san francisco The US chip group Intel has recorded the largest quarterly loss in the company’s history. In the first three months of this year, the company made a minus of 2.8 billion dollars, as the group announced on Thursday. During the same period, sales fell 36 percent to $11.7 billion.
CEO Pat Gelsinker tried his hand at damage control. Under his leadership, the company’s expenses would be greatly reduced, he promised. “We are on track to achieve our goal of reducing costs by $3 billion by 2023 and achieving annual savings of $8 billion to $10 billion beginning in 2025,” he said.
Among other things, the computer business, which is important for Intel, imploded. Sales by PC manufacturers in general fell by 29 percent year-on-year, according to market researcher IDC. However, Intel’s PC division even reported a drop in sales by 38 percent to $5.8 billion. Overall, however, analysts had expected even worse data. Sales and losses were not quite as dramatic as feared. Intel’s stock rose more than 5 percent in after-hours trading.
Intel as the architect of Silicon Valley
Intel was a US model company for decades. Its founders Gordon Moore and Robert Noyce became pioneers on the US west coast. Their success laid the foundation for the emergence of Silicon Valley. Moore formulated the famous Moore’s Law, which predicted rapid growth in chip performance while prices fell.
Moore and Noyce early anticipated the advent of microprocessors for computers. Their chips made today’s IT industry possible. The slogan “Intel Inside” became synonymous with powerful computer chips.
The chip manufacturer is increasingly in trouble.
(Photo: imago images/imagebroker)
Unlike many of its competitors, Intel not only developed chips, but also produced them itself. The company has invested billions in setting up chip factories in the USA, Asia and Europe. However, the contract manufacturer TSMC from Taiwan made Intel increasingly competitive.
A few years ago, TSMC began to significantly overtake Intel in production capabilities. Today TSMC produces the most powerful chips in the world, while Intel has had to postpone the introduction of improved production mechanisms several times.
The iPhone fiasco
Intel is also taking revenge on a dramatic wrong decision. The company had refused to produce chips for the iPhone. When the first devices were introduced in 2007, Intel did not want to accept Apple’s requirements. Apple founder Steve Jobs therefore initially relied on Samsung and later on TSMC as a partner. TSMC is now the manufacturer of the powerful chips that Apple builds into its devices. Intel lost a billion dollar business.
Apple is already taking the next step. Initially, the company optimized its chips for use in mobile devices such as smartphones or tablets. Today, the semiconductors are so powerful that Apple also uses them in computers. So far, these chips have been reserved for Apple’s own Macs. Industry experts are now speculating whether Apple could also offer the chips for PCs in the future. Intel could be attacked in its most important market.
US government sees chip manufacturing as a key industry
However, the success of chip companies no longer depends solely on the quality of their products in the market. Both China and the USA have defined chip manufacturing as a key industry. Powerful computer chips are important for the weapons industry, among other things. Intel had worked closely with the US Department of Defense since the company was founded.
The US President has launched a $53 billion program to build and expand chip manufacturing in the United States.
(Photo: imago images/UPI Photo)
The US government around Joe Biden has launched a multi-billion dollar subsidy program. The $53 billion program supports companies to build and expand chip manufacturing in the United States. Intel wants to benefit from it. But TSMC had also announced that it would set up a $40 billion manufacturing facility in the US state of Arizona.
Biden visited the TSMC construction site in Phoenix, Arizona in December. “American manufacturing is back,” Biden said. Apple boss Tim Cook announced that his company would use chips from Arizona in the future. “Thanks to the hard work of so many people, these chips can proudly bear the ‘Made in America’ stamp,” said Cook. “This is an incredibly important moment.”
“Apple had to source all of the advanced chips overseas, now they’re going to bring more of their supply chain inland,” Biden said. “This could be a turning point.”
Magdeburg stands for new Intel strategy
US government subsidies may not be enough to save Intel economically. CEO Gelsinger wants to fundamentally change the focus of the company in order to make Intel profitable again. Among other things, his strategy includes making Intel a contract manufacturer. The chip company should not only manufacture chips it has developed itself, but also produce semiconductors for other companies as a contractor. Gelsinger announced that Intel will not make any distinction between internal and external orders in production in the future: “We will help to create equality between internal and external customers.”
To this end, the CEO wants to invest billions in the modernization of existing factories and the construction of new production facilities. Among other things, Germany should benefit from this, with a new chip production near Magdeburg.
>>> Read here: Europe wants to become a leader again in semiconductors
However, it is unclear whether other chip companies will get involved with Intel as a manufacturer, since many of them are direct competitors of Intel. To avoid such conflicts, TSMC had always promised to only manufacture to order and not to develop any chips themselves.
Similar to the USA, Europe and Germany also want to support the expansion of chip production with subsidies. At the moment, however, there is still a dispute about how much money Intel pays for the production in Magdeburg and how much goes through subsidies. The plant is expected to cost 17 billion euros. Intel announced: “The prerequisite for the construction project is the approval of grants from the EU Commission and the German authorities.”
A delegation from Saxony-Anhalt traveled to Silicon Valley last week to promote Intel’s Magdeburg plant, among other things. Gelsinger greeted Economics Minister Sven Schulze (CDU) with a “high-five” handshake. Schulze then said: “We as a state, in close cooperation with the municipalities, will continue to carry out all the tasks required for the success of the project.”
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