How Intel Lost Its Edge

Bloomberg Audio Studios, podcasts, radio news. It's hard to overstate the historic importance of Intel to the US technology industry.

What lets you learn about the world.

In a whole new way The Intel Pentium processor.

After it was founded in nineteen sixty eight, Intel pioneered the chips that made modern computing possible, and for decades the company was one of the crown jewels of Silicon.

Valley the Intel Pendium processor.

But in the last decade Intel has lost its technological lead and huge amounts of market share. At the start of twenty twenty, Intel had a market cap close to two hundred and fifty billion dollars, more than twice that of Nvidia. As of this week, Intel's cap was below one hundred billion dollars and in Vidia's was thirty eight times bigger. As Bloomberg, ce And King says, Intel is at a crossroads.

This is a company that I think is symbolic of so many things are important to one country, in one industry, but suddenly they just can't do it.

In December, Intel CEO Pat Gelsinger was forced out after a disastrous year.

Breaking news. Intel the stock so far this year down by more than fifty percent. This headline will not be a surprise. Intel announcing the retirement of the CEO, Pakausinker. The board has formed a search committee for his successor.

He had been considered by many to be Intel's best hope to get the company back to the pinnacle of the chip business. But now some in the tech industry you're asking, is Intel at risk of disappearing entirely? I'm David Gerra, and this is the big take from Bloomberg News Today on the show The Rise and Fall of Intel with Bloomberg Tech reporter Ian King, who's covered the company for decades, a clear eyed look at the challenges

Remarkably for an important company that's been dominant for so long, they've actually had more than one life. They started off in computer memory. They saw that, hey, we need fast computer memory. So that was their first big breakthrough and they really kind of revolutionized and made that, you know, an industry. Then the PC came along right at the beginning of the eighties.

The IBM personal computer. Not only can it help you plan ahead, it'll balance your books and give you more time to make.

Do Intel was the brains of that. Pc IBM chose an Intel part to be the new guts of this thing that was really going to change basically modern life in so many different ways. In Intel were there right at the bidding and and of that and saw this particular type of product, the microprocessor, was going to be a huge deal, and then did it was.

As Intel grew, it maintained its advantage by being the best at making the semiconductor components on a computer chip smaller and smaller each one. Was a technological marvel that for decades left Intel's competitors scrambling to keep up.

Semiconductors are basically tiny electronic switches known as transistors. Those transistors are either on or they're off. It's either a one or a zero, and that is the basic unit of storage of information in the electronic world. The way that you put more transistors on a chip is to

Ian says much of Intel's initial success came down to how its founders and early CEOs ran the company. People like Gordon Moore and Robert Noyce who started it, and Andy Grove, who eventually became its chief executive. They worked hard to develop a company culture that helped Intel maintain a formidable scientific and commercial lead.

Frankly, all of the structures of come into being that determine how the industry and tech in general work largely stemmed from a lot of the observation, a lot of practices that these guys put in place a lot time ago.

They were path breakers, pioneers. How did they corner the market so effectively? And after it took off and there was this kind of broader awareness that chips were going to be important, why was it so difficult for other companies to give Intel a run for its money?

Look, design an extremely hard work, but I think fundamentally that the understanding of vlume economics and the understanding of the brutality of the industry in that you have to make enormous bets. Right now, a chip plant costs twenty billion dollars, probably more you have to run that twenty four to seven because guess what, in five years it's going to be obsolete. Right, So there's a tremendous upfront capital cost. So one of the things that they understood

That's the Pentium processor from Intel, the computer.

Inside Intel inside. Everybody knows what Intel inside is. I mean, this is a component company, right that made its brand one of the biggest in the world. They made consumers associate quality in computers, not with Dell, not with HP, not with any other computer manufacturer, book with Intel, with the components that nobody ever saw.

So Intel had the best marketing, the best chip design, and the best manufacturing. But as Ian says, it was a less tangible factor that kept Intel on top for its first few decades, the notorious discipline that Andy Grove put in place.

He established a culture in that company, you know, the famous only the paranoid survived, But lots of other things that he instilled were basically designed to keep Intel on the edge of its seat, to make sure they never got happy, flat and lazy. Things like constructive confrontation, the idea that you're in a meeting, you hear something, it doesn't matter who you are, you call it out if you think it's wrong. The idea that if you're a leader,

But at the same time that Intel was riding high, a company called Taiwan Semiconductor Manufacturing Company TSMC was founded. Intel designs and manufactures its chips. TSMC made its big bet on manufacturing chips that other firms designed well. That model created an opportu twunity for companies like Nvidia. They could design and sell their own chips and compete directly with Intel without having to invest in production.

