Intel Corp. Chief Executive Pat Gelsinger put it bluntly as he announced a $10 billion cost-cutting program that will decrease capital expenditures and bring a 15% headcount reduction.
“Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate,” he said in a memo posted to Intel’
website Thursday. “Our revenues have not grown as expected — and we’ve yet to fully benefit from powerful trends, like AI.”
I think Intel is heading into a world of hurt. They made too many mistakes over the years. And they relied way too much on their dominance in the PC processor market. They always stayed just one small step ahead of AMD. But in the semiconductor business one small step ahead isn’t enough because if you hit a small snag when moving to the next step (let’s say a smaller geometry), your competitors can leapfrog you. And that’s exactly what happened to Intel, their competitors leapfrogged them. Then add in the fact that we may reach processor-agnostic systems at some point, and their lesser performance could kill them.
That doesn’t mean that Intel will disappear, but they will slowly wither and be relegated to lower priced, lower performance products. AND, whatever billions or tens of billions that government is handing them over the next 3-5 years will essentially be wasted. It isn’t only performance of the chips themselves, it is also the performance of the workforce. First of all, they will have a demoralized and disgruntled workforce (giant layoffs tend to do that). Second of all, they will have a hard time attracting big talent, who wants to devote 5-10 years of their primary career to a company that isn’t likely to pay off well for them? And third, they already have a reputation for lower performance and even shoddiness (including trying to paper over major security flaws) in the marketplace.
This doesn’t mean they will definitely fail. With the right management, with a lot of luck, and with billions of dollars from government, they might pull out of their tailspin. But it isn’t likely.