Speaker 1: Bloomberg Audio Studios, podcasts, radio news. It's hard to overstate
Speaker 1: the historic importance of Intel to the US technology industry.
Speaker 2: What lets you learn about the world.
Speaker 3: In a whole new way The Intel Pentium processor.
Speaker 1: After it was founded in nineteen sixty eight, Intel pioneered
Speaker 1: the chips that made modern computing possible, and for decades
Speaker 1: the company was one of the crown jewels of Silicon.
Speaker 3: Valley the Intel Pendium processor.
Speaker 1: But in the last decade Intel has lost its technological
Speaker 1: lead and huge amounts of market share. At the start
Speaker 1: of twenty twenty, Intel had a market cap close to
Speaker 1: two hundred and fifty billion dollars, more than twice that
Speaker 1: of Nvidia. As of this week, Intel's cap was below
Speaker 1: one hundred billion dollars and in Vidia's was thirty eight
Speaker 1: times bigger. As Bloomberg, ce And King says, Intel is
Speaker 1: at a crossroads.
Speaker 3: This is a company that I think is symbolic of
Speaker 3: so many things are important to one country, in one industry,
Speaker 3: but suddenly they just can't do it.
Speaker 1: In December, Intel CEO Pat Gelsinger was forced out after
Speaker 1: a disastrous year.
Speaker 2: Breaking news. Intel the stock so far this year down
Speaker 2: by more than fifty percent. This headline will not be
Speaker 2: a surprise. Intel announcing the retirement of the CEO, Pakausinker.
Speaker 2: The board has formed a search committee for his successor.
Speaker 1: He had been considered by many to be Intel's best
Speaker 1: hope to get the company back to the pinnacle of
Speaker 1: the chip business. But now some in the tech industry
Speaker 1: you're asking, is Intel at risk of disappearing entirely? I'm
Speaker 1: David Gerra, and this is the big take from Bloomberg
Speaker 1: News Today on the show The Rise and Fall of
Speaker 1: Intel with Bloomberg Tech reporter Ian King, who's covered the
Speaker 1: company for decades, a clear eyed look at the challenges
Speaker 1: Intel faces, what it would mean if Intel went away? Ian,
Speaker 1: what was the innovation that really made this company take
Speaker 1: off at the beginning?
Speaker 3: Remarkably for an important company that's been dominant for so long,
Speaker 3: they've actually had more than one life. They started off
Speaker 3: in computer memory. They saw that, hey, we need fast
Speaker 3: computer memory. So that was their first big breakthrough and
Speaker 3: they really kind of revolutionized and made that, you know,
Speaker 3: an industry. Then the PC came along right at the
Speaker 3: beginning of the eighties.
Speaker 1: The IBM personal computer. Not only can it help you
Speaker 1: plan ahead, it'll balance your books and give you more
Speaker 1: time to make.
Speaker 3: Do Intel was the brains of that. Pc IBM chose
Speaker 3: an Intel part to be the new guts of this
Speaker 3: thing that was really going to change basically modern life
Speaker 3: in so many different ways. In Intel were there right
Speaker 3: at the bidding and and of that and saw this
Speaker 3: particular type of product, the microprocessor, was going to be
Speaker 3: a huge deal, and then did it was.
Speaker 1: As Intel grew, it maintained its advantage by being the
Speaker 1: best at making the semiconductor components on a computer chip
Speaker 1: smaller and smaller each one. Was a technological marvel that
Speaker 1: for decades left Intel's competitors scrambling to keep up.
Speaker 3: Semiconductors are basically tiny electronic switches known as transistors. Those
Speaker 3: transistors are either on or they're off. It's either a
Speaker 3: one or a zero, and that is the basic unit
Speaker 3: of storage of information in the electronic world. The way
Speaker 3: that you put more transistors on a chip is to
Speaker 3: shrink the line width on those transistors. Now, a modern
Speaker 3: in video chip has literally hundreds of billions of these
Speaker 3: transistors on something that's not much bigger than your thumbnail,
Speaker 3: and that has an incredible feat from where we started
Speaker 3: off when these guys started the company.
Speaker 1: Ian says much of Intel's initial success came down to
Speaker 1: how its founders and early CEOs ran the company. People
Speaker 1: like Gordon Moore and Robert Noyce who started it, and
Speaker 1: Andy Grove, who eventually became its chief executive. They worked
Speaker 1: hard to develop a company culture that helped Intel maintain
Speaker 1: a formidable scientific and commercial lead.
Speaker 3: Frankly, all of the structures of come into being that
Speaker 3: determine how the industry and tech in general work largely
Speaker 3: stemmed from a lot of the observation, a lot of
Speaker 3: practices that these guys put in place a lot time ago.
