Intel CEO Sparks $1 Trillion Market Value Drop
As the year draws to a close, the role of a CEO comes under intense scrutiny and pressure, both from within the company and from investors. This sentiment has been clearly illustrated in recent announcements from two major companies: Stellantis, the world's fourth-largest automotive group, and Intel, a prominent player in the semiconductor industry. After the abrupt resignation of Stellantis's CEO, Intel followed suit, revealing that its current CEO, Pat Gelsinger, would retire from his position and also step down from the board. This news took many by surprise, but in the eyes of investors, it was seen as a hopeful change. The very day this announcement was made, Intel's stock surged nearly 6%, signaling a positive market reaction amidst ongoing challenges for the tech giant.
Intel's performance over the last two years has been less than impressive, with its market capitalization plunging by nearly 50% and a disheartening financial report showing a shift from profit to loss in the third quarter. Competing in sectors like artificial intelligence (AI) and automotive technology has become increasingly challenging, as rival companies such as Nvidia and Qualcomm have outperformed Intel in these burgeoning markets. Insider sources suggest that Gelsinger's retirement was not entirely voluntary; the board felt he had failed to effectively steer the company in a competitive position against Nvidia, leading to his "forced retirement."
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Gelsinger, a 33-year veteran of Intel, joined the company as a quality assurance engineer back in 1979 and climbed the corporate ladder with remarkable speed. By 1993, he was the youngest vice president in Intel's history, and in 2001, he became the company's very first chief technology officer. Under his leadership, critical technologies such as the Core and Xeon chip series were developed—products that continue to be essential revenue streams for Intel. Gelsinger briefly left Intel in 2009 to take roles at EMC and VMware, returning only in early 2021 amid mounting pressures to reorganize the company following demands from aggressive investors.
Upon accepting the CEO role, Gelsinger initiated an ambitious five-year transformation plan known as IDM 2.0, intending to shift Intel's focus towards becoming a major foundry in semiconductor manufacturing, positioning the company to compete directly with industry giants like Samsung and TSMC. This strategy entailed significant investments in expanding manufacturing capabilities both domestically and abroad with large-scale semiconductor fabrication plants. Despite his grand vision, by the first quarter of this year, Intel's foundry revenue had fallen below $100 million for three consecutive quarters, reflecting a lack of traction in scaling external foundry orders. This has led Intel to announce the spin-off of its foundry business into a standalone entity and the halt of two projects in Europe while seeking external financing.
These ambitious expansions necessitate continuous capital investment, and combined with challenges such as a global economic downturn during the pandemic and restrictions on chip exports, Intel's revenue and profits began to dwindle. By the second quarter of 2023, Intel's revenue stood at $12.8 billion, a slight dip compared to $12.9 billion the previous year, while gross margins showed a marginal decline. The financial report indicated the company would pursue a cost-cutting initiative exceeding $10 billion, leading to layoffs of over 15% of the workforce, potentially affecting around 17,500 employees. The stock market reacted swiftly; within a single trading day following the earnings announcement, Intel's market capitalization dropped by $31.8 billion, marking one of its worst trading days in four decades.
Though Intel's revenue increased to $13.3 billion in the third quarter of 2023, the significant shift to a $16.6 billion loss painted a bleak picture compared to previous years. The gross profit fell significantly to $1.997 billion, a staggering decline of nearly 67% year-over-year, with a profit margin that plummeted to 15%, far from the 42.5% seen a year ago. The company relied mainly on its PC client business for profitability, which also suffered, as the client revenue decreased by 7% year-over-year, while competitors like AMD saw an increase in their client business by 29.5%. Without success in traditional areas of expertise and lacking inroads into new frontiers like AI, Intel found itself in a precarious position.
As the demand for data center and AI services increasingly shifts toward GPU technologies, competition from players like Nvidia and AMD has intensified. Despite posting a 9% total revenue increase in data center and AI businesses compared to the previous year, this growth was overshadowed by the overall state of the semiconductor market. Following these disappointing results, Intel was promptly removed from the Dow Jones Industrial Average and replaced with Nvidia, highlighting its decline. The company's stock price fell to $18.5, reaching its lowest point since 2013, and Intel's current market capitalization sits at approximately $103.2 billion—less than half of its value in 2021. In less than four years under Gelsinger's leadership, the company's market value evaporated by around $150 billion, a point aptly noted by CNBC commentator David Faber, who dubbed him "the CEO who lost the most market value in history."
