The future of Intel is as clear as mud. Their stock has been on a downhill sleigh ride for over a year, getting cut in half, when the rest of the industry was enjoying big gains. The decline seems to be accelerating. Their recent earnings report was horrendous. They took a massive write down on their numbers. What I’m concerned about is that they are going to take the majority of the taxpayer’s Chips Act money and literally sink it into the ground, with no revenue or product associated with that investment for many years. Tens of billions of dollars for several years, going into a recession with major concerns of extreme foundry overcapacity.
Gelsinger said that it’s going to take at least three years to build those two new leading edge fabs in Licking County, Ohio, and I think that’s overly optimistic. And what about all the other new fabs and expansions they’ve already announced in Arizona, New Mexico, Oregon, Costa Rica, Israel, and Ireland; all supposedly being built on their own dime? What about all the other total capacity coming online in the next few years with all the other chip companies? What about all the talent that is leaving the company? Nothing against the countryside of Ohio, but how difficult will it be to attract talent to go and live in Licking County, Ohio?
Now Intel has started warning investors that if you think these numbers are bad for last quarter, wait until you see this quarter’s numbers, and future numbers. So I think everything about Intel is very questionable right now. I believe Gelsinger is probably way in over his head and probably should just step down. They need a good hatchet man, a breakup specialist that is expert at breaking up the company into different parts that make sense and are each more focused in what they do, similar to what AMD did a few years ago with great success and fanfare. Intel should have done the same thing years ago. The only thing AMD did that was ill-advised and that should have never happened was to sell out to a foreign country, however, GlobalFoundries does have an ITAR agreement with the U.S. on one of their foundries, Fab 8.
So it’s a question of how much capacity they’re really going to need for their own business, and how much capacity they're going to need for other players. Yes, a lot of what they're building for is not even for their own business. A lot of what they're building for is for the new “Intel Foundry” business that they're hoping will work out. They want to build out a business where they will be making chips for other players. But hope is not a strategy. This plan has always been open for debate ever since Gelsinger announced it a couple years ago. The question I have is, how competitive are they going to be especially when they're having so much trouble delivering on their own roadmaps?
Intel has lost a lot of credibility. Do they really think they will be able to deliver for other players when they can’t even deliver on their own roadmaps? Another major question is, how are they going to compete against TSMC who is arguably the best in the world, and is currently sucking up all the world-wide foundry business? Will it come down to a pricing game? Can they actually get the business that’s required to fill all these new foundries that are going to take three or four years, and tens of billions of dollars to construct? The reason why customers want TSMC is for chip performance. Cost is important but is it’s secondary. Performance is the name of the game in the chip business these days. Customers will pay a premium to have better performance at TSMC, and Intel will be relegated to the less profitable lower-end of the legacy market.
Intel is a five-year story at least which is an eternity in the chipmaking business. We’re just at the beginning of this transition and it is likely to get much worse before it gets better.