Speaker 1: They were path breakers, pioneers. How did they corner the
Speaker 1: market so effectively? And after it took off and there
Speaker 1: was this kind of broader awareness that chips were going
Speaker 1: to be important, why was it so difficult for other
Speaker 1: companies to give Intel a run for its money?
Speaker 3: Look, design an extremely hard work, but I think fundamentally
Speaker 3: that the understanding of vlume economics and the understanding of
Speaker 3: the brutality of the industry in that you have to
Speaker 3: make enormous bets. Right now, a chip plant costs twenty
Speaker 3: billion dollars, probably more you have to run that twenty
Speaker 3: four to seven because guess what, in five years it's
Speaker 3: going to be obsolete. Right, So there's a tremendous upfront
Speaker 3: capital cost. So one of the things that they understood
Speaker 3: was the economics. They also understood marketing.
Speaker 1: That's the Pentium processor from Intel, the computer.
Speaker 3: Inside Intel inside. Everybody knows what Intel inside is. I mean,
Speaker 3: this is a component company, right that made its brand
Speaker 3: one of the biggest in the world. They made consumers
Speaker 3: associate quality in computers, not with Dell, not with HP,
Speaker 3: not with any other computer manufacturer, book with Intel, with
Speaker 3: the components that nobody ever saw.
Speaker 1: So Intel had the best marketing, the best chip design,
Speaker 1: and the best manufacturing. But as Ian says, it was
Speaker 1: a less tangible factor that kept Intel on top for
Speaker 1: its first few decades, the notorious discipline that Andy Grove
Speaker 1: put in place.
Speaker 3: He established a culture in that company, you know, the
Speaker 3: famous only the paranoid survived, But lots of other things
Speaker 3: that he instilled were basically designed to keep Intel on
Speaker 3: the edge of its seat, to make sure they never
Speaker 3: got happy, flat and lazy. Things like constructive confrontation, the
Speaker 3: idea that you're in a meeting, you hear something, it
Speaker 3: doesn't matter who you are, you call it out if
Speaker 3: you think it's wrong. The idea that if you're a leader,
Speaker 3: you listen right, you take action. He made people sign
Speaker 3: in at a am every morning because he didn't want
Speaker 3: the semiconductor industry to be this happy, go looky science project.
Speaker 3: He wanted it to be a real business. So that
Speaker 3: kind of rigorous culture was definitely a conscious effort.
Speaker 1: But at the same time that Intel was riding high,
Speaker 1: a company called Taiwan Semiconductor Manufacturing Company TSMC was founded.
Speaker 1: Intel designs and manufactures its chips. TSMC made its big
Speaker 1: bet on manufacturing chips that other firms designed well. That
Speaker 1: model created an opportu twunity for companies like Nvidia. They
Speaker 1: could design and sell their own chips and compete directly
Speaker 1: with Intel without having to invest in production.
Speaker 3: TSMC created a new sector of the industry, one that
Speaker 3: Intel frankly laughed at publicly, and many others agreed with
Speaker 3: Intel the idea that you could outsource the core amount
Speaker 3: of production, that the idea of decoupling completely the design
Speaker 3: process from the manufacturing process was possible and made sense.
Speaker 3: Intel laughed at that. TSMC said no, no, this is
Speaker 3: the way of the future. And guess what, TSMC were
Speaker 3: right and they have enabled many of Intel's perstwhile weakling
Speaker 3: competitors to be just as good as Intel, if not better.
Speaker 1: When we come back, how Intel started to lose its
Speaker 1: competitive edge just as AI came onto the scene and
Speaker 1: the hopes it placed in a new chief executive to
Speaker 1: turn things around. By the turn of the millennium, Intel
Speaker 1: was at the top of its game and an undisputed
Speaker 1: leader in the computing industry. The company dominated the chip market,
Speaker 1: both for PCs and data centers, but then in the
Speaker 1: two thousands, its dominance started to slip. When Steve Jobs
Speaker 1: began to scout chips for the iPhone, he thought Intel's
Speaker 1: chips were too expensive, so those first orders went to
Speaker 1: a rival, Samsung. Then in the twenty tens, the technical
Speaker 1: momentum that Intel had built, its ability to make the
Speaker 1: components on its chips smaller and smaller, well, that started
Speaker 1: to falter and it opened the door to competitors like Nvidia.
Speaker 3: Intel had promised that it was going to bring this,
Speaker 3: you know, the next generation of its process technology in
Speaker 3: in twenty fifteen light clockwork like we're going to be
Speaker 3: here We're going to make that advance and it didn't happen.
