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The Exiled · 23.12.2024., 15:50

Citiraj:

Intel on the brink of death | Culture rot, product focus flawed, foundry must survive

Citiraj:

Intel’s board is incompetent and its horrible decisions over the decades are going to push it towards death. The decision to fire Pat Gelsinger, put in charge a CFO + career sales and marketing leader, and cut spending on fabs in favor of a renewed focus on x86 is an example of the incompetence that will end Intel. Simply put, the Intel board has escaped blame for over a decade of failures. This decade of failure culminates in the ultimate mistake: dismissing CEO Pat Gelsinger. Gelsinger could have been better as a CEO without a doubt. He is somewhat irrationally optimistic, but that’s what Intel needs. He’s had his fair share of missteps, for example, their current AI strategy is still broken with Gaudi 3 and Falcon Shores meaning Intel will never get much of the GenAI inference or training market. Still, Gelsinger was a qualified candidate who wanted the job. In that respect, he was probably a one-of-one. Today, the board has mostly worse options.

The problems at Intel began with the 10nm node (arguably 14nm). In 2016, TSMC and Intel planned to introduce their 10nm processes into volume production. While TSMC executed on schedule with a lower performing node, Intel pushed an aggressive shrink requiring quadruple patterning, novel Cobalt interconnects, and contact over the active gate. The yield was bad, and the node took three years to fix. By the time Intel shipped 10nm products in volume, TSMC had sold more than half a million N7 wafers and was sampling N5. Intel’s products then suffered because of stagnant process tech. Competitors like AMD had the advantage of TSMC’s fabrication and in many cases better chip designs/architectures. Datacenter market share began to slip, and Intel’s business issues only snowballed.

The story of Intel’s cultural rot goes back to Paul Otellini. Paul and Pat Gelsinger were the front runners for the CEO position. Paul was ultimately chosen due to his ruthless anti-competitive business decisions that locked AMD out of the CPU market and cemented Intel’s role as a monopoly for more than a decade. Paul instituted a policy that involved paying various OEMs and system integrators not to use AMD, which choked out AMD’s revenue, R&D, and fab investments. Dell alone was paid ~$4.3 billion, and this was the only reason Dell was profitable during this period. Intel and the EU are still fighting out this anti-competitive behavior in courts to this day.

Intel had a harsh way of getting things done, but it was a productive culture. Paul Otellini changed this. Technical decisions were pushed aside for political power, and the path forward throughout the company was through power struggles among the various fiefdoms. This cultural rot started under Paul Otellini and continued to decay until Pat Gelsinger arrived. Besides changing the culture, there were also numerous horrible decisions that the board greenlighted such as going on a silly acquisition spree buying completely unrelated firms such as McAfee and not even trying to win the iPhone business even though it was dropped in their lap. The failures getting into mobile and rise of Arm, which we detailed here, is a decision which will forever haunt Intel. Paul’s successor was only worse.

Brian Krzanich was a disaster as CEO. He presided over the 10nm debacle. This mismanagement of the fabs is the single greatest issue the company faced, because that is the core of Intel. Despite this, Krzanich was only fired when an illicit workplace relationship came to light. The board that nominated him included John Donahoe—the CEO who made Nike uncool—along with future chairman Frank Yeary. Books could be written about Brian’s failures as a leader, bad acquisitions, failures in AI, and rotting technical leadership, but the reality was that he was a byproduct of the toxic culture and he accelerated it hugely. He probably goes down as Intel’s worst CEO ever.

Not to be outdone, the 2018 board iteration replaced Krzanich with the first truly non-technical CEO in Intel’s history: Bob Swan. Technically, Paul Otellini was the first non-engineer to lead Intel, but he spent more than 30 years with the company, including his time as a technical advisor to the legendary Andy Grove and leading the microprocessor division. Swan was a professional CFO – Intel was his 10th CFO role – and so process engineering took a backseat to financial engineering. Swan’s Intel spent as much on stock buybacks as it did capital expenditures on fabs over his tenure: more than $36 billion towards buybacks versus $38 billion in Capex. This was malpractice in a capital-intensive industry when the company was bleeding market share and more than two nodes behind its chief rival.

The board is making yet another short-sighted mistake it seems to specialize in. The board is blind, but so are the new co-CEOs, the CFO David Zinsner, and Michelle Johnston Holthaus. Michelle is the former sales marketing and communications lead and chief revenue officer, and Zinsner joined in 2022. Intel needs leadership at this critical time, and this is not the co-CEOs for the job.

No, x86 will not disappear overnight. It is still a large market and potentially a cash cow business. However, the problem is that without Intel’s old manufacturing prowess, Intel’s x86 is no longer competitive with AMD, let alone the Arm-based options. Intel can bite the bullet and take the gross margin hit by outsourcing manufacturing to TSMC. This levels the playing field with AMD but doesn’t solve the issue that Intel cannot out-design AMD. Intel Foundry will need help. Intel will likely be sold off for parts; the board has stated Products are the priority, and Foundry’s greatest champion was just shown the door. The business is a capex black hole: we estimate that, even with highly reduced capacity buildouts, Intel Foundry will need $36.5B just for wafer fab equipment in the next 3 years. Fab shells and other expenses would add another $15-20B+. Intel doesn’t have the cash flow to support this due to the product group’s failings, even with CHIPS Act subsidies.

Izvor: SemiAnalysis