Intel Burned $16B Last Year. Can Its New CEO Save the Company? | WSJ — Transcript

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1. 0:00- [Narrator] After nearly 25 years
2. 0:01as the world's largest chipmaker-
3. 0:03- [Representative] This symbol outside
4. 0:05means you have the standard inside.
5. 0:07- [Narrator] Intel is struggling.
6. 0:09Look at the yellow bars on this chart.
7. 0:12That's the company's cash flow.
8. 0:13It burned through almost $16 billion last year.
9. 0:17It's indicative of a big problem
10. 0:19on one side of Intel's business,
11. 0:21chip manufacturing,
12. 0:23but there's a problem with the other side,
13. 0:25chip designing, too.
14. 0:27You can see it in this line,
15. 0:29which shows Intel's market cap,
16. 0:31and it may not look that bad,
17. 0:33but these lines show its competitors.
18. 0:35(inquisitive music)
19. 0:36Now new CEO Lip-Bu Tan
20. 0:39has been tasked with fixing both sides of Intel's business.
21. 0:43- There are things you can do,
22. 0:44but it's going to be incremental
23. 0:46and it's going to be extremely risky.
24. 0:48- [Narrator] Here's how a mistake
25. 0:49the company made decades ago
26. 0:50has snowballed into an overwhelming obstacle
27. 0:53that Lip-Bu Tan will have to face.
28. 0:57Since it was founded in 1968,
29. 1:00Intel dominated the chip market.
30. 1:02- Inside this package is a chip of silicon,
31. 1:05which provides the electrical equivalent
32. 1:07of many transistors, resistors and diodes.
33. 1:10- Basically, they had a technological monopoly.
34. 1:12There were few other competitors.
35. 1:15- [Narrator] The company churned out industry standard
36. 1:17after industry standard of CPUs,
37. 1:20or central processing units.
38. 1:22They're essentially the brains of a computer.
39. 1:24- [Kent] Now anyone can have
40. 1:25all the brain power they want.
41. 1:27Just look for a PC with an Intel Processor inside.
42. 1:30- [Narrator] By 1992,
43. 1:31it became the world's largest chip maker by revenue
44. 1:34according to the company.
45. 1:35By 1997, its chips served
46. 1:37as the brains of 84% of the world's computers.
47. 1:41And in 2000, the stock hit an all-time high.
48. 1:44Intel was the king of chips.
49. 1:47But while the company was riding high,
50. 1:48the rest of the industry was making a change.
51. 1:52By the 2010s, it had split.
52. 1:54Most companies specialized in either designing chips,
53. 1:57like AMD or Nvidia,
54. 1:59or manufacturing chips, like TSMC.
55. 2:02That shift happened for two main reasons.
56. 2:05- One is that as the manufacturing technology
57. 2:08became increasingly sophisticated,
58. 2:09the equipments needed to support that
59. 2:11to cut things that small
60. 2:13are costing one, two billion easily.
61. 2:16- [Narrator] This meant that foreign manufacturers,
62. 2:18like TSMC,
63. 2:19were able to produce chips cheaper and faster,
64. 2:22with low-cost labor and fewer regulations.
65. 2:25The second reason,
66. 2:26Intel's development slowed down.
67. 2:28- Before, Intel was unquestionably number one,
68. 2:31the power of their chips.
69. 2:32So they were making things around 14 nanometers.
70. 2:36But every year, they're able to upgrade their technology
71. 2:39every 18 months or so.
72. 2:40But between 2014 and 2020,
73. 2:45that cycle slowed down significantly,
74. 2:47and TSMC and Samsung ended up catching up to them.
75. 2:50- [Narrator] By 2017, experts said that competitors' CPUs
76. 2:53were less expensive and faster than Intel's.
77. 2:56And in 2021, in the midst of-
78. 2:59- The semiconductor shortage,
79. 3:00global supply chain challenges
80. 3:02and associated rising costs
81. 3:04faced by American families today.
82. 3:07- [Narrator] this guy,
83. 3:08Intel's CEO, Pat Gelsinger,
84. 3:10made two massive financial moves
85. 3:12that are still weighing on the company today.
