Chip giant Intel may be at a crossroads as it calculates its next steps amid its falling stock price and struggling business.
Chip and wireless communications competitor Qualcomm approached Intel about a stock sale, the Wall Street Journal reported Friday. And on Monday, Intel CEO Pat Gelsinger sent an email announcing “the next step in Intel’s transformation,” which included creating a separate entity for its foundations and an expanded business with Amazon. Intel also plans to cut 15,000 jobs.
Founded in 1968, Intel has long been an American powerhouse for computer component design but has faced decline in the past few years. A takeover of Qualcomm could bring in some revenue, but chip industry analysts say it could also raise antitrust scrutiny and operational problems in the current political environment. Although there is little connection between Qualcomm’s mobile chip business and Intel’s focus on PCs and data centers, the Biden Administration has long been skeptical of the merger,
“There’s very little overlap. I think the argument could be made that there’s no overlap, but I still think this will look a lot better than just a rubber stamp to the collar, ” said Logan Purk, senior analyst. to Edward Jones.
The fundamental side of Intel’s business is also questionable, putting its billions in CHIPS and technology subsidies at risk. Intel has been the poster child for American chip manufacturing, with a recent $3 billion CHIPS Act funding boost.
“The government has an interest in this business being successful,” Purk said. “It makes it difficult if you, Qualcomm, want to deviate from this issue and put yourself in that position politically.”
Earlier, Qualcomm had tried to buy pieces of Intel’s architecture business, Reuters reported.
More autonomy for Intel cores
Making the center independent “is the easiest way, as of today, to unlock value with Intel, because of the huge losses and investments that the business requires,” said Purk.
Providing more autonomy allows it to “not be tied to the ups and downs of the CPU market, which has all come down from excellence in the last two years,” said Dan Morgan, CEO of Synovus’ large portfolio.
Intel’s foundations can be expected to compete with companies such as GlobalFoundries, TSMC, and Samsung. Intel stock jumped 8% after Monday’s announcement.
Compared to companies like Nvidia that design chips and pure players like TSMC that make chips for consumers, Intel’s dual role in playing both roles has caused some hesitation. to its peers and potential customers.
“There’s always some of that paranoia if you’re a top chip designer, and you send your designs to Intel for them to build, but they’re also competing to build chips that “I think that makes some people hesitant,” Purk said.
Intel’s continued focus on CPUs rather than GPUs, which Nvidia has focused on and are critical to AI computing, has also undermined its importance during the AI boom, analysts say. they said.
“They have a lot of things going on, and the money that’s needed to do these different things just isn’t there anymore,” Morgan said.
When Intel’s rival, Advanced Micro Devices, faced financial challenges in the 2000s, it split its design and manufacturing businesses into two companies and sold its foundations to an Abu Dhabi investment firm. The expensive side of chip manufacturing has become GlobalFoundries, one of the largest foundries in the world. Under the leadership of CEO Lisa Su, AMD finally focused its bets on bleeding-edge technologies like GPUs for high-end computing and AI.
Intel faces a more difficult political environment in its next moves. Selling to a foreign company is not a “politically viable situation” because of current national security concerns, said Stacy Rasgon, senior analyst at Bernstein Research.
Intel is betting on Amazon
Gelsinger also announced on Monday that the company will develop AI fabric chips for Amazon Web Services using its Intel 18A processing node and the Xeon 6 chip common to Intel 3.
The expanded collaboration between the two technology companies helps provide more confidence in Intel’s ability to capture the AI boom, Rasgon said. However, doubts remain about this announcement, since Amazon already produces its own custom chips.
“You have to remember that Amazon already produces two chips on its own and is buying from Nvidia. Intel threw a bone in AI, but I don’t know how much that helped them, Morgan said.
Intel also faces an uphill battle because of its history of falling behind on major development requests for its customers. After using Intel chips for more than 15 years in its Macbooks, Apple developed its in-house chip design with the M1 in 2020 and contracted TSMC to do it.
“Intel completely failed in the mobile chip revolution, they basically went out of business with Apple because they didn’t think it was a good enough product, and we know how that happened,” Purk said. .