Intel's Turnaround Strategy: Overcoming Recent Setbacks

Reasons for Intel's Recent Setbacks

Intel's recent setbacks stem from underperformance in quarterly results, necessitating an internal review and accelerated changes. Structural reorganization, costly ramp-ups of new facilities, and a shift in wafer capacity have also impacted profitability. Additionally, Intel Foundry's failure to break even in 2023 significantly affected earnings.

"I'm having each of the four business areas, client, networking, and data center, look at their own portfolios, even though those are the right product areas for us for the future, and similarly, the portfolio of our Intel Foundry business and that's the work that we've now been undertaking and we're now accelerating based on the less than expected quarterly results, we're accelerating those impacts. We're going to drive that in the second half of this year." --- (INTC, earning call, 2024/Q2)

"And importantly, to really accelerate this and make this both internally clear, but also externally clear, we've gone down the path of really creating 3 entities inside Intel." --- (INTC, conference, 2024/06/12)

"If you look at the point between now and breakeven, I would sort of make the argument that it's even less dependent on demand growth and consumption growth because really what we're counting on is a mix shift in our wafer capacity from uneconomical Intel 7 to very economical Intel 18A and the ability to pull tiles back in independent of what PC unit growth does." --- (INTC, conference, 2024/05/30)

"The continued ramp of our Intel 4 and Intel 3 Ireland facility and elevated R&D and start-up costs to support the rapid progression of our leading-edge technology development will also weigh on profitability. Mobileye revenue of $440 million improved 84% sequentially due to non-recurrence of the significant inventory drawdown that occurred in Q1." --- (INTC, earning call, 2024/Q2)

"Had Intel Foundry been breakeven in 2023, we would have added more than $1.40 to EPS, more than doubling our reported EPS for last year. As we move from breakeven to our 2,030 target, the buckets don't change, but we do get the added benefit of incremental efficiencies that drive capital avoidance today, but take time to show up in the P and L. To help drive this process, we hired Lorenzo Flores as CFO of Intel." --- (INTC, event transcript, 2024/04/02)

Leadership Changes and Management Strategies

Intel's leadership changes and management strategies focus on financial discipline, maintaining core investments, and advancing process technology. Strategic shifts towards leadership manufacturing nodes and cost-reduction initiatives aim to enhance operational efficiency and profitability, reinforcing Intel's commitment to innovation and sustainable growth.

"And hence, the real focus around financial discipline, financial leadership, and I think we spend a lot of time as a management team and communicating all the work that we're doing to get to that." --- (INTC, conference, 2024/06/12)

"Maintaining Core Investments to Execute Strategy: The company continues to advance its long-term innovation and path to leadership across process technology and products, and the increased efficiency from its actions is expected to further support its execution." --- (INTC, press release, 2024/08/01)

"Beyond 2024, as volume begins to shift toward leadership manufacturing nodes with a competitive cost structure, scale improves, including the return of compute tiles to internal process nodes and our efficiency actions begin to flow-through the P&L, we expect to see rapid profitability improvement." --- (INTC, earning call, 2024/Q1)

"Cost-Reduction Plan As Intel nears the completion of rebuilding a sustainable engine of process technology leadership, it announced a series of initiatives to create a sustainable financial engine that accelerates profitable growth, enables further operational efficiency and agility, and creates capacity for ongoing strategic investment in technology and manufacturing leadership." --- (INTC, press release, 2024/08/01)

"There's the first half of the company, which is really our product operations, and we needed that to be excellent and we felt that it was very clear that our product leadership had waned and that we needed a and in some ways had been in some times has been helped by our process leadership or technology leadership on the manufacturing side and vice versa. And it's also very clear to us that our" --- (INTC, conference, 2024/06/12)

Operational Improvements and Efficiency Measures

Intel is aggressively adjusting 2025 spending to achieve profitability and positive cash flow, leveraging a new operating model. They are improving capital efficiency with their EUV fleet and node advancements, and building on their Xeon base to enhance performance and efficiency, aiming for superior performance while maintaining efficiency.

"recovered as expected and we're obviously not satisfied with our results. We're responding by aggressively adjusting 2025 spending to achieve profitability and positive adjusted free cash flow that is commensurate with the current market conditions, while continuing to invest in and execute our strategy. In addition to these near-term actions, we're also seeing meaningful opportunities to improve financial results, leveraging our new operating model." --- (INTC, earning call, 2024/Q2)

"from this work for decades to come. Capital offsets provide a powerful tool to address the geo gaps, but also improved capital efficiency. As we move past 5 nodes in 4 years, as our EUV fleet is operational, we expect a more normal capital cadence." --- (INTC, event transcript, 2024/04/02)

"This unique approach enables Intel to deliver superior performance while maintaining efficiency." --- (INTC, press release, 2024/06/26)

"We have a strong foundation of which to build, including the more than 130 million Xeon powering data centers around the world today, and our roadmap is designed to build upon this vast installed base to deliver greater performance and efficiency, enable AI solutions that are open, flexible, and scalable and reduce total cost of ownership for customers." --- (INTC, earning call, 2024/Q2)

"Forward-looking demand signals in our core markets improved at a measured pace through the first-quarter and we expect to deliver full-year revenue and EPS growth in 2024 with the pace of revenue growth accelerating in the second-half." --- (INTC, earning call, 2024/Q1)

Strategic Partnerships and Collaborations

Intel's strategic partnerships and collaborations are pivotal to its turnaround strategy, focusing on AI services, next-generation technology, and sustainable investments. Collaborations with industry leaders and financial partners are enabling Intel to innovate and maintain financial strength, while product launches like Meteor Lake and Lunar Lake highlight successful partnerships.

