Intel Names New CEO and Faces Challenges

January 24, 2021

Pat Gelsinger was named Intel’s new CEO to replace Bob Swan and I am happy. Swan only held the helm for two and a half years and was ultimately put in an impossible situation. Even with artificial PC shipment sale gains, Swan could not help Intel transition to a modern FAB process.

Intel currently employees 21,000 Oregonians, more than any other business in the state.  Gelsinger rallied the troops by saying “We have to deliver better products to the PC ecosystem than any possible thing that a lifestyle company in Cupertino” makes. 

This is great news because I love competition and Intel used to be king of the hill due to their sheer dominance. In Episode 34 friend of the show Jose Olaya discusses how we got here.

Pat Gelsinger is joining Intel along with 3 other executives from VMware.  While Pat was at VMware he tripled their annual sales to nearly $12 billion and doubled the company size while the company was transforming.   He did all of this while being voted the best CEO in America.  You can see why Intel wanted this guy.

With Pat’s leaving the company, VMware’s stock has slumped and is currently down 2.02 % at the time of this writing.  Pat hasn’t left VMware completely as he still holds a seat on VMware’s board of directors. On the same news Intel’s shares surged to 6.97% matching a July 2020 high of $56.95 per share.

Intel has been in the news a lot over the past few years because they have not been able to keep up with AMD’s Ryzen series as well as Apple’s Silicon innovations.  Intel is currently in a tough internal battle.  The company has to ask itself, does it keep making its own chips, or does it go Fabless and rely on other companies like TSMC to help refine its manufacturing process. Intel famously is still on 10nm chips, while Apple and AMD are at 5nm.  Intel’s chips run hot and are power hungry, while Apple and AMD’s are making great breakthroughs’ in the performance per watt category.

Intel is also losing out in the Server market where their XEON chips used to be king.  Their chips have been replaced by ARM equivalents because of their low cost, manufacturing yield, and heat dissipation.  It is much cheaper to cool an ARM Server Farm than an Intel Server Farm.

In a call with Wall Street, Bob Swan, the outgoing CEO said headway made in the last 6 months has “dramatically increased” Intel’s confidence in being able to produce their most advanced chips in its own fab plants starting in 2023.

On this current trajectory if Intel does decide to keep manufacturing in house, it won’t release 7nm chips until 2023 while TSMC will be releasing 3nm chips. 

I strongly feel that if Intel is to remain relevant it is going to have to invest billions into FAB design as the new power resides in FAB manufacturing capacity. If Intel were to outsource to a third part foundry like Samsung, GlobalFoundries, TSMC, they would be in the unfortunate competition of being last on the same production lines and dealing with the same production constraints that AMD, Nvidia, and Apple deal with every day.  This is why we still can’t get PS5’s, Xbox’s, AMD Cpus, and GPUs.

Pat Gelsinger is already making moves and had this to say on Friday when asked about the decision to outsource its production.

“I am confident that the majority of our 2023 products will be manufactured internally. At the same time, given the breadth of our portfolio, it’s likely that we will expand our use of external foundries for certain technologies and products.”

As a result of this news, Intel stocks fell 5.7% and over the last 12 month, shares fell by 6%.

Will 2023 be late for Intel to turn this ship around ? I personally hope Intel can turn itself around.  Competition breeds innovation and price reductions in the market. Let’s hope that Pat’s magic touch will have some results on Intel.

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