Motley Fool Money: Intel – 3rd in a Two-Horse Race
Release Date: December 2, 2024
Hosts: Dylan Lewis, Ricky Mulvey, Mary Long
Guest Analyst: Tim Byers
1. Intel’s Leadership Shakeup and Market Position
[00:05] Dylan Lewis:
The episode kicks off with Dylan Lewis addressing Intel's ongoing struggles, notably the announcement by CEO Pat Gelsinger to step down. This move marks a significant turning point for Intel, a company that many investors and industry watchers hoped would regain its competitive edge in the semiconductor market under Gelsinger’s leadership.
[00:29] Dylan Lewis:
Dylan highlights the disappointing performance during Gelsinger’s tenure, emphasizing that Intel failed to revive its dominance in the chip market, particularly against rivals AMD and Nvidia.
[01:00] Tim Byers:
Tim Byers expresses his disappointment, noting, “If you wanted to sum up the Intel problem in one word, it would actually be an acronym and it would be this GPU.” He explains that Intel lagged behind Nvidia and AMD in the GPU space, which has become crucial in high-performance computing and data centers.
2. Evaluating Pat Gelsinger’s Tenure
[03:31] Tim Byers:
Tim delves into Gelsinger’s performance, acknowledging his qualifications and historical ties to Intel. However, he points out that despite Intel’s efforts, the company remained predominantly driven by its traditional CPU business, with only modest gains in the data center sector.
[05:11] Tim Byers:
Tim elaborates on Intel’s financial decline under Gelsinger, citing revenue drops and reduced gross profits. He underscores that while leadership changes play a role, the semiconductor industry’s long roadmap means that three years is insufficient to gauge true success or failure.
3. The Foundry Business and Strategic Shifts
[05:57] Tim Byers:
The conversation shifts to Intel’s significant investment in its Foundry business. Tim commends Gelsinger for pivoting towards a more industry-aligned value chain, moving away from Intel’s traditionally vertical integration. He compares the challenge to “turning the Titanic,” emphasizing the enormity and complexity of transforming Intel’s manufacturing capabilities.
[10:17] Tim Byers:
Looking ahead, Tim anticipates that the interim CEOs, David Zinser and M.J. Holthaus, will continue to prioritize the Foundry business. He highlights Intel’s ambitious goal of developing 1.8nm manufacturing processes and securing key clients like AWS, positioning the Foundry as a cornerstone for future growth.
4. Fastly and the Content Delivery Network (CDN) Landscape
[12:45] Dylan Lewis:
The discussion transitions to Fastly, whose shares surged following competitor Egeo’s bankruptcy. Tim provides insights into the CDN market, comparing Fastly’s position against Akamai.
[13:21] Tim Byers:
Tim reveals his initial optimism about Fastly’s shift towards higher-margin edge computing, which unfortunately hasn’t materialized as expected. He describes the CDN business as inherently low-margin, likening it to “superhighway tolls” that are difficult to monetize effectively.
[16:06] Dylan Lewis:
Dylan contrasts the digital CDN market with traditional toll roads, questioning the sustainability of Fastly’s business model given its low margins and strong competition from Akamai.
[17:04] Tim Byers:
Tim explains the differing network designs between Fastly and Akamai. While Akamai floods the market with servers, Fastly focuses on high-speed peering points. He remains cautiously optimistic about Fastly’s ability to carve out a niche despite the commoditized nature of the market.
5. Potential for Turnarounds
[19:07] Tim Byers:
In the wrap-up, Tim expresses continued interest in Intel’s potential turnaround, particularly through its Foundry business. He remains skeptical about Fastly's prospects unless it successfully advances its edge computing offerings.
Notable Quote:
"If you buy Intel today, you're getting the Foundry business for close to free because it doesn't do anything yet." — Tim Byers [19:07]
6. Looking Forward
The episode concludes with a teaser for the next segment, promising a deeper dive into cybersecurity and data privacy with guest Dave Hatter. Listeners are encouraged to stay tuned for a comprehensive discussion on how their digital data is managed and protected.
Key Takeaways
- Intel’s Struggles: Despite leadership under Pat Gelsinger, Intel failed to regain its dominant position in the CPU and GPU markets, leading to Gelsinger’s departure.
- Foundry Business: Intel’s strategic pivot to Foundry manufacturing represents a critical investment for future growth, though it remains speculative.
- Fastly’s Challenges: Operating in the low-margin CDN market, Fastly faces significant competition and questions about its long-term viability.
- Market Dynamics: The semiconductor and CDN industries are highly competitive and capital-intensive, requiring sustained investment and innovation to achieve success.
Disclaimer: This summary is intended for informational purposes only and does not constitute financial advice. Always conduct your own research or consult a professional before making investment decisions.