded in 1968 by Gordon Moore and Robert Noyce. With the release of the first microprocessor, the Intel 4004, in 1971, the company quickly established itself as a leader in semiconductor technology. Over the following decades, it played a key role in the personal computer (PC) revolution, with its processors forming the foundation of the burgeoning IT industry.
3 The introduction of Pentium processors in the 1990s further solidified Intel's position as a leading market player. However, lost opportunities, fierce competition, and lagging development led to a range of issues. Experts believe: the situation with Intel is not merely the result of recent missteps. So how did Intel find itself in crisis?
Loss of the iPhone and Defeat in the Mobile Revolution
One of the prerequisites for Intel's crisis is considered to be the company's failure to supply chips for the first iPhones, which, after their unveiling in 2007, rapidly transformed the smartphone market and brought Apple hundreds of billions of dollars in profits.
Walter Isaacson, the author of Steve Jobs' biography, wrote that Jobs was pleased with the quality of Intel chips used in Apple Mac computers at the time and therefore sought to discuss the possibility of creating chips for the iPhone with the company. However, he did not finalize a deal with then-CEO Paul Otellini.
Apple opted for chips from Samsung for the iPhone. A year later, Apple acquired the microprocessor manufacturer PA Semi, and in 2010, it unveiled its own chip for the iPhone.
During the first five years, Apple sold hundreds of millions of iPhones. The company needed chips with higher performance every year. This demand was met by Arm chips created in collaboration with Qualcomm. They consumed less power than Intel chips, making them more attractive for smartphones.
4 Following the rise in popularity of the iPhone, Apple began to place massive orders for chips from Taiwanese TSMC. The contract with the Americans allowed TSMC to upgrade its equipment and dethrone Intel as the largest chip manufacturer.
While Intel focused on microprocessors for PCs, competitors began integrating AI features into their mobile chips. With the collaboration of Apple, TSMC and Qualcomm surged ahead, while Intel struggled to adapt.
"Due to Apple's success, Intel lost a significant portion of its market share," acknowledged Gartner analyst Mikako Kitagawa.
Moore's Law No Longer Applies
The 4004 microprocessor had a staggering 2,000 transistors at the time. Today, Intel chips contain billions of transistors, yet the company is lagging behind its competitors.
Industry companies are placing more and more transistors on chips, reducing their size. While the 4004 processor was produced using a 10-micrometer (μm) process, Intel now uses a 7-nanometer (nm) process. However, this is insufficient: the best TSMC chips are manufactured using a 3-nm process.
Why did Intel lose the development race? The law of co-founder Gordon Moore, formulated in 1965, predicted that the number of transistors on a chip would double every two years. This meant that Intel's software development partners, such as Microsoft, could expect that the next generation of PCs or servers would be more powerful than the current ones.
For a long time, everything worked: every two years, Intel released a new chip, and the following year improved its design and technology. However, in 2015, it became clear that the implementation of the 10-nm process was delayed. Intel now explains that the issue was a lack of investment in EUV lithography machines produced by ASML, which TSMC was the first to believe in.
5 While Intel struggled to maintain its legendary two-year pace, its long-time rival Advanced Micro Devices (AMD) capitalized on the situation. AMD develops its chips in California, and they are manufactured by TSMC or GlobalFoundries. TSMC did not face issues with the 10-nm or 7-nm processes, so over time, AMD chips became competitive and even superior to Intel chips.
Failed to Keep Up with the AI Boom
Graphics processing units (GPUs) were initially developed for complex computer games, with Nvidia leading the market. However, researchers recognized that these processors were also suitable for the computations required by artificial intelligence algorithms. After the launch of the ChatGPT chatbot by OpenAI in 2022, the world learned about the new capabilities of GPUs, and Nvidia's capitalization began to rise rapidly.
Nearly all Nvidia's AI GPUs are manufactured by TSMC using cutting-edge technology. Intel lacks a graphics processor that competes with Nvidia, but it does have its AI chip Gaudi 3. It is produced using a 5-nm process, which Intel does not possess, hence the corporation relies on external foundries.
In 2024, Intel plans to earn up to 500 million dollars from Gaudi 3 sales, but this is insufficient, as AMD expects around 3.5 billion dollars in annual revenue from its AI chip sales. AI graphics processors are projected to bring Nvidia 57 billion dollars in revenue just in the first half of 2024.
6 Nevertheless, Intel aims to become the leading American manufacturer of AI chips. The company is counting on a factory in Ohio that is set to begin operations in 2028.
The problem for Intel is that while it tries to catch up with its competitors