Speaker 3: It didn't happen, and then people were like, well where
Speaker 3: is it? And there were lots of conference calls. Well,
Speaker 3: don't worry, it's coming, it's coming. Twenty fifteen rolls past,
Speaker 3: this new technology doesn't emerge. Two and nineteen comes along
Speaker 3: and we still not got it. At this point, the
Speaker 3: numbers are still great. Intel's still making money hand over fist.
Speaker 3: But guess what the next big thing is four years
Speaker 3: too late? This is not Intel, This is not who
Speaker 3: they are when it comes to AI.
Speaker 1: Was Intel naive to what the demands would be for
Speaker 1: chips that could do the kind of computation that is necessary?
Speaker 1: Did they just fail to embrace it? Did they fail
Speaker 1: to understand the seriousness of it? Did they not see
Speaker 1: that that was the direction which things were going? So
Speaker 1: what explains the edge that Nvidia has today?
Speaker 3: Intel had no excuse for not seeing this coming. So
Speaker 3: what happened? Right? It's really hard and I think dangerous
Speaker 3: to place the blame or the root cause of any
Speaker 3: one massive issue we have at the feet of one person.
Speaker 3: But guess what a lot of people blame. Brian Krasanich
Speaker 3: the former CEO for having created the situation that has
Speaker 3: led to the current impasse.
Speaker 1: Let me tease that out a little bit more so,
Speaker 1: if that's the case that they're making, is what is
Speaker 1: the direct criticism? What do they think that he failed
Speaker 1: to do well?
Speaker 3: Our reporting shows Krisanitch comes in in twenty thirteen as
Speaker 3: supposedly the joint sort of leader of this company with
Speaker 3: a woman called Rene James, who was also a long
Speaker 3: term Intel person. His pitch publicly was like, yeah, we're
Speaker 3: going to embrace all of these new markets. We're going
Speaker 3: to just run towards whatever we can and not be
Speaker 3: you know, snobs and dominant. What happened behind the scenes
Speaker 3: was he was banging his fist on the table, telling
Speaker 3: people that they were stupid people who were pointing out
Speaker 3: to him that hey, we need to embrace this new
Speaker 3: kind of technology and manufacturing or else we're going to
Speaker 3: lose our edge. And a lot of the people that
Speaker 3: Intel had sort of brought up in this established management
Speaker 3: program that they have to create these strong leaders not
Speaker 3: just at the very top but across had left had
Speaker 3: just said I can't deal with this anymore. I'm out
Speaker 3: of here. So that, according to our reporting is what
Speaker 3: went wrong, and that is what led to the situation
Speaker 3: that they are in now.
Speaker 1: In twenty twenty one, Intel hires Pat Gelsinger to turn
Speaker 1: the company around. Tell us a bit about who he
Speaker 1: was and why he was an attractive candidate to run
Speaker 1: the company.
Speaker 3: There is nobody more Intel than Pat Gelsinger was and
Speaker 3: still is. He was a personal alcolyte of Andy Grove.
Speaker 3: He joined the company as a teenager, went to technical college,
Speaker 3: then went to university to get the kind of degrees
Speaker 3: that were necessary for Intel for working at Intel. Started
Speaker 3: off in kind of low level engineering jobs and worked
Speaker 3: his way up. He was the first ever CTO at Intel.
Speaker 3: He was the kind of point person for all of
Speaker 3: their presentations. He was the evangelist for their technology. You know,
Speaker 3: he loved Intel. Then it got to the twenty tens
Speaker 3: and part of the decision making process for who was
Speaker 3: going to lead the company. According to Pat Glsinger, he
Speaker 3: went to the then chairman, Andy Brien and said, Hey,
Speaker 3: I've got a shot here. Got told no, you don't,
Speaker 3: and took his business elsewhere. I became the CEO of VMware.
Speaker 3: Fast forward to twenty twenty one, when by this point
Speaker 3: the finances are starting to creak, the products aren't flying
Speaker 3: off the shelves anymore. The company needs somebody who was
Speaker 3: going to come back and embrace its culture and revitalize
Speaker 3: it and be on the mountaintop saying we need to
Speaker 3: be back to the old Intel. And you know, he's
Speaker 3: the ideal person, and they brought him back.
Speaker 1: Then when did it become clear that the board and
Speaker 1: investors were growing impatient with him and his plan for
Speaker 1: turning it around.
Speaker 3: I mean, there are a couple of ways to look
Speaker 3: at this. It takes a year maybe more to design
Speaker 3: a chip, to bring it to market, to get it
Speaker 3: through the manufacturing process. I mean, the finances were clearly
Speaker 3: getting worse. You know, Intel became a loss making company.
Speaker 3: To his credit, he said this was going to happen,
Speaker 3: and people just didn't listen. He said it was going
Speaker 3: to take five years. They didn't give him five years, right.
