From Top to Bottom How Did Intel Transform from Chip Giant to Acquisition Target?
In a surprise that shook the technology industry, Intel, the company that was once the unbeatable giant in the world of electronic chips, has become a potential acquisition target. After being the driving force behind the digital revolution, it now finds itself facing existential challenges that threaten its historical position.
Intel has been reported in recent days to have received an acquisition offer from Qualcomm , and a second offer from Apollo Global Management, a specialist asset management company, to invest $5 billion . These offers indicate that Intel, despite the challenges it faces, remains an attractive target for investors, which could lead to fundamental changes in the company in the coming period.
But how did Intel lose its status as one of the world's most valuable chip companies and start looking for investors, and what does that mean for the semiconductor industry?
First, what mistakes did Intel make?
Three years ago, Intel was worth more than twice its current value, and its CEO, Pat Gelsinger, was looking for new acquisitions. Now, Intel itself is a target for acquisitions, largely due to a series of strategic mistakes the company has made, from missing out on smartphone processors to being late to the era of generative artificial intelligence , which has radically changed the semiconductor market.
Founded in 1968, Intel has been a leader in chip design and manufacturing for decades, but now it is in a deep financial crisis, suffering huge losses in its semiconductor business, amounting to $7 billion in 2023 alone, a large part of which is due to the huge investments the company has pumped into building new factories, which did not yield the expected returns.
Moreover, the company failed to meet the ambitious sales targets it set for itself during the PC boom period during the Covid-19 pandemic, which it was counting on to fund its expansion plans.
The company also faced production challenges, and suffered a sharp decline last August, after announcing the layoff of 15,000 employees and the suspension of its dividend distribution from the fourth quarter of this year.
Intel CEO Patrick Gelsinger is now under fire for his management decisions. Analysts believe Gelsinger's decisions to invest heavily in new factories and lay off employees have contributed significantly to the company's financial deterioration, raising questions about his ability to lead the company toward a brighter future.
“I think Gelsinger’s biggest problem right now is that he’s losing his credibility and legitimacy,” says J. Dan Hutchison of TechInsights, a semiconductor market analyst. “Once seen as Intel’s savior, his credibility is now in question, especially after failing to deliver on his five-year plan.”
Second, a series of unfortunate events:
Intel's blunders arguably didn't start during Gelsinger's tenure, but rather emerged nearly two decades ago when it decided to focus on developing computer processors and not enter the smartphone processor market.
Intel played a pivotal role in the personal computer revolution of the 1990s, dominating the market with its advanced x86 processors, leaving competitors like AMD struggling to catch up.
However, Intel's story began to take a different turn at the beginning of the new millennium. While the world was witnessing a huge boom in mobile devices led by the iPhone, the company was busy strengthening its position in the computer market, and this excessive focus on one market cost it a lot.
In a 2013 interview with Paul Otellini , former CEO of Intel, he expressed regret for turning down a deal to collaborate with Apple to design and manufacture the iPhone's processors before the phone was first released in 2007, and asserted that this decision was based on incorrect expectations about market size and production costs.
The losses did not stop there. In recent years, Intel failed to capitalize on the generative AI boom, when it had a golden opportunity seven years ago to invest in OpenAI , which was looking for alternatives to Nvidia's AI chips to build its own infrastructure. Intel's management rejected the offer because of its skepticism about the potential of generative AI. Within a few years, OpenAI became one of the most important companies in the field of artificial intelligence, backed by huge funding from Microsoft.
Moreover, the company has struggled to develop its own AI chips, despite acquiring startups specializing in the field.
Third, why did Intel abandon the development of graphics processing units?
One of the main reasons for Intel's decline is arguably its heavy focus on CPUs and its neglect of GPUs. While companies like Nvidia and AMD were investing heavily in developing GPUs that are important for gaming, AI and machine learning models, Intel was falling behind.
For more than two decades, Intel has believed that its traditional CPUs, used in desktop and laptop computers, were sufficient to meet the growing needs of artificial intelligence, according to several former company executives who had direct knowledge of the company’s plans.
Intel engineers have pointed out that the video game chip architecture for the GPU — used by rivals Nvidia and AMD — lacks the engineering quality they aspire to.
But by the mid-2000s, researchers discovered that gaming chips, or graphics processing units (GPUs), outperformed traditional CPUs at handling the massive computational loads required to build and train complex AI models. This is because GPUs can perform many calculations at once, a key advantage in the world of 3D graphics.
