Intel—the company whose chips were “inside” your ‘90s desktops—has fallen behind in recent years. Now, the CEO hired to turn things around is suddenly out. WSJ’s Asa Fitch explains how the once-dominant chip brand lost its edge. Further Reading: - He Was Going to Save Intel. He Destroyed $150 Billion of Value Instead. - Intel Co-CEOs Outline Strategy Following Pat Gelsinger’s Ouster Further Listening: - America’s Answer to the Chip Shortage - Why Washington Went to Wall Street to Revive the Chips Industry Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: Why is Intel struggling in the chip market?
Why is Intel struggling so much?
It's a long story. You could argue it's a tale of hubris, of excessive confidence. It's a tale of rigidity and a lack of flexibility that often large corporations have to contend with.
Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Monday, December 16th. Coming up on the show, how Intel lost its edge.
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From the 1980s through the early 2000s, Intel was everywhere.
The company became this dominant force with the rise of the personal computer. Everybody needed a computer in their house. Eventually, laptops came along as well. Most of them, almost all of them, had Intel chips inside of them.
Intel both designed and manufactured its chips, called CPUs, and it sold them to computer makers like Dell, IBM, and Apple. Pretty much every major computer maker in that era used Intel chips.
There was that famous marketing campaign, of course, Intel Inside.
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Chapter 2: What led to Intel's decline in the tech industry?
That's very important in the chip world. It's like the most important thing. If you can have a lot of transistors, it means you can do a lot of stuff. I mean, you can produce the best AI chips in the world. You can produce the fastest calculating CPUs in the world. Your computer that you're on now can run faster, a lot faster, if it has more transistors. It's like having a bigger brain.
So Intel kind of lost its way in that race. It just started to fall behind these contract chip makers like TSMC in making the most advanced chips. By 2019, things were not going well for the company. That was very clear. There was a sense within the company that, you know, Intel had already sort of lost its glory, its glory days were over, and the mission was to kind of bring it back.
And that's the context into which Pat Gelsinger arrives.
Pat Gelsinger, Intel's man with a plan. That's next.
Who is Pat Gelsinger?
So Pat Gelsinger is Intel's first chief technology officer, first CTO. He's a guy who was sort of born and bred Intel.
Pat Gelsinger grew up in rural Pennsylvania. He was a farm boy with an associate's degree from a local technical college. But as Gelsinger explained in an oral history, at age 18, his life changed. Intel came recruiting and invited him out to company headquarters for an interview.
So, you know, here I am, 18 years old. I've never been on an airplane. I'm giving a free trip to California.
According to one Intel interviewer, Gelsinger was, quote, smart, aggressive, arrogant.
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Chapter 3: Who is Pat Gelsinger and what was his role at Intel?
It was. I mean, it was absolutely. And Pat said at the time, you know, it was a bet the company move.
And how did that bet go?
You know, Intel tried to attract customers for its contract shipmaking business. And it had trouble. I mean, the big customers for the contract shipmaking business are Apple, NVIDIA, of course. You know, Qualcomm, there's some others. But Intel had this internal goal that they were going to be the second largest contract chip maker in the world by 2030. And, you know, it's almost 2025.
And the amount of major customers that Intel was getting in the door was just, you know, it wasn't huge.
Chip designers were hesitant to jump manufacturers, especially since Intel didn't have a history as a contract chip maker. And Intel also had a culture issue.
Contract shipmaking is really a customer service business. If your customer wants something, you bend over backwards to make it happen for them. For Intel, they hadn't really been like that. Their customer had been just Intel. They didn't really have that experience. Dealing with those kinds of customers meant that it was just a little bit more difficult to get that business started.
All of this would have been challenging enough, even if the chip industry had stayed relatively stable. But just a year into Gelsinger's massive turnaround effort, one viral product changed everything.
Basically, it's ChatGPT. ChatGPT came along and that leads to a flurry of interest and investment in generative AI, people developing these big AI models. And that in turn leads to huge investments in chips that are needed to build these kinds of models. And those chips are made almost entirely by NVIDIA.
Intel made its name with CPUs, but Nvidia has always specialized in designing a different kind of chip, called a GPU. It stands for Graphics Processing Unit. GPUs were originally designed to handle the complex graphics in video games. But over the past decade or so, AI researchers discovered another use for them, as the brains of AI.
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Chapter 4: What challenges did Pat Gelsinger face at Intel?
Chapter 5: How did Intel's manufacturing strategy impact its success?
Pat Gelsinger, Intel's man with a plan. That's next.
Who is Pat Gelsinger?
So Pat Gelsinger is Intel's first chief technology officer, first CTO. He's a guy who was sort of born and bred Intel.
Pat Gelsinger grew up in rural Pennsylvania. He was a farm boy with an associate's degree from a local technical college. But as Gelsinger explained in an oral history, at age 18, his life changed. Intel came recruiting and invited him out to company headquarters for an interview.
So, you know, here I am, 18 years old. I've never been on an airplane. I'm giving a free trip to California.
According to one Intel interviewer, Gelsinger was, quote, smart, aggressive, arrogant.
He'll fit right in.
Gelsinger would spend the next three decades of his career at Intel.
You know, when you talk about Intel inside, that marketing campaign in the 90s, Those chips that were going in those computers were in large part, you know, thanks to Pat Gelsinger. You know, he did a lot in helping design those things.
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Chapter 6: What is the significance of the chip shortage?
Contract shipmaking is really a customer service business. If your customer wants something, you bend over backwards to make it happen for them. For Intel, they hadn't really been like that. Their customer had been just Intel. They didn't really have that experience. Dealing with those kinds of customers meant that it was just a little bit more difficult to get that business started.
All of this would have been challenging enough, even if the chip industry had stayed relatively stable. But just a year into Gelsinger's massive turnaround effort, one viral product changed everything.
Basically, it's ChatGPT. ChatGPT came along and that leads to a flurry of interest and investment in generative AI, people developing these big AI models. And that in turn leads to huge investments in chips that are needed to build these kinds of models. And those chips are made almost entirely by NVIDIA.
Intel made its name with CPUs, but Nvidia has always specialized in designing a different kind of chip, called a GPU. It stands for Graphics Processing Unit. GPUs were originally designed to handle the complex graphics in video games. But over the past decade or so, AI researchers discovered another use for them, as the brains of AI.
If you want to train or run an AI model, you need a lot of GPUs. And NVIDIA had a huge headstart on everyone, including Intel. After ChatGPT came out, demand for NVIDIA's chips exploded, and it's kept up ever since.
So that was a huge, huge challenge for Intel. When the AI boom really took hold, everything was going to AI chips. And a significantly less amount of money was going to Intel's chips. So there was this dramatic shift that really hurt Intel financially at a time when
The company really just needed money to build these huge factories that cost billions upon billions of dollars and execute this turnaround plan that Pat had concocted. So it really could not have come at a worse time for Intel.
Intel was burning through cash to get its chip-making business off the ground. And with the AI boom cutting into its sales, it was cash the company increasingly didn't have. So Gelsinger and his team economized. Intel laid off thousands of staff and suspended its dividend. It cut billions of dollars in costs. But the fundamental picture didn't change.
Since Gelsinger took the helm, Intel's stock has lost 60% of its value. Its sales have plummeted. And in October, the company posted the biggest quarterly loss in its history.
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