86. 3:14With funding committed from the Chips Act,
87. 3:17Intel broke ground on two new factories in Arizona
88. 3:20worth $20 billion.
89. 3:22Officials thought-
90. 3:23- That money attracts money,
91. 3:25it attracts investment,
92. 3:27it demonstrates we're all-in.
93. 3:29- [Narrator] The next year, it started building
94. 3:31a mega site in Ohio,
95. 3:32estimated to cost $100 billion when complete.
96. 3:36These uncompleted factories will create challenges
97. 3:39that Lip-Bu Tan will have to deal with.
98. 3:41- I mean, the goal is,
99. 3:42you have to be technologically competitive
100. 3:45in foundry business.
101. 3:46You have to be able to compete with TSMC.
102. 3:49It's uncertain whether you can do that,
103. 3:52but without taking back the technological leadership,
104. 3:55all these investments do not make any sense.
105. 3:58- [Narrator] Last year, the company doubled down
106. 4:00on its plan,
107. 4:01announcing a $36 billion upgrade
108. 4:04to existing factories in Oregon.
109. 4:06This massive investment means that Intel's assets
110. 4:08are worth more than its market value.
111. 4:11And now it's engaged in talks with competitors like TSMC
112. 4:14to spin off the manufacturing side.
113. 4:16- You face huge pressure to spin off,
114. 4:20especially because this is a very heavy asset side
115. 4:24of the manufacturing.
116. 4:25When this comes to valuation side of things,
117. 4:27it's dragging down the more profitable
118. 4:29SLI design side of things.
119. 4:31- [Narrator] And all of this focus
120. 4:32on bringing chip manufacturing to America
121. 4:35left Intel vulnerable
122. 4:36on the design side.
123. 4:38While Intel was busy building factories,
124. 4:40a new trend was emerging in the industry.
125. 4:42- Artifical intelligence.
126. 4:44- The high demand for AI chips.
127. 4:46- Everybody's talking about AI.
128. 4:47- [Narrator] But Intel didn't specialize in GPUs
129. 4:50or graphic processing units
130. 4:52necessary for AI.
131. 4:53- Intel's architecture,
132. 4:54the design philosophy
133. 4:56is being really good at one complex computation.
134. 5:00GPU was, let me do lots of simple computations in parallel,
135. 5:04their existing capabilities
136. 5:06weren't naturally so compatible with the GPU revolution.
137. 5:10- [Narrator] Sales deteriorated,
138. 5:12the company's AI product, Gaudi, didn't perform.
139. 5:16- You won't be making the the outline target
140. 5:18of $500 million in sales
141. 5:20for this fiscal year or calendar year.
142. 5:22Why? - The AI world
143. 5:24has moved very rapidly
144. 5:26and innovating very quickly,
145. 5:28and the robustness and the completeness
146. 5:30of the Gaudi software stack
147. 5:32hasn't been as great.
148. 5:33- [Narrator] In December,
149. 5:34Gelsinger was ousted from his role,
150. 5:36leaving the company in turmoil.
151. 5:39- What they will try to do,
152. 5:40whether it's successful or not, it's very uncertain,
153. 5:42so they will try to be competitive
154. 5:44in the foundry manufacturing space.
155. 5:46It takes very aggressive investments.
156. 5:48And whether the investors are patient enough
157. 5:52or willing to tolerate that,
158. 5:54that's a big question mark.
159. 5:56- [Narrator] And the investors are now being tested.
160. 5:58Intel reported the largest loss
161. 6:00in their 56 years of business.
162. 6:03But Tan isn't deterred,
163. 6:04he said, "I am joining
164. 6:06because I believe with every fiber of my being
165. 6:08that we have what it takes to win."
166. 6:11- Let's not sort of underestimate
167. 6:12the success of Intel so far.
168. 6:14I mean, let's remember, Apple almost went bankrupt.
169. 6:16But whether there will stage a successful turnaround,
170. 6:19anybody who says that with conviction,
171. 6:21I'm a little bit skeptical.
172. 6:23(inquisitive music)