"Through strategic collaborations with industry partners and customers, Intel is creating new opportunities for AI services driven by GenAI and RAG solutions." --- (INTC, press release, 2024/07/18)

"It also underscores our role as a trusted financing partner, leveraging private capital to help build the New Economy, including next generation AI technology which will require major investments in sustainable power generation, data centers, foundries and semiconductor capabilities." --- (INTC, press release, 2024/06/04)

"And then the third thing I would kind of point out as a relatively big accomplishment is everything we've done around Smart Capital to make sure that we can invest in the strategy in a way that is strategic and yet I think is beneficial to our owners' capital." --- (INTC, conference, 2024/05/30)

"sources of capital, tapping financial partners to maintain the strength of our balance sheet yet still be able to execute and accelerate on the strategy." --- (INTC, conference, 2024/06/04)

"Thank you so much for the partnership. Thank you, Satya. And as we've launched the core Ultra with Meteor Lake and also introduced this next generation of chiplet based design, and Lunar Lake is the next step forward and I'm happy to announce it today." --- (INTC, conference, 2024/06/04)

Intel's Competitive Positioning and Market Strategy

Intel is enhancing its competitive positioning through improved product offerings in servers and AI, regaining process technology leadership with Intel 18A, and stabilizing market share with Intel 3 foundry. Their strategic pricing and capacity commitments further bolster their market strategy.

"So overall we feel like we're on a solid trajectory into a market that even though it's been dominated by the GenAI theme as enterprises, our OEMs and ODMs are communicating, there's growth here in servers and we now have a much better product position, improving ASPs and a better overall positioning in AI for a lot of these use cases where it's Xeon, CPU plus GPU and accelerator." --- (INTC, earning call, 2024/Q1)

"We also introduce A16 as our next nanosheet-based technology, featuring Super Power Rail, or SPR, as a separate offering. TSMC's SPR is an innovative, best-in-class backside power delivery solution that is forcing the industry to incorporate another backside contact scheme to preserve gate density and device with flexibility." --- (TSMC, earning call, 2024/Q2)

""These actions, combined with the launch of Intel 18A next year to regain process technology leadership, will strengthen our position in the market, improve our profitability and create shareholder value."" --- (INTC, press release, 2024/08/01)

"So this is gonna start stabilizing our market share position. Also, the Intel 3 from a foundry perspective has much better margins and competitiveness associated with it." --- (INTC, event transcript, 2024/04/02)

"We said we're pricing our wafers with competitive Intel product. And clearly, the revenues, the volumes, the factory builds, this is essentially a capacity corridor commitment and conversation that we're having between Intel products and Intel Foundry." --- (INTC, event transcript, 2024/04/02)

Financial Performance and Impact of Turnaround Efforts

Intel's turnaround strategy is showing positive signs, with expectations of improved financial performance due to restructuring and new operating models. The joint venture with Apollo and other strategic actions are anticipated to accelerate progress, with financial metrics already exceeding guidance.

"Forward-Looking Statements This release contains forward-looking statements regarding the Intel's expectations regarding the agreement with Apollo, including with respect to the impact on its business and strategy and financial condition, its ability to unlock and redeploy a portion of its investment in Fab 34, the anticipated closing and implications of the transaction, the future impact to its results of operations, its expectations as to the cost of capital and treatment of Apollo's investment in the joint venture as equity-like from a rating perspective, and the build-out and ramping of Fab 34." --- (INTC, press release, 2024/06/04)

"We believe those are long-term still achievable in that regard and we're on track for many of those things in the models that we're laying out and today's actions will help accelerate us achieving those." --- (INTC, earning call, 2024/Q2)

"And then, of course, we've done a lot, as Pat talked about in terms of restructuring the business and those will start to show up next year, but will be even more impactful the following year, including the new operating model." --- (INTC, earning call, 2024/Q2)

"You did seem to be better next year, but it is really whipping around a lot and it looks like you sort of have to exit this year at 48 or maybe a little higher, which is already well-above the 45.5 that you'll be at this year because you're guiding at up 200 basis points." --- (INTC, earning call, 2024/Q1)

Market Reception and Stakeholder Perspectives

Intel's ambitious target of $15 billion in external foundry revenue, representing 10-12% market share, is seen as reasonable. CEO Pat Gelsinger's focus on stakeholder value and capital allocation is highly regarded. Stakeholders are keen to navigate the evolving landscape and explore investment theses, reflecting a cautiously optimistic market reception.

"Even the $15,000,000,000 of external foundry revenue, which seems a little bit ambitious, that would still only be about 10% to 12% of the market from a market share perspective, which we think is a reasonable target for us to go after." --- (INTC, conference, 2024/05/30)

"And so one of the things that I don't think Pat gets nearly enough credit as he deserves is how much time he spends on thinking about stakeholder value and how to create value and capital allocation." --- (INTC, conference, 2024/05/30)

"This will give you an opportunity to share the perspective to share the perspectives on navigating the rapidly evolving landscape and explore investment thesis." --- (INTC, conference, 2024/06/12)