In light of these setbacks, Intel has turned its attention once again to the automotive industry, seeking newfound opportunities. The term "again" is relevant here because Intel has had a long history of involvement in automotive technology. Back in 2009, the company ventured into intelligent vehicles and autonomous driving technology, working alongside Google on its early self-driving projects with Intel's Xeon server-grade CPUs and Altera's FPGA chips providing the necessary computational power. Thus, Intel appeared to be well-placed to participate actively in the emerging self-driving vehicle space.
However, during this period, Intel's focus remained largely on the PC and mobile sectors, sidelining the burgeoning domain of autonomous driving that lacked definitive commercial prospects. Over the past 15 years, Intel cycled through four different CEOs, exemplifying the company's indecision regarding its strategy toward automotive chip technology. Although the significance of automotive technology was recognized at various points, the results were often less than satisfactory. Starting in 2010, Intel began developing in-car infotainment systems based on its Atom processors, collaborating with numerous automotive manufacturers like Volkswagen and Nissan.
However, everything changed in June 2012 with the launch of Tesla's Model S, which harnessed Nvidia's Tegra processor, disrupting the market with a system that integrated control of all vehicle functions. The debut of Model S effectively invalidated Intel's prior achievements in in-car infotainment, marking a significant turning point in the automotive sector.
As artificial intelligence gained momentum in the years following 2014 and Tesla forged ahead into self-driving technology, this sector presented another wave of interest and investment for Intel. A series of acquisitions and investments then ensued, including developing partnerships with the Japanese autonomous driving firm ZMP, acquiring the Russian computer vision company Itseez, and completing Intel's most significant acquisition to date: a $16.7 billion deal for Altera, a programmable logic device manufacturer.
The most notable event occurred in 2017 with Intel's acquisition of Mobileye for $15.3 billion; this move provided Intel with a competitive edge in autonomous driving. At the time, Mobileye's products were integrated into nearly all major automotive brands, including Tesla and NIO. However, despite these advantages, Intel struggled to capitalize effectively, yielding ground to competitors like Nvidia and Horizon Robotics, as Mobileye's "black box" model limited manufacturers' ability to adjust and enhance their software and algorithms.
Thus, Intel's prominence in the automotive chip market steadily diminished, while rivals like Qualcomm flourished. Nevertheless, Gelsinger's IDM 2.0 strategy aims to improve manufacturing capability gave Intel a renewed opportunity to return to the automotive market, emphasizing the growing importance of automotive chips. Gelsinger projected that by 2030, the automotive chip market would double in size to $115 billion, asserting that Intel possessed the technology, chips, and foundries necessary to succeed in this domain.
At the start of this year, Intel made headlines during the Consumer Electronics Show (CES), announcing its resurgence in the automotive sector, primarily targeting smart cabin chips, EV energy AI management, and an open automotive chip customization platform. They subsequently unveiled the first generation of software-defined in-vehicle cockpit System-on-Chip (SoC) series, featuring 12 cores and leveraging a 7nm manufacturing process to support a range of capabilities from PC gaming to AI voice assistants and driver monitoring, forming a strategic partnership with Chinese EV maker ZEEKR.
In August, Intel launched the second product in its automotive portfolio—its first standalone cockpit graphics card, the ARC A760-A, which is designed for high computational needs, supporting 4K resolution and advanced gaming graphics while enabling local deployment of large-scale models exceeding $14 billion. The specifications indicate that Intel's offering significantly surpasses current requirements for intelligent cabin features, exhibiting a surplus of computational power and eagerness to re-enter the smart vehicle market. However, despite the push toward automotiveization, the reality remains that Intel has not yet successfully scaled its cabin chip products into widespread commercial adoption.
Currently, ZEEKR is one of the few manufacturers publicly utilizing Intel's automotive cockpit SoC series, a collaboration made logical given Intel's prior investment in the company in August 2021. Nonetheless, outside their strategic partnerships, few major tech manufacturers have expressed their intentions to utilize Intel's cockpit chips. With Gelsinger's departure, one wonders just how long Intel can maintain its presence and momentum in the automotive market once again.
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