TSMC created a new sector of the industry, one that Intel frankly laughed at publicly, and many others agreed with Intel the idea that you could outsource the core amount of production, that the idea of decoupling completely the design process from the manufacturing process was possible and made sense. Intel laughed at that. TSMC said no, no, this is

When we come back, how Intel started to lose its competitive edge just as AI came onto the scene and the hopes it placed in a new chief executive to turn things around. By the turn of the millennium, Intel was at the top of its game and an undisputed leader in the computing industry. The company dominated the chip market, both for PCs and data centers, but then in the

Intel had promised that it was going to bring this, you know, the next generation of its process technology in in twenty fifteen light clockwork like we're going to be here We're going to make that advance and it didn't happen. It didn't happen, and then people were like, well where is it? And there were lots of conference calls. Well, don't worry, it's coming, it's coming. Twenty fifteen rolls past, this new technology doesn't emerge. Two and nineteen comes along

Was Intel naive to what the demands would be for chips that could do the kind of computation that is necessary? Did they just fail to embrace it? Did they fail to understand the seriousness of it? Did they not see that that was the direction which things were going? So what explains the edge that Nvidia has today?

Intel had no excuse for not seeing this coming. So what happened? Right? It's really hard and I think dangerous to place the blame or the root cause of any one massive issue we have at the feet of one person. But guess what a lot of people blame. Brian Krasanich the former CEO for having created the situation that has led to the current impasse.

Let me tease that out a little bit more so, if that's the case that they're making, is what is the direct criticism? What do they think that he failed to do well?

Our reporting shows Krisanitch comes in in twenty thirteen as supposedly the joint sort of leader of this company with a woman called Rene James, who was also a long term Intel person. His pitch publicly was like, yeah, we're going to embrace all of these new markets. We're going to just run towards whatever we can and not be

In twenty twenty one, Intel hires Pat Gelsinger to turn the company around. Tell us a bit about who he was and why he was an attractive candidate to run the company.

There is nobody more Intel than Pat Gelsinger was and still is. He was a personal alcolyte of Andy Grove. He joined the company as a teenager, went to technical college, then went to university to get the kind of degrees that were necessary for Intel for working at Intel. Started off in kind of low level engineering jobs and worked his way up. He was the first ever CTO at Intel. He was the kind of point person for all of their presentations. He was the evangelist for their technology. You know,

Then when did it become clear that the board and investors were growing impatient with him and his plan for turning it around.

I mean, there are a couple of ways to look at this. It takes a year maybe more to design a chip, to bring it to market, to get it through the manufacturing process. I mean, the finances were clearly getting worse. You know, Intel became a loss making company. To his credit, he said this was going to happen, and people just didn't listen. He said it was going to take five years. They didn't give him five years, right. He said, leadership won't come easy, it'll be expensive, it'll

You mentioned the Chips Act. This was legislation passed to sort of ensure that the US would always have access to semiconductors. And I know that Intel has benefited from from some of that money, from some of that funding. How helpful has it been to to Intel's fortunes And.

It hasn't yet. It's a lot of money for you and me, but it's not even half the price of one factory, right. It's the way to look at it is that it makes the costs of building factories, of building leading edge facilities in the United States comparable to building them in say South Korea or Taiwan or China for that matter. It's basically reducing the costs of setup, it's not paying for anything. So far, it's helped Intel a little bit, but not really.

Then at the end of last year, Pat Gelsinger resigned. Bloomberg reported that Intel's board told Gelsinger he was being replaced, and Gelsinger decided to step down immediately. The company is currently being led by two interim CEOs while Intel tries to find a replacement. On their fourth quarter earnings call the end of January, Michelle Johnston Holthouse, one of those two interim code chiefs, said there were no quick fixes, that they were dedicated to rebuilding Intel's credibility and making

We can say from the outside is that who they put in place, the type of person that they choose, will really tell us almost instantly what the board has in mind for the future of Intel. And the biggest I think question mark there is whether Intel actually continues as Intel, whether it is still this company that designs and manufactures chips, that sells chips, and also operates this

Just wrapping up here, is there a real risk today that Intel as we know it, as we have known it could disappear?

You have to say that there is absolutely a risk that Intel as we know it will cease to exist, that might not be here at the end of the year.

So we should see that if it happens as much more than just a symbolic loss.

It'll be hard to see it as anything other than an enormous blow to national prestige, to the capabilities that this country has to lead a crucial industry, and there'll be lots of questions about who will carry that torch going forward. This is a company that I think is symbolic of so many things that are important to one country and one industry, but suddenly just can't do it.

This is the big take from Bloomberg News I'm David Gurat. This episode is produced by Alex tie. It was edited by Aaron Edwards, Patty Hirsch, and Gillian Ward. It was fact checked by andrean Atapia and mixed and sound designed by Alex Sagura. Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole Beamster Boor Sage Bauman is Bloomberg's head of podcasts. If you liked this episode, make sure to subscribe and review