Wow. gelsinger made a public stink about how TSMC represented bad political risk – would China invade etc – and TSM responded by revoking an agreement to give INTC 40 percent off their manufacturing. Massive self own.
In light of this I can see why there’s pressure for the board to replace him. Overpromise, underdeliver, offend your best partners, disappoint your customers.
Pat Gelsinger took the reins as Intel (INTC.O), opens new tab CEO three years ago with hopes of reviving the American industrial icon. He soon made a big mistake.
Intel had a sweet deal going with Taiwan’s TSMC (2330.TW), opens new tab, the giant manufacturer of semiconductors for other companies. TSMC would make chips that Intel designed but could not produce. And it was offering deep discounts to Intel, say four people with knowledge of the agreement.
Instead of nurturing the relationship, Gelsinger – who hopes to restore Intel’s own manufacturing prowess – offended TSMC by calling out Taiwan’s precarious relations with China. “You don’t want all of your eggs in the basket of a Taiwan fab,” he said in May 2021, using industry jargon for a chip fabrication plant. That December, encouraging U.S. investment in U.S. chipmakers, he said at a tech conference: “Taiwan is not a stable place."
In public, TSMC downplayed the comments, with its founder calling Gelsinger“a bit rude.” Privately, TSMC said it would no longer honor the discount, the sources said: about 40% off the $23,000, 3-nanometer wafers on which TSMC would print chips for Intel. Intel had to pay full price, shrinking its profit margin on the deal.
Asked about the previously unreported episode, Intel said TSMC is an important partner with which it has a “healthy business relationship today.” TSMC told Reuters Intel is an important customer.
Gelsinger’s affront to Taiwan was part of a series of missteps during his time as Intel CEO. He inherited a troubled company that had lost its edge in manufacturing skills and had ceded to rivals the hugely lucrative markets for chips used in mobile phones and artificial intelligence. But Gelsinger compounded those problems.
This account of his rocky tenure is based on interviews with about four dozen current and former Intel employees and executives, as well as internal company videos, supplier documents and regulatory records.
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Intel’s revenue shriveled to $54 billion in 2023, down nearly one-third from the year Gelsinger took over. Analysts expect Intel to lose $3.68 billion this year, its first annual net loss since 1986. Its shares closed at $22.92 on Monday, off 66% from a peak hit in Gelsinger’s first months as CEO.
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Intel said it won’t let merger speculation distract it from executing its five-year turnaround plan. Under Gelsinger, Intel said, it has revamped its operations, secured up to $45 billion in U.S. support, led the market for AI PC chips, and “achieved a historic pace” of innovation.
Intel told Reuters its 18A fabrication technologies are yielding good-quality chips and that it “expects to return to process leadership in 2025” with their formal launch. The company said it objects to the “usage of rumors, leaked materials, half-truths and interviews based on the widest net that can be cast for ‘sources’ to gain negative commentary on Intel.”
Customers have little incentive to bet on Intel’s manufacturing when TSMC continues to serve them well, said Goldman Sachs analyst Toshiya Hari. “If you care about performance today, tomorrow, next year, over the next couple of years, you are not making that bet,” Hari said.
Still, Commerce Secretary Gina Raimondo said in September U.S. manufacturing represents a supply-chain “insurance policy” that major chip designers would pay for. “They should want U.S.-made leading-edge chips,” she said.
Intel’s stumbles have implications for U.S. industrial policy. Gelsinger’s vow to create a foundry raised hopes in the Biden Administration that Intel would help bring chip production back under U.S. control on U.S. soil.
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Gelsinger had high hopes for Intel’s Gaudi chip, a so-called AI accelerator – a processor that improves the performance of artificial intelligence applications. Intel touted the chip – designed in-house and made by TSMC – as an alternative to Nvidia’s often scarce GPUs.
Teams at Intel estimated it could sell at most $500 million in AI chips, three people familiar with the forecast said. In a meeting with executives in the second quarter of 2023, Gelsinger said this number was not high enough. Intel needed to tell Wall Street it could hit at least $1 billion at a time when Nvidia’s comparable sales were far higher, one of the people cited Gelsinger as saying.
Gelsinger touted the $1 billion figure in public. On Intel’s July 2023 earnings-results call, he told analysts of “surging demand for AI products.” He added: “Our pipeline of opportunities through 2024 is rapidly increasing and is now over $1 billion and continuing to expand with Gaudi driving the lion’s share.”
According to one of these sources and another person briefed on the matter, Intel at the time of Gelsinger’s announcement had not secured anything near the supply needed from TSMC to sell $1 billion in AI-accelerator chips. After Gelsinger demanded the billion-dollar target, Intel tweaked its math to justify it, lumping in chips unrelated to its marquee AI offering, two sources said.
Intel said Gelsinger’s comments accurately reflected prospective deals, not sales. “No company converts 100% of its pipeline into revenue,” Intel said. “We make no apologies for setting ambitious internal targets for our teams – and we will always try to exceed the goals we set for ourselves.”
As recently as January of this year, Intel told investors it had more than $2 billion in possible AI chip deals in the pipeline. In April, Gelsinger revealed to analysts a much lower AI revenue goal for this year: more than $500 million.
At times, Gelsinger has told leaders at major clients that Intel could furnish alternatives to Nvidia’s GPUs, said three people familiar with the talks – including for Microsoft and Amazon Web Services, two of them said. When customers sought details, Intel managers had little to show and some deals didn’t happen, the sources said.
Microsoft declined to comment. Amazon referred Reuters to recent news about its work with Intel.
Intel has struggled to pick an AI-chip strategy. It funded three projects simultaneously by 2019: a GPU of its own, and two other chips designed to perform AI calculations from a pair of companies it acquired. None of the three made significant inroads against Nvidia or AMD, Reuters has reported.
On Intel’s GPU efforts, Rivera, the former data center chief, told Reuters: “It’s a journey, and everything looks simpler from the outside.”