Why Intel Is Losing Ground to Nvidia

Summary

WSJ Tech News Briefing: Why Intel Is Losing Ground to Nvidia

Release Date: January 15, 2025
Host: Bell Lynn
Guest: Christopher Mims, WSJ Tech Columnist

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Introduction

In the January 15, 2025 episode of WSJ Tech News Briefing, host Bell Lynn delves into the declining fortunes of Intel, a once-dominant tech giant, as it grapples with losing market share to competitors like AMD and Nvidia. The discussion, featuring insights from WSJ tech columnist Christopher Mims, unpacks the multifaceted challenges Intel faces across its key markets and explores the broader implications for the tech industry.

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Intel's Struggles in Key Markets

Bell Lynn opens the discussion by highlighting Intel's diminishing presence in critical sectors such as data centers, laptops, and PC gaming hardware. Once a leader in these areas, Intel is now losing ground to more agile competitors.

Bell Lynn (00:18):
"The maker of chips for data centers, laptops and hardware for PC gaming is losing market share in areas critical to its profitability."

Decline in Data Center Market Share

Christopher Mims provides a detailed analysis of Intel's retreat from the data center chip market—a sector traditionally dominated by the company's high-margin CPUs.

Christopher Mims (01:41):
"The biggest one, the most clear and present danger, is that they have lost so much share in the data center, which is typically where they sell their most expensive and highest margin chips."

The latest quarterly reports reveal that AMD has surpassed Intel in data center revenue, a stark reversal from 2022 when Intel's data center revenue was three times that of AMD. This shift signals a significant erosion of Intel's core business.

Erosion in Laptops and Gaming

Beyond data centers, Intel is also facing challenges in the laptop and gaming markets. Competitors like Qualcomm, Mediatek, and potentially Nvidia are increasingly using ARM-based architectures, diminishing Intel's dominance in these segments.

Christopher Mims (02:33):
"2025 really looks like it's going to be the year that lots of laptops are made with non-Intel chips."

In the gaming sector, Intel may even begin to lose market share in areas where it has traditionally been a stronghold.

Intel's Strategic Response and Future Plans

Intel is attempting to counteract these trends by focusing on what it terms the "year of the AI PC" and by advancing its manufacturing processes. The company claims that its upcoming manufacturing capabilities will surpass those of its main competitor, Taiwan Semiconductor Manufacturing Company (TSMC).

Christopher Mims (02:36):
"When I spoke with them, they said next year, we're looking forward to it being the year of the AI PC. They're also excited about their forthcoming manufacturing process, which they claim will put them back into the lead in the world in terms of the most advanced manufacturing ahead of their main competitor, TSMC."

However, Mims remains skeptical about the effectiveness of these strategies, questioning whether advancements in manufacturing alone can restore Intel's competitive edge.

ARM Architecture and Competitive Pressure

A significant factor in Intel's decline is the rise of ARM architecture, which offers a more flexible licensing model compared to Intel's proprietary x86 architecture. This openness allows companies like Apple, Microsoft, Google, and Amazon to design their own chips, further reducing Intel's market dominance.

Christopher Mims (06:26):
"ARM is really like Switzerland. So they have this chip architecture which they will license to anyone. And so that puts Intel in the position of it being Intel versus the world, essentially."

The widespread adoption of ARM-based chips leads to increased software optimization and investment in ARM technology, creating a feedback loop that favors ARM over Intel's x86.

Leadership Turmoil and Its Impact

Intel's leadership instability has compounded its challenges. The recent ousting of CEO Pat Gelsinger underscores the company's internal struggles.

Bell Lynn (07:58):
"Intel is looking for a permanent leader after CEO Pat Gelsinger was pushed out last month. To what extent do you think that search plays a role in Intel's current turmoil?"

Christopher Mims (08:12):
"Intel's troubles really start decades ago... Pat Gelsinger was supposed to be a return to form. He spent big and made a bet that ultimately Intel's board decided wasn't going to pay off."

The search for a new CEO with a strong background in chip manufacturing indicates Intel's intent to refocus on its core competencies. There is speculation that Intel might split its operations into separate entities for chip design and manufacturing—a strategy akin to AMD's business model.

Missed Opportunities in Artificial Intelligence

Artificial Intelligence (AI) represents a critical growth area where Intel has notably lagged behind competitors like Nvidia and AMD. Despite having AI-capable products, Intel has been unable to capture significant market share in this lucrative sector.

Christopher Mims (09:30):
"Intel does have products which can handle AI workloads. They are very far behind in terms of capturing any of that business. Obviously the lead there is Nvidia. A very distant second is AMD."

