It’s a small earthquake in the world of chips. This December 2, CEO Pat Gelsinger suddenly announced his departure from Intel, which he has led since 2021. A decision which follows particularly turbulent months for the fallen semiconductor leader, reflecting the alarming situation in which he is located.
Because this initiative is not trivial. Pat Gelsinger’s journey at Intel began more than four decades ago, when he became an engineer within its ranks. He then rose through the ranks, then accepted the position of CEO at VMWare, which he held brilliantly from 2012 to 2021. With this experience, Gelsinger succeeded Bob Swan in February 2021 to revive Intel, already struggling . But nothing went as planned.
Historic losses
Under Pat Gelsinger’s leadership, Intel’s revenue fell 33% to $54 billion in 2023. Its financial performance for the third quarter of 2024, running from June to September, was simply the worst in the company history, with an operating loss of $16.6 billion.
Catastrophic performances which can also be seen on the stock market. Intel’s stock price has tumbled more than 50% since the start of the year. The situation is such that the company, which dominated the electronic chip sector at the end of the 90s, has lost its place in the Dow Jones Industrial Average. This stock market index, the oldest in the world, tracks the performance of thirty large companies listed on the United States stock exchange. It serves as a barometer to assess the general health of the country’s economy.
The PC market in free fall
These colossal losses are the result of multiple factors. Among them, the poor health of the PC market, Intel’s preferred sector. The company’s chips power around 75% of the world’s laptops.
In 2020 and 2021, the laptop market saw unprecedented growth as businesses and consumers quickly adopted remote working during the pandemic. Companies stocked up on devices to support their workforce, leading to record sales.
After this boom, a sharp contraction occurred. In the third quarter of 2023, global laptop shipments declined 9% year-over-year, continuing a downward trend that has seen a nearly 25% drop since the third quarter of 2021.
This decline has been exacerbated by economic uncertainties, which have led organizations and consumers to reduce their spending. This dynamic has had a strong impact on Intel.
The delay in artificial intelligence
The technology industry has been turned upside down by the rise of generative artificial intelligence (AI), democratized by the launch of ChatGPT two years ago. It completely disrupted the demand in the chip market for graphics processing units (GPUs) manufactured by NVIDIA.
They are, in fact, better suited to training AI models and massive calculations, while Intel has historically focused on central processing units (CPU). Despite significant investments in AI, the manufacturer is lagging behind its rivals. Because its historical competitors like AMD have sensed the opportunity, multiplying initiatives to meet the needs of businesses.
“ The AI push was much stronger than I anticipated », admitted Pat Gelsinger a few months ago, when Intel carried out a major wave of layoffs.
A restructuring plan that is too slow and too costly
Upon his return to Intel at the start of 2021, the executive set about revitalizing the company. His vision included a colossal $20 billion investment in new production facilities, including in Arizona, and a commitment to cutting-edge manufacturing processes. Objective: restore Intel to its leading position in the semiconductor industry.
The reality of the company’s performance stood in stark contrast to Pat Gelsinger’s lofty ambitions. According to analysts, he made public forecasts that were too optimistic, not reflecting Intel’s real situation.
In the red, the CEO announced a new plan in September to reduce the company’s expenses. It includes workforce reductions, the separation of its design and foundry activities, as well as the interruption of certain plans to set up factories abroad. The project was ultimately deemed too slow and costly by the manufacturer’s board of directors.
Strained relations with TSMC
One of Gelsinger’s most notable missteps was straining the critical relationship Intel has with TSMC, the world’s leading foundry company. He has indeed made controversial remarks, calling into question Taiwan’s geopolitical stability. TSMC retaliated by removing the discounts that were given to Intel. This calculation error increased its production costs, de facto harming its competitiveness.
