Intel, a Love Story

I have a huge amount of admiration for Intel, outweighed only by my disappointment in their execution. I had high hopes when they brought back Pat Gelsinger to lead the company in 2021. But his unceremonious exit last month is just one more signal that Intel’s big ambitious plans aren’t going to be realized.

They’ve been here before

Intel has pivoted hard a few times already. That’s no guarantee that they can do it again, but it’s honestly impressive that they’re still here at all. The first big pivot was away from their leadership in DRAM when that space became commoditized. They moved into CPU design and manufacturing, and ensured that their CPUs had a somewhat proprietary instruction set that allowed them to form a duopoly with Microsoft which made them the dominant semiconductor designer and manufacturer for several decades.

Intel was able to maintain this edge by creating a culture of strong investment into R&D that would keep them ahead of everyone else, however there was no more room for growth in the CPU space. They already dominated the entire market for desktops, laptops, workstations, and servers. So, to grow the company they went very wide and pursued every other product line they could think of: networking, motherboard chipsets, storage, graphics, IPUs, FPGAs, ASICs, and some really out there stuff like silicon photonics and neuromorphic processors… and this list is far from exhaustive. They went much wider on R&D than any other semi designer, and regardless of the outcome I find it admirable and wish more companies were this ambitious.

What now?

The problem is it didn’t work. Aside from a few point solutions they weren’t nearly as dominant in any of these spaces as they were with CPUs. This was compounded by their failure to adopt EUV lithography in their fabs, instead hoping to get a few more generations out of DUV (and failing, badly).

This is where we are today. Their product lines are bloated and underperforming and their fabs are badly lagging competitors (even Intel is now outsourcing some of their fabrication to TSMC). And I think the only way for them to grow their way to success is to transform into a… software company?

That may seem like a strange take for a hardware company, but they are uniquely positioned to become a vertically integrated hyperscaler. Vertical integration is difficult to achieve and easy to lose, there are calls today for Intel to divest its fab business (as AMD did with GlobalFoundries) but it’s essentially impossible to rebuild that manufacturing expertise once it’s lost.

Intel has the existing product lines necessary to create a competitive hyperscale cloud provider, and their advantage in silicon design would allow them to create application accelerators (as they did with Sapphire Rapids) specific to various managed services. Furthermore, OCP and Oxide are examples of the commercialization of hyperscale technologies. So while the barriers to entry may be substantial, they can be overcome.

Intel’s semiconductor supply chain and domain expertise would put them at a unique advantage against existing incumbents. Cloud providers are continuing to eat the world, and hardware acceleration of all kinds is quickly becoming a key differentiator.

Bet on Success

Being an Intel shareholder has not been a pleasant journey, but I still think they have a huge amount of talent and potential. The market thinks that I’m wrong, which I probably am. But it would be a hell of a thing to watch Intel turn things around and reinvent itself one more time.