Intel had to save money, and CEO Pat Gelsinger made the decision to postpone plans to build factories in Germany and Poland. What kind of vortex is Intel experiencing?
When Pat Gelsinger took over as Intel's CEO in February 2021, he was hailed as a great savior akin to Steve Jobs. Intel was in a good financial position at the time, but it had no strategy for the future. On top of that, the group was plagued by production issues that caused its processors to be sluggish. Gelsinger brought credibility and coolness to the company at the time, proposing that Intel not only develop its own processors, but also act as a large global contract manufacturer.
Three and a half years later, Intel is a thing of the past. Competitors such as Nvidia, Qualcomm, and AMD are growing by leaps and bounds. Intel's sales have shrunk, and so has its stock price. The market capitalization has fallen below $100 billion.
Intel announced on Monday after the close of United States stocks that the project to build a factory in Magdeburg, Germany, could be delayed by about two years. Construction plans in Poland are on hold and the group's properties are being sold.
Intel's backyard is on fire
In short: Intel caught fire in its own backyard. The group is now under attack on its previously lucrative core market, data center processors. On the one hand, Apple abandoned them in the hope of developing its own processors. On the other hand, Intel's search for more profits led Sony to abandon the deal with them to design and produce chips for the PlayStation 6 game console, and instead cooperate with AMD. Intel has no more options at the moment, and the board continues to tolerate Gelsinger's work. But sacrifices must be made to save money. This led to a moratorium on the construction of factories overseas.
Their expansion plans in Arizona, Oregon, Ohio and New Mexico in the United States remain unchanged for now. In return, the United States government promised him a $3 billion chip contract for the United States military.
Intel's misfortune: the plan didn't catch up with the change
Despite being affected by the typical cycle of the semiconductor industry, the demand for processors in the global market will continue to grow. The trade war between China and the United States has intensified. Semiconductors are strategically important. The Western world needs a contract manufacturer that doesn't have to be torn between systems. Even Nvidia may need to maintain a partnership with Intel.
Gelsinger's original plan for Intel was also good, but they were out of luck. No one could have imagined the sudden rise of artificial intelligence, especially the role that graphics processors would play in it. Intel, of course, didn't anticipate this either. Nvidia came out of nowhere, quickly gaining a foothold in the market, and yet dominating the entire market business without competitors.
In such a situation, Wall Street has also lost patience with Intel. There are now serious doubts about whether Intel will be able to rise to the manufacturing challenge and keep up with its main competitor, TSMC. Analysts have long called on Intel to divest its contract manufacturing business, questioning the potential of its technology with toxicity.
In addition, there is the big question of how much the West is ready to accept the high cost of political stability.
Germany is looking for a reliable partner
Intel's suspension of building a factory in Germany has become a dilemma for the federal government. The tens of billions of subsidies for Intel do not need to be paid at the moment, which naturally buys Germany more time. But it would be worthless to use the investment to fill the government's budget hole.
Construction site in Magdeburg
For strategic reasons, Germany and Europe need to establish their own chip production. Intel is a ready-made partner. But for Germany, the company's reliability is still a question.