This failure to capitalize on the AI boom has further eroded Intel's competitive position, limiting its ability to innovate and secure new revenue streams.

Path Forward and Geopolitical Significance

Intel's acknowledgment of its dire situation reflects a broader understanding of the obstacles ahead. Turning around such a massive organization—employing over ten times the number of employees as Nvidia—requires substantial time and strategic overhaul.

Christopher Mims (10:20):
"Intel is a company that has really been humbled lately... They recognize that they have serious problems and that they need to turn the ship around. But it is a truly massive ship."

Moreover, Intel holds a unique geopolitical position as the last major American manufacturer of advanced chips. This status has attracted significant government investment through initiatives like the CHIPS Act, which has provided billions to bolster domestic chip manufacturing. However, Mims suggests that even this support may not be sufficient to fully stabilize the company without additional strategies.

Christopher Mims (10:20):
"Everyone is aware that Intel also has this unique kind of geopolitical role. They are the one remaining American high tech manufacturer of chips... the government has given them tens of billions of dollars through the CHIPS Act to build factories here."

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Conclusion

Intel's current predicament is the result of long-standing strategic missteps, increasing competition from more agile rivals, and a failure to adapt swiftly to emerging technologies like AI. As Intel endeavors to stabilize and reinvent itself, the outcome remains uncertain. The company's substantial size and geopolitical importance add layers of complexity to its turnaround efforts. Stakeholders remain cautiously optimistic but recognize that Intel faces an uphill battle to reclaim its former leadership in the tech industry.

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This summary captures the key discussions and insights from the WSJ Tech News Briefing episode "Why Intel Is Losing Ground to Nvidia." For a deeper understanding, listening to the full episode is recommended.

Transcript

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[Bell Lynn]

Welcome to Tech News briefing. It's Wednesday, January 15th. I'm Bell Lynn for the Wall Street Journal. The once mighty tech giant intel is struggling to keep up and navig navigate changes in its key markets. The maker of chips for data centers, laptops and hardware for PC gaming is losing market share in areas critical to its profitability. Meanwhile, its competitors like AMD and Nvidia have nimbly moved to capture share. Now our tech columnist Christopher Mims tells us what's going on at intel and why. He says the company's woes may be worse than you think. The market for data center chips, once considered Intel's sole domain, seems like it's up for grabs. One big flashing warning sign in the latest quarter reported by both companies, AMD eclipsed Intel's revenue in that market. It's a stunning reversal. In 2022, Intel's data center revenue was three times that of AMD. For more on this, we're joined by WSJ tech columnist Christopher Mims. Okay, Christopher, tell us why is intel struggling? Even more than people might be aware.

[Christopher Mims]

Of, intel faces a number of threats. The biggest one, the most clear and present danger, is that they have lost so much share in the data center, which is typically where they sell their most expensive and highest margin chips. Intel's also losing ground a bunch of other places. So 2025 really looks like it's going to be the year that lots of laptops are made with non intel chips. With chips manufactured by Qualcomm, by Mediatek, potentially even by Nvidia, which are all based on the ARM architecture, which competes with the x86 architecture that intel of course has pioneered. And it seems like intel could even start to lose market share, at least on the margin in areas where they've always been dominant, like gaming.

[Bell Lynn]

Yeah, that all paints a pretty bleak picture, right?

[Christopher Mims]

It really does. When I spoke with them, they said next year, we're looking forward to it being the year of the AI PC. They're also excited about their forthcoming manufacturing process, which they claim will put them back into the lead in the world in terms of the most advanced manufacturing ahead of their main competitor, Taiwan Semiconductor Manufacturing, otherwise known as tsmc. But it remains to be seen if that will actually be the case. And even if they do take that title again of being the most advanced manufacturing process for microchips in the world, what does that get them? They don't have a big business manufacturing others chips the way that TSMC does. And it could put them in the lead for manufacturing their own chips, but that's a shrinking market. Intel says that 2025 is going to be the year when they're going to stop losing market share for specifically the data center and that this is going to be the year that they are going to try to. It's almost like they've. They're putting the company in the emergency room. They're going to stabilize it and then hopefully start to turn things around.

[Bell Lynn]

Right. And we should note that a spokesperson for intel said the company is focused on simplifying and strengthening its product portfolio and advancing its manufacturing and foundry capabilities while optimizing costs. So we talked a little bit about its market share, but the last time I checked, intel had about 75% of the market for CPUs that go into data centers. How do we kind of square this with the fact that it's not doing enough there?