Speaker 3: He said, leadership won't come easy, it'll be expensive, it'll
Speaker 3: cost us a lot of money. And so there was
Speaker 3: became a situation where there was a disconnect where they
Speaker 3: felt that he'd lost kind of touch with the reality
Speaker 3: of the moment, that maybe the message he was selling
Speaker 3: wasn't connected to the reality that wall Street was seeing.
Speaker 3: Maybe the message he was selling was necessary internally to
Speaker 3: rally the troops. Maybe it was necessary for Washington to
Speaker 3: rally the government behind his efforts for the Chips Act
Speaker 3: and give him money. But that wasn't the right message
Speaker 3: for wall Street. And that was where the disconnect came in.
Speaker 3: And obviously the share price went through some disastrous one
Speaker 3: day performances, which was very difficult for a board to
Speaker 3: sit there and look at.
Speaker 1: You mentioned the Chips Act. This was legislation passed to
Speaker 1: sort of ensure that the US would always have access
Speaker 1: to semiconductors. And I know that Intel has benefited from
Speaker 1: from some of that money, from some of that funding.
Speaker 1: How helpful has it been to to Intel's fortunes And.
Speaker 3: It hasn't yet. It's a lot of money for you
Speaker 3: and me, but it's not even half the price of
Speaker 3: one factory, right. It's the way to look at it
Speaker 3: is that it makes the costs of building factories, of
Speaker 3: building leading edge facilities in the United States comparable to
Speaker 3: building them in say South Korea or Taiwan or China
Speaker 3: for that matter. It's basically reducing the costs of setup,
Speaker 3: it's not paying for anything. So far, it's helped Intel
Speaker 3: a little bit, but not really.
Speaker 1: Then at the end of last year, Pat Gelsinger resigned.
Speaker 1: Bloomberg reported that Intel's board told Gelsinger he was being replaced,
Speaker 1: and Gelsinger decided to step down immediately. The company is
Speaker 1: currently being led by two interim CEOs while Intel tries
Speaker 1: to find a replacement. On their fourth quarter earnings call
Speaker 1: the end of January, Michelle Johnston Holthouse, one of those
Speaker 1: two interim code chiefs, said there were no quick fixes,
Speaker 1: that they were dedicated to rebuilding Intel's credibility and making
Speaker 1: the company's business simpler and leaner. While the search for
Speaker 1: a permanent CEO continues, what.
Speaker 3: We can say from the outside is that who they
Speaker 3: put in place, the type of person that they choose,
Speaker 3: will really tell us almost instantly what the board has
Speaker 3: in mind for the future of Intel. And the biggest
Speaker 3: I think question mark there is whether Intel actually continues
Speaker 3: as Intel, whether it is still this company that designs
Speaker 3: and manufactures chips, that sells chips, and also operates this
Speaker 3: massive factory network. Right now, Wall Street and the bankers
Speaker 3: are betting that that will not be the case, That
Speaker 3: the company will be split up.
Speaker 1: Just wrapping up here, is there a real risk today
Speaker 1: that Intel as we know it, as we have known
Speaker 1: it could disappear?
Speaker 3: You have to say that there is absolutely a risk
Speaker 3: that Intel as we know it will cease to exist,
Speaker 3: that might not be here at the end of the year.
Speaker 1: So we should see that if it happens as much
Speaker 1: more than just a symbolic loss.
Speaker 3: It'll be hard to see it as anything other than
Speaker 3: an enormous blow to national prestige, to the capabilities that
Speaker 3: this country has to lead a crucial industry, and there'll
Speaker 3: be lots of questions about who will carry that torch
Speaker 3: going forward. This is a company that I think is
Speaker 3: symbolic of so many things that are important to one
Speaker 3: country and one industry, but suddenly just can't do it.
Speaker 3: I've spoken to some of Intel's bitterest enemies, to executives
Speaker 3: at companies who've suffered for years at the hands of Intel,
Speaker 3: have frankly hated Intel, who say openly we cannot as
Speaker 3: an industry afford to have Intel failed. We need to
Speaker 3: have Intel back, And it's just it's been remarkable to
Speaker 3: see that.
Speaker 1: This is the big take from Bloomberg News I'm David Gurat.
Speaker 1: This episode is produced by Alex tie. It was edited
Speaker 1: by Aaron Edwards, Patty Hirsch, and Gillian Ward. It was
Speaker 1: fact checked by andrean Atapia and mixed and sound designed
Speaker 1: by Alex Sagura. Our senior producer is Naomi Shaven. Our
Speaker 1: senior editor is Elizabeth Ponso. Our executive producer is Nicole
Speaker 1: Beamster Boor Sage Bauman is Bloomberg's head of podcasts. If
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