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Article by Xie Hao from Silicon Research Lab

After the stock price plummeted from $50 six months ago to around $30 today, the short sellers entrenched around Intel have not yet dispersed.

After Gamers Nexus, a well-known game review blogger with more than 2 million followers on his YouTube channel, publicly criticized Intel's CPU process defects last Saturday, questioning and accusing Intel has become the "political correctness" in major hardware forums this week.

Image source: YouTube @ Gamers Nexus

Panic about product quality and unfavorable public opinion have accelerated the selling of Intel in the U.S. stock market. The stock price of this semiconductor star company has fallen by 12.96% in the past seven days.

Just three months ago at the Intel Vision 2024 conference, Intel CEO Pat Gelsinger was still passionately introducing to the outside world the progress Intel has made in the field of artificial intelligence chips, and claimed that it has completely surpassed Nvidia's previous generation of products. However, times have changed, and the front-end AI dream has not yet been realized. What lies before this business manager is the embarrassing situation of "fire in the backyard."

So far, although Intel's products and technology continue to throw out tempting stories, more capital seems to be moving away.

As a hardware giant that once influenced the entire PC industry, this company is experiencing an unprecedented "dark moment":

In addition to the above-mentioned product quality issues, the "backstab" from its old friend Microsoft, the sluggishness of its chip foundry business... under the combination of many negative news, Intel's market value has fallen to half of that of its competitor AMD.

And this time, who can make this company great again?

1. Gamers are abandoning Intel

"We are unable to recommend Intel CPUs at this time unless there is some level of transparency on the launch from Intel."

Gamers Nexus expressed its dissatisfaction at the beginning of the video.

The anger from the gamer community is not groundless. Since January 19, when Intel released its new 14th-generation Core processors, the shadows of blue screens and crashes have been lingering in the lives of many gamers in the past six months.

In these cases of personal computer crashes, the hardware installed by the players, the games they mainly played, and the time and space they were in were all different. The only thing in common was that almost all of these frequently crashing computer hosts used Intel's 13th and 14th generation Core processors.

What’s even more ridiculous is that due to the influence of computer hardware knowledge, CPU chips have been widely regarded as one of the “hardest to damage” hardware devices. A large number of players have to spend a lot of time and energy “finding faults” in other normally functioning hardware, which has also caused hardware forums to be filled with idealistic reasons for failure:

The memory manufacturer does not match, the motherboard batch is not good, the chassis is dusty and static...

What's more, some players once set their sights outside the earth, believing that the recent frequent solar activities had affected the operation of the computer host.

It was not until May of this year, facing more and more suspicion, that Intel officials came forward under pressure to "pass the buck", saying that the cause of the crash might be that the power consumption mode set by the motherboard manufacturer was too extreme, causing the CPU to be "overwhelmed". Unfortunately, after the release of a new BIOS and firmware update, the above problem has not been resolved.

This time, the video released by Gamers Nexus is undoubtedly a direct challenge to "The Emperor's New Clothes". They said that the culprit for the frequent computer crashes is Intel itself, and combined with some internal information they obtained, they made a guess:

Intel CPUs have serious quality defects.

According to the revelation, the source of these defects may be problems with the atomic layer deposition (ALD) process during the production process. The coating responsible for inhibiting oxidation inside the chip was not applied properly, and eventually the copper vias inside the CPU oxidized after long-term operation.

If this is true, then the Intel CPUs running quietly in tens of millions of computers around the world may die at any time on an ordinary afternoon.

A single stone stirs up a thousand waves, and global game manufacturers, opinion leaders, and players immediately began to criticize Intel. According to foreign media reports, Alderon Games, the developer of the well-known game "Titan's Way", recently announced that it will replace the CPUs of all its game servers from Intel to AMD, and said that with the frequent crashes in the past three or four months, they have observed that the failure rate of the affected CPUs is close to 100%. This means that these Intel CPU failures are not a matter of probability, but a matter of time.

In addition, they also did not forget to mock Intel:

"After switching to an AMD processor, the number of CPU crashes decreased 100 times."

Faced with such a close call, Intel finally stopped being silent. On July 23, Intel publicly stated that after extensive analysis of the returned processors, they determined that the CPU failure was caused by incorrect microcode, and stated that it would release an update patch in mid-August. As for the process defects questioned by Gamers Nexus in the video, Intel denied it, saying that it was a past event that occurred at the 7nm node in 2023 and has been corrected.

But in any case, the brand image of this brand on the consumer side has inevitably collapsed due to the public opinion storm.

This is undoubtedly bad news for Intel, which is experiencing a gradual recovery in the global PC market and saw sales pick up in the fourth quarter of last year. If the update patch in mid-August still fails to solve the problem, the return and exchange storm will likely directly affect Intel's CPU shipments for the whole year.

In addition, more invisible impacts occurred outside the processor business. The king of wafers, which once led TSMC and Samsung by one generation in manufacturing technology, is now suspected of having process defects. This is a wake-up call for the current CEO Pat Gelsinger, who has been ambitious since taking office and hopes to make Intel great again by relying on wafer foundry.

2. Can Intel restore its glory by closely learning from TSMC?

Since the CEO took office, "restoring Intel's glory" has always been an extremely important part of his strategic planning.

In today's semiconductor industry with a very clear division of labor, an IDM company like Intel, which takes on everything from design, manufacturing to packaging and testing, is indeed an outlier. Even AMD, which once shouted "Only those who own wafer fabs are real men," has cut ties with this business early on.

