The Chip Business Is Booming. Why Isn’t Intel?

Episode Release Date: December 16, 2024

Introduction

In this episode of The Journal by The Wall Street Journal and Gimlet, Jessica Mendoza and Asa Fitch delve into the contrasting fortunes within the booming semiconductor industry, focusing on why Intel, once a titan in the chip business, has struggled while competitors like Nvidia and TSMC have flourished.

1. The Rise and Dominance of Intel

The podcast opens with Jessica Mendoza introducing the significance of semiconductor chips, referring to Asa Fitch as "Mr. Chips" for his expertise in the subject [00:05]. Fitch elaborates on the pivotal role chips have played in the evolution of technology, from personal computers in the '80s and '90s to the smartphone revolution, cloud computing, and the advent of artificial intelligence (AI) [00:24–01:03]. This sets the stage for understanding Intel’s historical dominance in the industry.

• Notable Quote:

  "Just think about, you know, the 80s and the 90s... every time that society has advanced, the answer has been, we need some more chips for that."
  – Asa Fitch [00:33]

Intel was the backbone of the personal computing era, designing and manufacturing CPUs that powered major computer makers like Dell, IBM, and Apple [03:11–03:34]. The iconic "Intel Inside" campaign solidified its presence in the consumer market, making Intel synonymous with computing power [03:47–04:01].

2. Industry Shifts and Competition

Despite Intel’s early success, the company began to show signs of stagnation. Asa Fitch attributes this to Intel’s "hubris" and rigidity, common pitfalls for large corporations [01:50–02:11]. As the semiconductor industry evolved, competitors like Nvidia and TSMC capitalized on emerging trends by specializing in specific aspects of chip production—design for Nvidia and manufacturing for TSMC—while Intel maintained its integrated approach of designing and manufacturing chips in-house [04:15–05:55].

• Notable Quote:

  "If you're a dominant player and you're just raking in the money, it's a little bit easier to not be serious about shaking things up."
  – Asa Fitch [04:15]

3. Intel's Struggles and Decline

Intel’s stock plummeted over 50% in the year leading up to the episode, accompanied by massive layoffs and its removal from the Dow Jones Industrial Average, replaced by Nvidia [01:03–01:47]. The company struggled to keep pace with advancements in chip technology, particularly in packing more transistors into silicon wafers—a critical factor in chip performance [05:32–06:02]. By 2019, Intel’s challenges were evident internally, signaling the end of its "glory days" and setting the stage for a major leadership change [06:02–07:27].

4. The Attempted Turnaround under Pat Gelsinger

In 2021, Intel appointed Pat Gelsinger as CEO in a bid to reverse its fortunes. Gelsinger, a long-time Intel insider, proposed a bold strategy to diversify Intel’s operations by initiating a contract chip-making business to compete directly with TSMC [09:00–10:05]. This plan involved significant investments, projected to exceed $100 billion, aimed at expanding Intel’s manufacturing capabilities and attracting external clients [10:33–11:10].

• Notable Quote:

  "Pat Gelsinger is Intel's man with a plan. That's next."
  – Jessica Mendoza [07:51]

However, Intel faced substantial challenges in executing this strategy. The rigid corporate culture hindered the customer-centric approach required for a successful contract manufacturing business, and the company struggled to secure major clients like Apple and Nvidia [12:25–12:59].

• Notable Quote:

  "Contract chip making is really a customer service business. For intel, they hadn't really been like that."
  – Asa Fitch [12:36]

5. The AI Boom and Its Impact on Intel

The emergence of generative AI, exemplified by ChatGPT, significantly increased demand for GPUs—Nvidia’s specialty [13:11–14:21]. While Nvidia capitalized on this surge, Intel's focus on CPUs left it vulnerable as AI-driven applications required the high-performance GPUs that Intel was not prioritizing [13:39–14:21]. This shift compounded Intel’s financial woes, as the company struggled to attract investment for its ambitious turnaround plan [14:21–14:56].

• Notable Quote:

  "When the AI boom really took hold, everything was going to AI chips and significantly less amount of money was going to Intel's chips."
  – Asa Fitch [13:39]

6. Gelsinger's Departure and Intel's Future

Facing mounting financial pressures, Intel resorted to drastic cost-cutting measures, including layoffs and suspending dividends [14:56–15:48]. Despite these efforts, Intel’s stock plummeted by 60%, sales dropped, and it reported its largest quarterly loss in history [15:11–15:48]. In a surprising turn, Pat Gelsinger was ousted as CEO, effectively marking the end of his turnaround attempt [15:48–16:02].

• Notable Quote:

  "Pat said at the time it was a bet the company move."
  – Asa Fitch [11:37]

In response to Gelsinger’s departure, Intel maintained its commitment to the contract chip-making strategy under new leadership, indicating that the company may continue to pursue the path he charted [16:45–17:34].

7. Lessons and Cautionary Tales

Asa Fitch reflects on Intel's journey, suggesting that the company's difficulties may serve as a cautionary tale for other large, storied American corporations. The challenges Intel faced highlight the importance of agility and adaptability in rapidly evolving industries [17:34–18:36]. Fitch posits that Intel's inability to pivot swiftly could have doomed its turnaround efforts, underscoring the broader lesson that even established leaders must continuously innovate and adapt to sustain their dominance.

• Notable Quote:

  "What intel has needed in the past years has been agility."
  – Asa Fitch [18:36]

Conclusion

The episode of The Journal intricately examines the rise and fall of Intel within the vibrant semiconductor industry. Through detailed analysis and expert insights, Mendoza and Fitch paint a compelling picture of how industry shifts, strategic missteps, and external technological advancements can profoundly impact even the most established companies. Intel’s story serves as a powerful reminder of the necessity for continuous innovation and adaptability in the face of evolving market dynamics.