NVIDIA engineers have spent years since then tweaking and evolving GPU architecture to meet the growing demands of AI, and developing specialized software to take full advantage of these capabilities. Intel, meanwhile, has failed to deliver a processor that meets the demands of AI in time for its customers.
Intel had previously made an ambitious attempt to enter the graphics processor market with a project called Larrabee, but this experimental chip failed to achieve the desired performance, so the company decided to cancel its development in 2009 , and shift the efforts spent on the project to developing an alternative software platform.
Commenting on the company’s abandonment of graphics development, Brian Catanzaro, vice president of applied deep learning research at Nvidia, who previously worked at Intel as an intern on Project Larrabee, said: “Nvidia’s dominance didn’t come from luck. It came from vision and execution. And Intel lacked that.”
Fourth, declining manufacturing capabilities and increasing competition:
Rising costs and a desire for maximum efficiency have prompted many of Intel's customers and competitors to move chip manufacturing operations outside the United States. Companies such as AMD and Nvidia have adopted advanced chip designs and outsourced manufacturing to Taiwanese chipmaker TSMC.
At the same time, Intel has suffered a significant decline in its manufacturing capabilities, which has led to its delay in manufacturing chips with a precision of 7 nanometers , while companies such as TSMC and Samsung have made significant progress in the field of manufacturing, as TSMC has been able to develop manufacturing processes and reduce the size of transistors significantly, reaching a precision of 7 nanometers in 2020 and a precision of 3 nanometers in 2022. This progress has allowed them to manufacture more powerful and efficient chips, which has increased the gap between them and Intel.
Furthermore, Apple abandoned Intel after relying on its processors for 15 years in MacBook devices, as Apple decided in 2020 to move to its own M1 processors, which it designed and contracted with TSMC to manufacture. This strategic shift by Apple, one of Intel’s largest customers, showed the extent to which companies rely on alternative manufacturing sources and the importance of technological progress in this field.
Fifth: Intel and US National Security:
For more than half a century, Intel has been a symbol of American technological superiority, shouldering the responsibility of maintaining the United States’ position as a leading power in the chip industry. Intel’s fate is therefore closely tied to American national security, especially in light of the increasing competition with other global powers.
President Joe Biden made the point during his tour of Arizona in March, announcing that the company had received $8.5 billion in funding under the CHIPS and Science Act , and last week Biden gave Intel another $3 billion through the same law.
Analysts point out that this support reflects the US government's awareness of the importance of Intel in maintaining its technological leadership.
Sixth, the acquisition of Intel:
Multiple news reports over the past few days have suggested that Intel could be on the brink of a massive acquisition. According to Reuters and the Wall Street Journal , Qualcomm, a mobile processor company, has expressed interest in buying Intel's chip design business and has made a merger offer.
Bloomberg also reported that Apollo Global Management has made an offer to invest in Intel worth $5 billion.
If Qualcomm succeeds, its acquisition of Intel would likely be the largest in Silicon Valley history, but chip industry analysts say it would also raise antitrust scrutiny and enforcement challenges in the current political environment.
Qualcomm was founded in 1985, 39 years ago, and since then, it has grown into a company worth more than $188 billion, specializing in areas such as: wireless networking, smartphone processors, and modems.
Intel’s recent troubles have apparently given Qualcomm reason to consider acquiring a company that has lost more than half its value this year. Analysts say that a takeover of Intel by a company like Qualcomm or Broadcom would have far-reaching implications for the global chip industry. On the one hand, such a merger could help cement the United States’ position as a global center for chip manufacturing, a goal pursued by the Biden administration.
On the other hand, this merger may create a huge entity capable of pulling the rug out from under competing American companies such as Nvidia, which will raise antitrust scrutiny.
“A company like Qualcomm acquiring Intel would be a huge, complex deal, and may not be economically justified, as Qualcomm would face significant challenges managing Intel’s diverse businesses,” said Dan Morgan , a senior portfolio manager at Synovus Financial Services.
Analysts also stressed that a sale to a foreign company is not a viable political situation due to US national security concerns related to the supply chain.
Seventh, what is the current status of Intel?
Intel is currently restructuring its operations and adopting a new strategy, as the company is currently focusing on developing the (18A) chip and (Xeon) data center processors, and has announced additional plans to save costs, including suspending plans to build two factories for it, in addition to converting its chip manufacturing business into an independent company with its own board of directors and the possibility of attracting external investment.
Intel is at a pivotal moment in its history, as market and political forces battle to determine its future. Will Intel accept the takeover offer, or will it seek to restructure itself independently? The answer to that question will shape the semiconductor market for years to come.