Asa Fitch
Appearances
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
It's hard to know how this period of the company's history will come to be seen, but it may be that it's seen as, you know, no CEO could have turned around Intel. But if somebody could have, it would have been Pat Gelsinger, and this would have been the plan. It just didn't work out.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
Intel's been in the Dow for 25 years. What a knock for Intel.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
And, you know, maybe the history shows that in the final analysis that if Intel were to be set aright again, it would have had to have happened a long time before Pat Gelsinger took over as CEO. When you get that big, it's harder to, you know, as Lou Gerster wrote in his book about IBM, make elephants dance, if you will, you know, make large companies do agile things is hard.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
And what Intel has needed in the past years has been agility.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
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.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
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.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
I'll take it. That's a good nickname. I like it.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
There was that famous marketing campaign, of course, Intel Inside.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
Right, exactly. And, you know, it was a bonanza for a long time.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
If you're a dominant player and you're just raking in the money... it's a little bit easier to not be serious about shaking things up. And it goes to the sort of the quote-unquote innovator's dilemma, essentially, where a company becomes a powerful player in one area and then struggles to dominate or make a name for itself in another area.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
Just think about, you know, the 80s and the 90s, there were PCs and they had chips. And then there was the smartphone revolution, and then everybody's carrying smartphone with chips in the smartphone. And you had cloud computing, you know, these massive data centers, and they had chips. And of course, now you have AI, and AI sort of runs on chips.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
And TSMC had become extremely successful in this world, was building a growing business around it. Intel, of course, saw that happening. But Intel decided to stick to its guns and not to kind of bifurcate itself in the same way the industry was going. They said essentially, no, we don't want to do that.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
You know, the company tries to make the most advanced chips in the world. You know, what that means is like, you know, when you have a chip, it's a piece of silicon. And upon that silicon, they etch billions upon billions of transistors. And so you might ask, okay, well, what makes one chip better than another? The answer is basically you're able to pack more transistors in that small space.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
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.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
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.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
And that's the context into which Pat Gelsinger arrives.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
So Pat Gelsinger is Intel's first chief technology officer, first CTO. He's a guy who was sort of born and bred Intel.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
So every time that society's advanced, the answer has been, we need some more chips for that.
The Journal.
The Chip Business Is Booming. Why Isn’t 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.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
They were going to go full steam ahead, create this contract chip making business within Intel, and use that to fill up its factories and do more manufacturing, basically, and make more money. And as part of that, Intel was going to expand its factory footprint, just build more factories.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
The problem in the chip industry is that you have to make decisions today about what you're going to need several years from now, even five, ten years from now. Gelsinger had to essentially predict many years in advance what the demand might be for these chips and build those factories accordingly.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
You're betting. It's fundamentally a bet.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
It was. I mean, it was absolutely. And Pat said at the time, you know, it was a bet the company move.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
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.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
And the amount of major customers that Intel was getting in the door was just, you know, it wasn't huge.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
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.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
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.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
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 Journal.
The Chip Business Is Booming. Why Isn’t Intel?
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.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
Then, last week... Intel just moments ago announcing that CEO Pat Gelsinger retired effective yesterday.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
According to someone familiar with what happened... It was retirement, but the circumstances were that the board gave him the option to retire or be removed, and he chose to retire.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
You know, many people were surprised by Gelsinger being ousted because, you know, this is a very ambitious turnaround plan. The company had already invested a lot of resources in making the turnaround work. Intel has been on successive rounds of cost cutting for the past couple of years at this point. They've done layoffs, they've cut costs wherever they can.
The Journal.
The Chip Business Is Booming. Why Isn’t Intel?
And all of that has been in service of making this plan work. And so there's a lot of surprise, actually, that at this juncture Gelsinger would be ousted. But, you know, I think the board just sort of lost confidence in Pat and the plan and the way that the speed at which it was going and the results from it.
WSJ What’s News
Fed Chair Warns of Difficult Choices as Trade War Rages
Expectations for Nvidia are always very high in terms of its revenue and its outlook for the coming period. Investors have gotten used to Nvidia always beating expectations for revenue and revenue. Growing at an insane rate, this problem in China, which represents a pretty significant part of their revenues, creates some uncertainty about how much NVIDIA can beat those expectations in the future.
WSJ What’s News
Fed Chair Warns of Difficult Choices as Trade War Rages
There's a longer term impact. Five and a half billion in the current quarter relates to inventory and other sorts of supplies and things they need to put these things together. Those supplies and that inventory and that other stuff that they're taking a charge on represents a much greater amount of revenue that the company would otherwise have received.
WSJ What’s News
Fed Chair Warns of Difficult Choices as Trade War Rages
Some analysts estimate it's about $13 billion. I've seen one analyst report suggesting something like $20 billion of revenue this year. So it is a pretty significant hit beyond just the $5.5 billion charge that made the headlines.
WSJ What’s News
Fed Chair Warns of Difficult Choices as Trade War Rages
Well, there's a bit of tension between companies who want to please the Trump administration by doing more stuff in the U.S. and a Trump administration that wants companies to disentangle themselves from China. NVIDIA is playing this game just like everybody is, and they made this commitment. Some analysts see that as part of a quid pro quo.
WSJ What’s News
Fed Chair Warns of Difficult Choices as Trade War Rages
We'll scratch your back, Trump administration, you scratch ours. Trump administration in making this move seems like they're not scratching NVIDIA's back too much. And that move a few days ago to invest in the U.S. does not seem to have changed calculus of the folks in charge in Washington. So for NVIDIA, maybe that's a hard lesson. We'll see how it plays out, though.
WSJ What’s News
Fed Chair Warns of Difficult Choices as Trade War Rages
One thing that we've seen in the past is that the policy around tariffs, around export restrictions, these things are changing all the time.