Interface News Reporter | Li Biao
After receiving $7.86 billion in subsidies from the US government's chip bill last week, Intel's CEO, who had aspired to lead the company's foundry business towards revival, suddenly announced his retirement.
Prior to the stock market on December 2nd Eastern Time, Intel announced in a sudden announcement that its current CEO Pat Gelsinger has retired and resigned from the board of directors, effective December 1st local time. David Zinsner, Executive Vice President and Chief Financial Officer, and Michelle Johnston Holthaus have been appointed as interim co CEOs of Intel, while the company's board of directors is currently searching for a new CEO candidate.
Affected by this news, Intel's stock price opened higher, rising more than 4% at one point.
Born in 1961, Kissinger, now 63 years old, has worked at Intel for over 30 years, leaving the company for 12 years before returning.
In 1979, Kissinger first joined Intel as a quality control technician. Under the leadership of Intel's legendary CEO Andy Grove, Kissinger was involved in several key projects, including the design of the 80386 and 80486 processors. Due to being highly appreciated by Andy Grove, Kissinger rose through the ranks: in 1993, at the age of 32, Kissinger became the youngest Senior Vice President in Intel's history and was promoted to Chief Technology Officer (CTO) in 2001.
In 2009, Kissinger left Intel and joined EMC as the President of the Information Infrastructure Products Division. In 2012, he became the CEO of VMware, a virtual machine software company under EMC.
Under Kissinger's leadership, VMware's annual revenue nearly tripled from $4.5 billion in 2012 to $12 billion in 2020. At the same time, he also led VMware's successful transformation from a virtualization software company to a cloud computing service provider. In 2019, Kissinger was elected as the "Best CEO in America" for his outstanding leadership of VMware.
In 2021, Kissinger left VMware and returned to Intel to replace Robert Swan, who had served for less than three years, as CEO.
Intel is currently in a period of turbulence in 2021. Although the revenue and profit scale are still huge, the company is facing severe challenges amidst the encirclement of various competitors. On the one hand, after losing the growth opportunity of the smartphone mobile terminal processor market in competition with Qualcomm, Intel is facing challenges from Nvidia and AMD in the data center business field of AI and high-performance computing; On the other hand, Intel has been hindered in the advanced process of 10 nanometer and 7 nanometer chips, and its progress is significantly lagging behind TSMC and Samsung. Due to the technical difficulties in mass production of the 7-nanometer process, Intel first outsourced some of its key business CPU 7-nanometer chips to TSMC for manufacturing. In 2021, Samsung surpassed Intel to become the world's largest semiconductor company. This is also the first time Intel has relinquished this position since 2017.
Kissinger's return also marked the beginning of Intel's reform, and Intel's stock price rose on the same day. And the biggest change he brought to Intel was his proposal to revive the foundry business with the "IDM2.0" strategy upon taking office.
As one of the oldest companies in the chip industry, Intel did not adopt the popular fabless model, which only focuses on chip design and entrusts manufacturing to TSMC and Samsung. Instead, it is a rare IDM manufacturer that integrates chip design and manufacturing. Intel's OEM business once held a leading position in the market, but was quickly overtaken by TSMC and Samsung after 2010. Between 2017 and 2021, Intel fell behind in two generations of advanced manufacturing processes, 10 nanometer and 7 nanometer, and ultimately had to hand over all of its 5 nanometer and 3 nanometer chip manufacturing processes to TSMC, completely becoming a marginal player in the global foundry market.
By 2021, TSMC had become the world's largest chip foundry, holding nearly 60% of the market share, Samsung had 10%, and Intel had almost negligible market share except for some of its own products that were manufactured by TSMC.
According to Kissinger's "IDM2.0" strategy, Intel will not only not give up its foundry business, but will also focus on building and operating its own wafer fabs, packaging plants, and testing plants, expanding production capacity to ensure control over the chip production process. At the same time, Intel also plans to separate its foundry business and establish a new foundry service department, Intel Foundry, to expand third-party foundry services. It will not only produce chips for its own products, but also provide foundry services for other customers.
According to the ambitious goal of IDM2.0, Intel is competing directly with TSMC and Samsung along the route of "four years and five milestones" (namely Intel 7 with 7-nanometer process, Intel 4 with 4-nanometer process, Intel 3 with 3-nanometer process, Intel 20A with 2-nanometer process, and Intel 18A with 1.8nanometer process), aiming to surpass Samsung and become the world's second largest chip foundry by 2030.
