Intel is fighting a perception battle

Intel’s plunging stock price, which as of noon New York time on Tuesday was the lowest it has been since 2010, could cost the chip giant its coveted spot on the Dow Jones Industrial Average (DJIA).

It comes at a very difficult time for Intel, as it is trying to maintain its enterprise relevance in the face of more effective generative artificial intelligence (genAI) campaigns from the likes of Nvidia.

Reuters reported that Intel, which was the second technology company to join the DJIA in the late 1990s, was “likely to be removed from the Dow” because of a “near 60% decline in the company’s shares this year that has made it the worst performer on the index and left it with the lowest stock price on the price-weighted Dow.”

Analysts and financial observers were mixed on the ultimate implications for enterprise IT executives. On the one hand, Intel’s installed enterprise base is so huge that it is not likely to face any imminent danger. That gives Intel a couple of years to turn things around.

But genAI is the perception problem. If they are seen as lagging in that space, that perception could hurt them severely.

However Ryan Shrout, president of Signal65, thinks Intel’s huge installed base will provide a buffer. He spent almost five years at Intel before departing in September 2023, with his final role being Intel’s senior director for client segment strategy in the graphics and AI group.

“Even though Intel appears to be so far behind in the world of technology based on their earnings report and the race versus Nvidia in the AI space, you have to keep in mind that something like 80% of the client market — laptops and PCs — use Intel chips,” Shrout said. “Even in the data center CPU space, 70% or so are using Intel Xeon processors. If Intel disappeared tomorrow, nobody has the capacity to fill that gap.”

But Shrout echoed analysts and pointed to AI strategy, or at least the perception of that strategy, as the overwhelming cause of Intel’s current difficulties. 

“The competition that’s come into the market was allowed to come in because Intel didn’t see the writing on the wall for the AI movement. That’s a self-inflicted blind spot,” Shrout said. 

Intel has taken various steps to try and strengthen its financial numbers, such as recently having suspended its dividend and laying off about 15% of its employees, along with splitting its foundry operations from its design teams. 

“Intel CEO Pat Gelsinger and key executives are expected to present a plan later this month to the company’s board of directors to slice off unnecessary businesses and revamp capital spending,” said a Reuters report. “The plan will include ideas on how to shave overall costs by selling businesses, including its programmable chip unit Altera, that Intel can no longer afford to fund from the company’s once-sizeable profit.”

Forrester senior analyst Alvin Nguyen, who oversees their Intel coverage, said that he is still a fan of Intel’s long term strategy, but he sees various problems with their execution.

“Foundry is very expensive. It’s capital intensive,” Nguyen said. “They have made a big bet on the foundry business. If it works, they will have the best semiconductor fab process [in the industry]. If they win the foundry battle, people will look at them differently.”

Some have questioned whether Intel was wrong to decline to invest in OpenAI, but Nguyen said that he thinks it might have been the right decision for Intel. Indeed, he saId, “I am wondering if Microsoft today is questioning the wisdom of their decision [to invest in OpenAI].”

Nguyen added that Intel’s “push towards AI everywhere seems like a smart bet.” He added that Intel’s lack of position within mobile and IoT devices is a problem.

As for the prospect of Intel being removed from the DJIA, Nguyen doubted it would make much of an impact. “It’s just a status symbol. If they lose their Dow status, it’s more of a reputational hit than anything else,” he said.

Nguyen agreed with Shrout that Intel’s massive current installed base will insulate the company for at least a couple of years, giving them time to turn things around. 

“Intel is still in danger and the more hits they take, the worse their position,” Nguyen said.

Another Intel industry analyst is Mario Morales, the IDC group vice president for semiconductors and enabling technologies. 

“There is an ongoing battle for survival at Intel,” Morales said, adding that he thinks that splitting the company and selling off divisions may be the best move. “The parts of Intel are more valuable as pieces than as a whole.”

Morales’ sources have reported that Intel is “actively talking with more than 100 customers, but none of them have yet committed” to more major purchases, he said.

A critical problem for Intel in the perception realm is that they have been outsourcing too much; the manufacturing of both its Lunar Lake and Arrow Lake CPUs were almost entirely outsourced to Taiwan Semiconductor Manufacturing Company Limited (TSMC).

“Even Intel’s own products are being built somewhere else,” Morales said, suggesting that such a move is sending the wrong message to enterprise CIOs. This is happening just as those executives are thinking about creating their own on-prem operations for genAI deployments, in an attempt to gain more control than they now have in the cloud.

“Intel has always had a lot of technology that can enable genAI. They simply had the wrong product mix,” Morales said. As the industry moved from CPUs to GPUs, Intel didn’t move quickly enough, he said.

On an optimistic note, Morales said that there is industry precedent for exactly such a turnaround. Some ten years, AMD faced similar issues and overcame them.

“In 2014, AMD was a month or two away from bankruptcy,” Morales said, stressing that “because AMD was so close to death,” its CEO halted a wide range of side projects that were not central to their customers. 

“Intel has to suffer the tough pill [and decide that] ‘If we can’t lead (in a segment), then we can’t be in those spaces,'” Morales said. “It is well beyond a wakeup call. They are already late.”

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