For decades, Intel was the world’s most valuable chipmaker. The company pioneered microprocessors – one of the most ground-breaking technologies in the history of humanity: It’s the technology that powers computers and was central to the digital revolution.
But the company today is far from its former glory.
Just consider, Intel’s market cap is just over $100 billion today. On the other hand, Nvidia is 30x the size of Intel… Broadcom is more than 8x bigger… AMD is nearly 3x bigger… And Qualcomm is nearly double the size.
So, what exactly has happened to Intel?
The reasons behind Intel’s fall…
#1: Missing the iPhone boom…
In 2007, Intel missed out on a huge opportunity…
To power the long-anticipated iPhone.
A deal between the two companies seemed like a no-brainer, as Intel’s chips were widely used in Apple Macs. But it never happened.
One reason why Apple passed on Intel’s chips was because they were too slow. Instead, Apple used Samsung chips when the iPhone launched in 2007.
By 2010, Apple had introduced its own iPhone chip based on technology from British chipmaker ARM Holdings. ARM-based chips consume less power than Intel’s processors, making them more desirable for smartphones that run on batteries.
By 2014, Apple partnered with Taiwan Semiconductors (TSM) – the largest chip foundry in the world today. In late 2014, Apple started placing huge orders with TSM to build its iPhone chips.
As a result, TSM generated so much cash that it enabled the company to upgrade its manufacturing equipment every year.
Eventually, TSM’s technology surpassed Intel’s.
By 2020, Apple stopped using Intel in its PCs in favour of Arm-based chips.
That brings me to Intel’s second failure…
#2: Falling behind on chip technology and losing market share
Chips get faster with more transistors. Semiconductor companies fit more transistors on chips by shrinking them.
In the 1970s, a chip could have a couple thousand transistors. The size might be 10,000 nanometres across — one-sixth the width of a typical human hair.
Today, TSMC’s best chips use a 3-nanometre process.
On the other hand, constant delays of Intel’s 10-nanometre process in 2015, and then 7-nanometre process in 2020 further put the company behind TSM. The delay even caused an exodus of leadership.
Intel also started losing market share when AMD designed competitive chips (manufactured by TSM’s advanced technology). In fact, AMD barely had market share in server CPUs a decade ago. However, Mercury Research estimates AMD had about 25% of the market as of Q1 2024 – a major blow to Intel’s core business.
Intel’s woes compounded after falling behind in the recent “AI boom”.
Nivida dominates the AI market. And almost all Nvidia’s powerful GPUs used for AI are made by again, you guessed it, TSM, using leading-edge techniques to produce the most advanced chip.
What’s next for Intel?
Well for one, Intel is going through a “turnaround plan”, which isn’t going so well. After all, its shares are down nearly 50% so far in 2024. And even after this drop, Intel is not an attractive investment opportunity.
In August 2024, the chipmaker announced plans to cut costs by $10 billion by slashing 15,000 jobs and suspending dividends – which it has paid since 1992. The move comes after the company reported a $1.6 billion loss in the April-June period, compared with a profit of $1.5 billion a year earlier.
Intel will also reduce its research and development, marketing and capital expenditure each year through 2026. As a result, rivals will continue to steal market share from Intel as its tries to execute a big turnaround.
More recently, the company’s fall from grace has prompted Qualcomm to float merger talks and private equity firm Apollo to reportedly offer $5 billion to shore up the balance sheet.
The reality is it could take years for Intel to recover to anywhere near its former glory and compete with the likes of TSM and even Samsung.
Intel may be a lost cause, but we’ve identified another small chipmaker that we believe could be the next massive beneficiary of share price growth. It counts both Apple and Nvidia as one of its clients and its chip architecture is critical to these companies future AI development. You can claim a free copy of the latest issueof South African Investor here.
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