Intel Corporation (INTC.US) has come to a crossroads of fate, will it be phased out by the times or experience a rebirth through reincarnation?

lsingerIntel CorporationThe issue of Pat Gelsinger. Most insiders at Intel Corporation believe that he took over the company after the real damage had already been done. Hendi Susanto, portfolio manager at Gabelli Funds, an investor in Intel Corporation, said: "Pat Gelsinger has indeed set an expectation that all challenges will be solved in a shorter time. It's hard to imagine who could do it better than Pat Gelsinger."However, there were reports last week that Intel Corporation's latest manufacturing process failed Broadcom Inc.'s (AVGO.US) testing, which is undoubtedly a setback for Intel Corporation's wafer foundry business. It is reported that Broadcom Inc.'s testing mainly involves Intel Corporation's 18A (equivalent to 1.8nm) manufacturing process. After reviewing the test results, Broadcom Inc.'s executives and engineers believe that this manufacturing process is not feasible and cannot achieve mass production. Insiders say that Broadcom Inc.'s engineers still have doubts about the feasibility of this process, which may be related to defects on the wafers or chip quality, and whether the yield of the wafers can be improved is crucial to achieving large-scale production. An Intel Corporation spokesperson said in a statement, "We are nearing completion of a historic stride in process technology innovation and are re-establishing product leadership in key areas such as artificial intelligence and personal computing." "The plans announced last month will build on our progress and accelerate our next phase of transformation. We will take decisive actions to drive profit growth." Intel Corporation's woes began about a decade ago. There are many reasons for this, including an internal culture characterized by increasing complacency and risk aversion, two consecutive CEOs failing to predict technology trends and stay in sync with competitors, and the general shift of the semiconductor industry to Asia. When Pat Gelsinger took over Intel Corporation, he admitted that it would take years of capital investment to regain the ability to manufacture advanced semiconductors. He said that only in this way could Intel Corporation have enough competitiveness to refocus on profitability. The so-called catch-up period is brutal. Rating agencies responded to the massive spending by downgrading Intel Corporation's debt rating. In addition, Intel Corporation's business areas that seemed promising a few years ago, such as manufacturing specialized chips for autonomous driving vehicles or 5G networks, have been affected as these markets have developed slower than expected. Intel Corporation's market value is only $1 billion higher than its low point during the 2008 financial crisis. The company is no longer one of the top ten most valuable chip manufacturers in the world. However, Pat Gelsinger insists that the time for returns has finally arrived. He said that Intel Corporation's foundry business has entered into contracts worth $15 billion with many customers, which will be rolled out over the next few years. In comparison, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's foundry business is expected to bring in revenue of $88 billion this year. Furthermore, external doubts still exist about whether Intel Corporation's foundry business is primarily producing chips for the company's own chip design business, unless Intel Corporation receives large orders from industry giants such as Apple Inc. (AAPL.US) or NVIDIA Corporation (NVDA.US) to produce cutting-edge chips for them. Unfortunately, Intel Corporation's second-quarter financial report may signal that Pat Gelsinger is running out of time. The more Intel Corporation focuses on saving funds by cutting capital expenditures, the farther the company is from Pat Gelsinger's vision. Difficult choices One option for Intel Corporation to improve its financial condition is to sell off the divisions it acquired before Pat Gelsinger took over, which are no longer within the company's core business scope. Intel Corporation is considering whether to sell some of its stake in autonomous driving technology company Mobileye (MBLY.US), which was spun off from Intel Corporation and went public in 2022. Intel Corporation still holds 88% of Mobileye's shares, and may sell more shares through the public market or directly to a single buyer. However, the market value of Mobileye has evaporated by about 75% so far this year, and demand for its products may be weak, which could delay Intel Corporation's plans to sell a large amount of Mobileye shares in the short term. Intel Corporation may also choose to sell its programmable chip division, Altera. Intel Corporation acquired Altera in 2015 and spun off its business last year to seek an IPO. Altera has been affected by weak spending from telecom companies. Intel Corporation management has stated that Altera needs to produce