Intel processors power millions of laptops. But the company relied too much on its monopoly and missed out on new developments. Now it is threatened with a massive loss of importance.
“Intel inside” everywhere. But for how much longer? Intel CEO Pat Gelsinger at a trade fair in Taipei, Taiwan, June 4, 2024.
Ann Wang/Reuters
They were the first and for a long time the best: Intel processors. Many laptop users are familiar with the blue sticker with the inscription “Intel inside” on the right under the keyboard. It still adorns millions of laptops today, whether from Dell, HP, Acer or LG.
For decades, the Californian tech company Intel stood for technological progress like no other company. Over 50 years ago, it brought the first commercial microprocessor onto the market, which gave modern computers a breakthrough.
But in recent years the company has been caught up and later overtaken by several competitors. Now Intel has to save money, wants to cut 15,000 jobs and is postponing projects that were supposed to make it competitive again.
While the stock market prices of other tech companies rose and rose in recent months, Intel’s value collapsed. Today, based on its market capitalization, it is still worth half as much as it was at the beginning of the year. And now, at the beginning of the week, various media outlets wrote that competitor Qualcomm was considering a takeover. How can that be? Why is the former icon lying on the ground?
Intel is missing out on the smartphone revolution
With microprocessors for laptops and PCs, Intel gained a monopoly in the 1990s that still exists today. Back then, everyone wanted to work with Intel: Microsoft for their Windows computers, Apple for the first iPhone, the elite university Caltech for their first supercomputer. But today there isn’t much left of it. Intel is the only dominant player in the market for laptop processors.
The decline began with the smartphone revolution. In 2007, Apple launched the iPhone, the first internet-enabled mobile phone to establish itself on the market. Millions of the devices were sold within a few years. There were processors in all of them.
What could have been a tremendous success for Intel became a huge missed opportunity. Apple asked Intel if it wanted to supply the processors for the mobile devices. The then Intel CEO Paul Otellini declined, among other things because he misjudged the market for it and the manufacturing costs.
In any case, Intel’s processors at the time would have been unsuitable for smartphones. To this day, Intel’s computer chips are complex in structure and perform a wide variety of tasks. In their area of application they are more flexible than other chips, but they consume a relatively large amount of energy.
This is a problem with smartphones. Unlike laptops, smartphones are not constantly connected to the power supply. Energy efficiency is therefore much more important for smartphone chips. The British company Arm saw the gap in the market early on and developed a design for a processor that can do less than Intel’s, but uses less power. To date, the processors of most smartphones are based on the Arm design.
Arm was the first competitor to catch up with Intel in the processor business and leave it behind. From then on, the smartphone market was lost for Intel.
Intel is missing out on the GPU revolution
Computer processors can, broadly speaking, be divided into two categories: CPU (Central Processing Unit) and GPU (Graphics Processing Unit). The CPU executes the basic program instructions and therefore long determined how fast a computer was.
Until a few years ago, the GPU was almost only known among gamers: as a processor on which the screen resolution of video games depends. But in recent years, GPUs have become more and more important. This is due to how they work: they are particularly strong at carrying out calculations in parallel, i.e. at the same time. This is needed, for example, when mining cryptocurrencies or training large AI models.
In the years that followed, Intel missed out on another growth industry: data centers for cloud computing. This time Nvidia overtook Intel, currently the biggest beneficiary of the GPU revolution.
Intel’s focus since its inception has been CPU. When Nvidia first grew strongly around 2017 and GPUs began to gain importance, Intel refrained from adjusting its strategy. «Intel completely missed the GPU revolution. “It left the market to Nvidia without a fight,” says Raj Joshi, an expert on the semiconductor market at the rating agency Moody’s.
The two sleepy technology revolutions show that Intel stood still while the competition evolved. Intel rested on its profitable monopoly in laptop processors. “At some point they stopped looking at the customer and reading the market,” says Handel Jones, chip expert at the American consulting firm International Business Strategies.
Intel overestimates its own manufacturing capabilities
In addition, Intel fell behind the competition in chip production. Intel is one of the few companies that both designs and produces chips. Companies that are very successful today either focus on design, like Nvidia or Arm, or on semiconductor manufacturing, like Taiwan Semiconductor Manufacturing Company (TSMC).
In 2015, Intel was the leader in manufacturing. To this day, this is measured by the size of the individual transistors on the chips. The basic rule is: the smaller the transistors, the more of them fit into a chip. And where there are more transistors, more calculations are made. This increases the performance of the end device.
In 2014, Intel became the first company in the world to produce chips with transistors measuring 14 nanometers in size. But then both TSMC and Samsung brought 10-nanometer transistors to market years before Intel. “Intel overestimated its manufacturing capabilities,” says Handel Jones.
The reason: Intel lacked the machines to produce state-of-the-art chips and products were delayed. The technological lead had turned into a lag. And things got even worse.
In order for Intel to continue supplying its customers, it had to outsource production of its most advanced chips to TSMC in 2021. An incredible disgrace. Dan Hutcheson, Intel expert at the analysis platform Techinsights, says: “It’s like owning a car. And instead of driving this one, you rent another one.”
A bet decides Intel’s future
Now Intel’s future depends on whether the company manages to catch up with the competition in manufacturing. TSMC plans to start mass production of chips with 2 nanometer transistors next year. Intel is trying to do this too, but has to skip several development steps to do so.
Chip production as the last hope? Intel employees in front of a machine that produces computer chips.
Intel Corporation / Handout
The plan is as ambitious as it is risky. And it shows the desperation of the company. Why should Intel succeed in something in two years that the competition needed five?
Moody’s analyst Joshi says Intel can turn around, but the company’s financial situation is likely to get worse before it gets better. The risk is great and the cash reserves are limited. “Intel hardly has the financial cushion to absorb further negative surprises.”
Others are more optimistic. Hutcheson believes in Intel’s success, especially because of Qualcomm’s interest in the company. Qualcomm understands Intel’s problems and knows that they can be solved, he says.
Intel is threatened with a shadowy existence
All in all, the outlook for Intel today is still poor. When it comes to smartphone technology, Intel has long since disappeared from the market. When it comes to AI developments, the company has no chance against Nvidia. There are only a few areas in which experts still believe Intel has potential. For example, in processors for high-performance computers or data centers. And of course in the area of chip production, where Intel is currently trying to make a comeback.
But if Intel’s chip production ambitions fail, the company as we know it today will be at an end. The company is likely to continue to exist as long as Microsoft relies on Intel and thus maintains its monopoly on laptop processors. This means that the stickers on the laptops would also be visible for a while. But Intel would no longer be a driver of technological progress, but a shadow of itself.
