“These are structural issues that will take many many years to fix,” said Hans Mosesmann, managing director at Rosenblatt Securities. “He has a monumental challenge.”
Outgoing CEO Bob Swan is handing over a company still in relatively good financial shape. When Intel reports earnings Thursday, Wall Street analysts expect it will post $75.4 billion in annual revenue for 2020, up almost 5% from the prior year.
But analysts say that may not last as Intel works to engineer a turnaround.
Investors and customers expect Gelsinger to articulate a plan to address Intel’s manufacturing issues. He’ll also have to chart a path for new areas of growth, as analysts say it’s unlikely Intel will ever regain the market dominance it once enjoyed in its core PC business. That kind of pivot may not be easy for a 52-year-old, $72 billion company in the semiconductor industry, where developing a robust tech roadmap can take years.
“I think if they cannot get back on track, the competition now is much stronger than it ever has been, ever,” said Alan Priestley, vice president analyst at Gartner. “So the competition will continue to gain share at Intel’s expense.”
Manufacturing challenges
Intel is known for manufacturing its own chips — a distinction that was seen as a competitive advantage until the company fell off its typical two-year upgrade schedule and began trailing its rivals in producing the most advanced microprocessors.
“They need to figure out whether they can get their technology back on track, or just give up and do what everybody else does and buy from TSMC or other foundries,” said Wayne Lam, senior director of research at CCS Insight. “How much can you fall behind before you say, ‘Okay, well, it’s not worth trying to catch up?'”
Investors were hoping for an update on Intel’s plans related to potential outsourcing during the Thursday earnings, but the company may now wait to announce a strategy until Gelsinger can make the call. Whatever he decides, there is unlikely to be a quick resolution.
“Any manufacturing fixes (such as outsourcing partially to TSMC) are unlikely to produce results until late” 2022 or 2023, or to help improve margins over the next two years, Bank of America analysts wrote in a research note Tuesday.
Changing competitive environment
At the same time, Intel must contend with a changing competitive landscape.
“Apple has done some interesting things in terms of the core design and memory architecture to drive up its performance … [made possible] by doing it itself,” Gartner’s Priestley said. “The challenge with using standard components from a vendor like Intel is you take what Intel provides, or if you want something specific, you have to wait and intercept it on its development cycles.”
While there are already some ARM-based laptops on the market, Apple’s new Macs could be a problem for Intel if they end up becoming a successful proof point for ARM-based chips in PCs.
The move will likely encourage some other PC makers to explore building more ARM-based products to “deliver similar capabilities in the Windows ecosystem to that which Apple is delivering in the Mac OS ecosystem,” Priestley said. However, he added that it could take time for software developers to catch up to the switch to ARM, which could be a backstop for Intel, especially in the enterprise business.
“You have to fix the CPU roadmap within a world that’s making the CPU less relevant,” Rosenblatt’s Mosesmann said. “Everybody else is investing in other areas. You have to innovate in these other areas as well.”
He added: “Intel is a different company going forward, and we’ll have to find out where their key competency is.”
Some experts are hopeful that Gelsinger’s experience running companies reliant on Intel technology will provide important insight as to what customers want and need.
“Pat, at VMware, was a customer of Intel — he knows what businesses are looking for, he knows what applications need more processing, he knows exactly where opportunities are at [the] hardware level,” said Ambuj Kumar, CEO of cloud software firm Fortanix, a customer of Intel. “I’m hoping that he can lead Intel’s product development in that direction.”