more cutting-edge chips to regain market share. It is worth mentioning that Intel Corporation spent $15 billion each to acquire Mobileye and Altera. It is almost certain that any sale of these two divisions would result in a loss for Intel Corporation. Another target for cost cutting could be Intel Corporation's semiconductor factory network, as the company has committed to investing billions of dollars in collaboration with various governments, with the most prominent being the factories being built in Arizona and Ohio. The construction of these factories has received support from the Biden administration's chip plan and will receive billions of dollars in public subsidies.Cutting back on the factory projects will harm Intel Corporation and also the US government. Intel Corporation is the largest domestic partner in the Biden administration's chip plan. According to reports, US Secretary of Commerce Gina Raimondo attempted to help Intel Corporation's foundry business, including encouraging executives from NVIDIA Corporation and AMD to consider producing chips at Intel Corporation's factory in Ohio, but currently, neither of these companies have plans to do so. As the turmoil continues, Intel Corporation's projects in other countries are more likely to face interruptions. For years, Intel Corporation has been constructing a wafer factory in Magdeburg, Germany, which will receive billions of euros in subsidies. Sources close to Intel Corporation have revealed that the company is discussing delaying this project. Intel Corporation also has a series of smaller factories in Poland and Malaysia, and the company's board is considering mothballing or completely shutting down these factories. In recent months, Wall Street has been particularly obsessed with the idea of splitting Intel Corporation into several parts. The tight integration of Intel Corporation's chip design and manufacturing business has always been its core strength, and a split would signify the end of this company. It is also unclear whether a split between chip design and chip manufacturing businesses would still make sense for both parties. Intel Corporation's foundry business incurred a loss of $5 billion in 2023, and this year's losses may further increase. This business noticeably lacks external customers, indicating its lack of attractiveness and reliance on Intel Corporation's chip design business for revenue. Furthermore, while Intel Corporation's chip design business has maintained traditional dominance in the server and personal computer processor chip market (especially in personal computer processors), competitors such as AMD and Arm are grabbing market share that originally belonged to Intel Corporation. As Intel Corporation's chip design business falters, losses in its foundry business will grow larger. Pat Gelsinger himself has admitted that Intel Corporation has yet to find a compelling way to break into the field of artificial intelligence-specific chips, which are the most critical component of today's semiconductor industry. Although Intel Corporation has a range of artificial intelligence chips that can compete with NVIDIA Corporation's flagship products, Pat Gelsinger acknowledges that these products will not be the top choice for most customers. He stated that the competition for chips used to train artificial intelligence models is a race between NVIDIA Corporation, AMD, in-house development companies (such as Alphabet Inc. Class C, Meta, etc.), and Intel Corporation, with "Intel Corporation ranking fourth." Even if splitting Intel Corporation makes financial sense and potential buyers emerge, completing a deal could be incredibly complex. Given the US's customary national security concerns, any potential acquisition of Intel Corporation's factory network would face strict scrutiny from the US government. To pass the scrutiny, buyers may also have to agree to spend the hundreds of billions of dollars that Intel Corporation has already committed to new factories. Epilogue When Pat Gelsinger took over as CEO of Intel Corporation in 2021, he wrote in a letter to employees that there is no other semiconductor company in the world that can combine the advantages of design, manufacturing, and large-scale operational capabilities like Intel Corporation. He predicted that Intel Corporation would become "the leading global semiconductor company in a world of huge change." On August 1st of this year, Pat Gelsinger wrote another letter to employees, describing efforts to stabilize the company's financial situation as "some of the most important changes in the company's history." He admitted that Intel Corporation has not fully benefited from the rise of artificial intelligence and that a 15% downsizing would be painful. Pat Gelsinger said, "Our costs are too high, and our profit margins are too low. We need to take bolder action to address these two issues." The once glorious Intel Corporation has now fallen into such a state of decline, which is truly lamentable.