Behind this, as TSMC founder Morris Chang summarized, the wafer foundry industry is essentially a "winner takes all" industry. The market will only choose the most advanced equipment, and falling behind means losing everything.

Intel itself has a deep understanding of this point. This obsession with wafer factories has indeed helped the company to further lead its competitors with great cost advantages when the technology is leading; but when the technology is lagging behind, it will become a huge burden in the company's profit statement.

Previously, Intel's first quarter financial report was a bloody case. With revenue of $12.7 billion and a net loss of nearly $400 million, the wafer foundry business unit alone created a loss of $2.5 billion, which can be called a veritable "cash black hole."

Kissinger's goal is to change this phenomenon and help Intel return to the forefront of semiconductor manufacturing.

That is why, just one month after he took office, Intel officially announced the IDM2.0 model of vertically integrated chip design and manufacturing. The core of this model is that Intel will transform its own wafer fab from an internal department into an independent foundry. Like TSMC, this independent wafer fab can also freely manufacture chips for other design companies and customers.

After that, Intel immediately released the "four-year, five-node" schedule that shocked the industry.

In the past six months, he has frequently appeared at major events and left numerous "stage reports", including but not limited to:

• Intel is expected to complete 5 nodes in 4 years;

• Intel’s five major nodes have all been “completed”;

• Intel is highly competitive in the post-EUV era;

In addition to giving investors and onlookers a lot of chicken soup, in specific business areas, Intel has begun a long journey to fully benchmark TSMC.

Despite their famous names, the two are almost completely not on the same level in the semiconductor foundry business.

According to data from TrendForce, in the third quarter of 2023, Intel entered the top ten for the first time in the revenue ranking of the world's top ten wafer foundry companies with a market share of 1%. In contrast, TSMC, the first-ranked company, had a market share of 58%. In the first quarter of this year, Intel failed to even maintain its top ten position, while TSMC has already won many championships.

The technological gap is also obvious. Previously, by comparing the public data of Intel's latest 4 and 3 processes, industry insiders said that their feature sizes are similar to TSMC's 5nm process, which means that Intel's process technology, under the most optimistic scenario, will lag behind TSMC by more than one generation.

In this regard, the solution proposed by Intel’s management is also very intuitive - to learn closely from TSMC around the two aspects of "winning customer recognition" and "improving technical efficiency".

Specifically, the first step is to create hype crazily. For example, on the eve of the opening of TSMC's Kumamoto factory, it officially announced a wafer foundry service conference and snatched customers on the spot. The second step is to poach people, first from TSMC's upstream suppliers, then from TSMC's executives and employees, and even form alliances with TSMC's competitors.

On January 25 this year, Intel announced that it had reached a new foundry cooperation agreement with UMC. The two companies will work together to develop a 12nm process platform for high-growth markets.

Unfortunately, the fermentation of the above series of negative public opinions may eventually make the above efforts go to waste. For all companies that try to extend an olive branch to Intel's wafer foundry, they must first answer the questions raised by their own board of directors:

If Intel can't even make good chips for its own products, what reason is there to believe it can manufacture good products for its customers?

3. “Three-front war” kills imagination

In a sense, Intel is now falling into the same quagmire that its competitor AMD once fell into.

Regarding AMD, the most criticized thing in the market before was the company's "two-front battle" strategy. This strategy forced AMD to challenge the two giant companies in the CPU and GPU fields at the same time, and was attacked from both sides.

Even someone as good at fighting as Su Ma had to strategically abandon the graphics card business and turn to attack another direction after struggling to maintain it for a short period of time.

In a sense, Intel today is even better than AMD was back then. Looking back at Intel’s strategy, the company is almost “fighting on three fronts” – challenging Nvidia in the field of AI chips and graphics cards, competing with AMD and Qualcomm in the CPU category, and targeting TSMC in the foundry business.

Ironically, these three rivals are almost all directly related to Intel.

Due to process technology limitations, at the current stage, about 30% of Intel's production capacity is delivered to TSMC for foundry, which may include the upcoming 15th-generation Core Ultra series. In other words, Intel is hoping to "let TSMC help make bullets aimed at TSMC."

The situation with the other two parties is similar. Intel hopes that Qualcomm and Nvidia can become its major customers while maintaining a competitive relationship.

Although in the semiconductor field, there are often intricate collaborations and connections between the products of leading companies, once highly confidential information such as wafer foundry is leaked, it is likely to cause immeasurable losses.

This is also why, although semiconductor executives including Huang Renxun praised Intel's new factory, they tacitly chose to vote with their feet when it came to actually placing orders.

On this basis, setbacks in the AI ​​field are still eroding the remaining story space of this semiconductor giant.

At the 2024 Taipei Computer Show that ended not long ago, after witnessing the fierce AI chip "arms race" between Su Zifeng and Huang Renxun, Intel was almost completely reduced to a "supporting role" and once began to emphasize the excellent "price-performance" performance of its own AI chips: "The price of the Gaudi3 chip looks 'quite eye-catching', especially compared with its competitors."

Intel is facing not only competitors, but also the "ghost of history" hanging over this giant. Although Kissinger repeatedly emphasized that "we are returning", people are looking forward to seeing actual results. Perhaps for Intel at this moment, a sentence from its legendary CEO Andy Grew may be the best annotation at present. Even though Intel is currently at a strategic turning point, the word "point" in strategic turning point is a misuse. For Intel, this is still a "long and arduous struggle."