[Christopher Mims]

Intel has 75% of the market for a kind of chip that is still essential in data centers, which is the cpu. But in terms of spend and demand is getting dwarfed by everyone spending so much money on these special GPU chips, which of course Nvidia has been a pioneer of, which they use for AI training and for delivering AI. In addition, Nvidia's future quote unquote AI supercomputers are going to increasingly have a CPU that is designed by Nvidia itself. Intel still has dominant market share for a particular type of chip that's essential in data centers. But the importance of that chip is waning even as competitors line up to actually take that particular market from Intel.

[Bell Lynn]

Coming up, what will it take for intel to turn the ship around? Why? There's no simple answer to that question. After the break.

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[Bell Lynn]

So intel has also for a long Time survived off of its proprietary chip architecture known as x86, which you mentioned already. But now we're dealing with this ascendance of arm, the British chip designer and some of the biggest cloud providers and the biggest cloud providers choosing to go the way of arm. So what's going on there in that.

[Christopher Mims]

Facet of the wars, ARM is really like Switzerland. So they have this chip architecture which they will license to anyone. And so what that means is it puts intel in the position of it being intel versus the world, essentially because Apple obviously uses the ARM architecture to make its own chips for its computers. But also Microsoft, Google, meta, all of the quote unquote hyperscalers. Amazon are using ARM's architecture to make their own chips for their own internal use, CPUs for the main kind of workloads and the special AI chips for processing AI. And so it's a really closed versus not quite an open architecture, but an architecture that anyone can license and that just creates all these feedback loops because then all of the software starts getting written for the ARM based chips and more and more of the chip engineers are familiar with it, there's more and more investment. And of course these ARM based chips can be manufactured by anybody. I mean today that really means TSMC. But by contrast x86 chips are only getting manufactured by Intel. There's some manufacture of those by tsmc, but it's a much smaller fraction and it gets kind of complicated.

[Bell Lynn]

So turning to Intel's leadership, the company is looking for a permanent leader after CEO Pat Gelsinger was pushed out last month. To what extent do you think that search plays a role in Intel's current turmoil?

[Christopher Mims]

Intel's troubles, according to the folks I've talked to, really start decades ago. I mean they started with intel promoting people to the CEO role who did not have a technical background. And Pat Gelsinger was supposed to be a return to form. He spent big and made a bet that ultimately Intel's board decided wasn't going to pay off. Intel has indicated that whoever comes next will have a background in manufacturing chips. So it's clear that intel is going to maintain its focus on trying to be a leader there. It could also indicate that someday intel might split itself in two. You might have the chip design side, which is more like an AMD where all they do is design new chips. And then you would have the manufacturing or the so called foundry side which is focused on not just serving intel, but serving everyone. And that might be what can ultimately save what remains of Intel.

[Bell Lynn]

And let's Talk about artificial intelligence for a moment. We touched on it before briefly, but one of the things that you write about is that intel missed the boat completely on AI. Is it too late for it to catch up?

[Christopher Mims]

Intel does have products which can handle AI workloads. They are very far behind in terms of capturing any of that business. Obviously the lead there is Nvidia. A very distant second is amd. And Intel's so far down that it doesn't look like they have much opportunity to catch up. Their manufacturing side could end up making the cutting edge AI chips that others design, amd, even someday Nvidia.

[Bell Lynn]

So we've talked a little bit about what intel has said about what's in store for 2025 and how they're responding to destabilization by stabilizing anything else that the company has said about this sort of reversal of fortunes that it's had.

[Christopher Mims]

Intel is a company that has really been humbled lately. They recognize that they have serious problems and that they need to turn the ship around. But it is a truly massive ship. I mean, this is the biggest high tech company on Earth really. No one else does manufacturing and design. Their revenue may be only about equal to Nvidia's, but you know, they've got at least 10 times more employees. So it's a big ship and it takes time to turn it around. And at this point they're really asking for forbearance from their investors and from others. And everyone is aware that intel also has this unique kind of geopolitical role. They are the one remaining American high tech manufacturer of chips. And a lot of folks in the policy arena think that is really important. And that's why the government has given them tens of billions of dollars through the CHIPS act to build factories here. That said, even with all of those tens of billions from the government, what I'm hearing is that might not be enough. There might need to be other strategies in order to preserve intel as a geopolitical asset.

[Bell Lynn]

That was our tech columnist Christopher Mims. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with supervising producer Kathryn Milsop logging off. I'm Bell Lynn for the Wall Street Journal. We'll sign back in this afternoon with TNB Tech Tech Minute. Thanks for listening.

[ADP Representative]

ADP knows any big thing, any small thing, any trendy thing, even a trendy thing that everyone knows isn't a great idea, but management just wants us to give it a try for a bit, can change the world of work from HR to payroll ADP designs forward thinking solutions to take on the next anything.