Is AI Really the Key to Intel’s Comeback, as CEO Pat Gelsinger Believes?
Is Intel AI on the horizon? | Credit: Justin Sullivan / Getty Images.
Key Takeaways
- Intel CEO Pat Gelsinger believes AI will play a key part in the company’s comeback.
- In August, the company reported an 85% drop in revenue and announced 15,000 layoffs.
- On Sept. 16, Intel announced a deal with Amazon Web Services to cooperate on custom chip designs.
Intel is not in a good space and hasn’t been for a while.
The once largest semiconductor company in the world has fallen behind the new kids on the block.
Intel is betting on returning to dominance through further AI chip investments, but given the demand for Nvidia’s AI chips and AMD’s manufacturing strategy, is it too late?
Intel’s Problem
Intel’s struggles stem from a combination of declining personal computer sales and increased competition in key markets.
The global demand for PCs, once Intel’s bread and butter, has been falling as consumers increasingly shift towards mobile devices and cloud-based solutions. The drop in PC sales has hurt Intel’s core business, as it historically relied heavily on selling its x86 processors for desktops and laptops.
On Aug. 1, Intel announced plans to lay off 15,000 staff members after it reported an 85% drop in year-on-year second-quarter profit revenue. The move came just days after its rival AMD celebrated record earnings.
Along with the layoffs, CEO Pat Gelsinger said there would be a “structural and operating realignment” across the company, with cost reductions of more than $10 billion in 2025.
“Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones,” Gelsinger said in an earnings release.
On top of rising competition and falling sales, the U.S. revoked the company’s license to ship chips used in laptops and mobile phones to Chinese telecom giant Huawei Technologies in May.
Gelsinger said the cost reductions would support its IDM 2.0 strategy. Announced in 2021, the strategy focuses on three key pillars: expanding Intel’s in-house manufacturing, increasing the use of external foundries, and offering Intel’s manufacturing services to other companies.
Intel’s fall from grace has also been highlighted by recent reports of attempted buyouts from companies it once reigned over.
According to The Wall Street Journal on Sept. 23, Qualcomm reached out to Intel to buy the company for $90 billion.
British semiconductor company Arm, which recently had its stake offloaded by the company to generate cashflow, also reportedly approached Intel with an offer for purchase but was swiftly rejected.
It remains to be seen how Intel will respond to Qualcomm.
Intel’s AI Mission
The company’s CEO Gelsinger, mentioned in February 2024 that AI would play a central role in the reboot of the company.
Over the past few years, Intel has been investing heavily in becoming a major player in the foundry business.
In 2022, the company announced a dedicated $100 billion to build a mega fab in Ohio , which will consist of eight manufacturing plants. Alongside this, Intel also announced $20 billion for new fabs in Arizona.
Talking to Time Magazine, Gelsinger said he expects its place in Ohio to become “the largest silicon manufacturing location on the planet.”
While this is undoubtedly going to give Intel a better chance of competing with its rivals, the massively expensive projects are still not online, with 2025 touted as the earliest that operations will begin.
Is AI the Answer for Intel?
Intel’s transition from being predominantly a CPU maker to an AI hardware provider requires a shift in business strategy and market perception, which is no small feat.
The company is attempting to catch up not only in hardware capability but also in building an ecosystem that supports AI innovation.
This requires substantial time, investment, and a restructuring of its development pipelines, which further puts it at a disadvantage when compared to its rivals, which already have established products.
Despite the company’s cost-cutting across its business, Intel has seen some initial success in its transformation by signing potentially lucrative deals.
On Sept. 16, the company announced an extended collaboration with Amazon Web Services (AWS), which includes a co-investment in custom chip designs and a multi-year, multi-billion-dollar framework covering products and wafers from Intel. Gelsinger said the company was “beginning to see a meaningful uptick in interest from foundry customers.”
“This includes continued momentum in advanced packaging, which remains a meaningful differentiator for Intel Foundry as we have tripled our deal pipeline since the beginning of the year,” the CEO said in a news release.
What’s Next for Intel?
Intel’s efforts to reinvent itself with AI mark a critical juncture for the tech giant, as it seeks to transition from its legacy as a compute manufacturer to a broader focus on AI hardware.
While significant investments in the development of new architectures and deals demonstrate its commitment, the company faces considerable obstacles in catching up to its rivals.
Arne Helgesen, IT, and cybersecurity expert at Sharecat, said that Intel’s success in the AI domain depends on its ability to differentiate its offerings and forge strategic partnerships.
“By integrating AI solutions into their existing product lines and leveraging their enterprise sales channels, Intel could find a niche market and gain a foothold in the AI realm,” Helgesen said.
However, with its rivals maintaining a firm stranglehold on key AI sectors, it remains to be seen whether the technology is truly the answer to Intel’s woes.
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