In an interview with American technology media Digit in 2023, Kissinger listed "failure to successfully enter the smartphone field," "failure to adhere to GPU research and development for artificial intelligence," and "insufficient attention to outsourcing strategy" as three major failures in Intel's history. From the outside world's perspective, this CEO has almost bet the success or failure of his career on whether he can revive the OEM business, but three years have passed, and the difficulty of advancing reforms in reality is far greater than imagined.
The crisis began to surface from Intel's official independent chip foundry business in early 2024. According to a document submitted by Intel to the US Securities and Exchange Commission (SEC), the company's new department responsible for chip manufacturing, Intel Foundry, will be independent and self financing, with a separate income statement. This report reveals the long-term losses of Intel's OEM business. In 2022 and 2023, the cumulative operating losses exceeded 13 billion US dollars (5.2 billion US dollars in 2022 and 7 billion US dollars in 2023). According to the company's expectations, 2024 will be the year with the most severe losses for this business department, and it is expected to achieve a balanced operating income and expenditure by the end of 2030.
Subsequently, the company's second quarter financial report became the trigger for the crisis. Intel's revenue for the quarter was $12.8 billion, a year-on-year decrease of 1%; Net profit turned from profit to loss, with a loss of 1.6 billion US dollars, compared to a profit of 1.5 billion US dollars in the same period last year. The company has also proposed a cost cutting plan (to reduce costs by $10 billion by 2025) and announced a global layoff of 15000 employees, accounting for approximately 15% of its total workforce. Some listed measures triggered market panic, with Intel's second quarter financial report dropping by 20% on the day of release, and then experiencing several consecutive days of decline. At its lowest point, the stock price fell by more than 50% compared to the beginning of the year.
The confidence crisis triggered by the financial report quickly escalated and gradually turned into a major public opinion crisis in the market. Within two months after the release of the second quarter financial report in August, various rumors about Intel's imminent spin off and sale of its businesses were spread. The Wall Street Journal even revealed that Qualcomm was considering a wholly-owned acquisition of Intel. Although these news have not been officially confirmed, they are enough to make the market worry about the fate of Intel, an old chip giant.
In September, when Kissinger released a staff letter to boost internal morale, he declared that Intel was currently undergoing "the most significant transformation plan in the company's over 50 years of existence. But now at such a critical moment, Kissinger's sudden departure not only leaves behind unfinished business, but also leaves a series of question marks for Intel's transformation.
Firstly, where will the "IDM2.0" plan proposed by him to revitalize the OEM business go? According to financial reports, Intel's foundry business suffered a loss of nearly $11.2 billion in the first three quarters of 2024, and its foundry revenue has been significantly declining since last year. How can Intel, which is in a business crisis and urgently needs to control cost expenditures, compete with TSMC when it cannot achieve revenue balance in the short term?
Secondly, as the manufacturer that receives the most subsidies under the US chip bill, can Intel smoothly advance its plan to expand its wafer fabs? According to the arrangements of the Chip and Science Act, Intel has received $7.86 billion in direct subsidies and a $3 billion military project order from the US Department of Defense. According to the "American Chip Manufacturing Reflow" plan under the Chip Act, Intel will spend $20 billion to establish two new wafer fabs in Arizona, expected to start production in 2024. Intel has previously stated that it will temporarily suspend plans to build factories overseas in Europe, Asia, and other regions, prioritizing the construction of factories with American manufacturing as the core, and continuing to advance factory projects in Arizona, Oregon, New Mexico, and Ohio.
The most concerning topic is whether Intel can overcome the crisis that erupted this year?
Intel's latest stock price has fallen by 50% compared to the beginning of the year, and the situation of being surrounded by competitors in 2021 has not improved, with the gap widening. In the context of the sluggish consumer electronics market dominated by traditional PCs, in recent years, the main driver of market growth has been the AI chip field in data centers. Nvidia is currently the absolute leader in this field, holding over 80% of the market share. Although Intel has also launched the Gaudi series chip benchmark products to compete with it, the results have been unsatisfactory. Compared to the strong growth of Nvidia and AMD, Intel's growth is relatively limited. Kissinger also bluntly stated at the second quarter earnings report that Intel has not fully benefited from powerful trends like AI.