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[Global Times reporter Zhao Jueyun] Editor's note: "Intel has disappointed investors," this is the recent evaluation of the poor performance of chip giant Intel by the Wall Street Journal. But the US government may be even more disappointed, because Intel, which has received the largest subsidy so far under the Chip Act, is considered to support the US ambition to "reshape the chip manufacturing industry." US Commerce Secretary Raimondo even called it "America’s champion semiconductor company.”For decades, Intel has been regarded as a "giant" in the global chip industry. Gordon Moore, one of its founders, proposed "Moore's Law", which has influenced the chip industry for more than half a century.But in the wave of new industries such as artificial intelligence, this once "giant" has slowed down, which is seen by many as a microcosm of the difficulty of the US high-end manufacturing industry to regain its glory.

Market value is far behind competitors

"Disastrous financial report and troubled chip manufacturers." The Wall Street Journal reported earlier this month that Intel's revenue in the second quarter of this year was $12.8 billion, with a net loss of $1.6 billion, compared with a net profit of $1.5 billion in the same period last year. These performance figures were lower than analysts' expectations.

After the above financial report was released, Intel's stock price plummeted by about 26% on the 5th of this month, and its total market value fell below the $100 billion mark to $91.848 billion.On the 22nd local time, Intel's stock price fluctuated again, with the stock price falling by more than 6% at one point, and the total market value further dropped to US$85.9 billion at the close of the day. In contrast, the stock prices of its rivals, which were once far behind, have been rising. As of the close of the U.S. stock market on the 22nd, Nvidia's total market value exceeded US$3 trillion, TSMC's total market value was US$863.2 billion, Broadcom's total market value was US$755.6 billion, and AMD's total market value reached US$245.5 billion.

Regarding the decline in performance, Intel CEO Henry Kissinger explained that the main reason for the disappointing second quarter profit was that the company continued to advance its product roadmap. Intel CFO Cincinnati further stated that the company was accelerating the advancement of AI PC products, while non-core business expenses were higher than expected and related expenses for limiting production capacity. Intel also mentioned that changes in US trade policies led to a decline in chip sales, and the third quarter would also be negatively affected.

U.S. stock analyst Larry Raimer wrote on the investment research website "Seeking Alpha" that the biggest culprits for Intel's poor performance are its data center and artificial intelligence businesses."There is a growing perception that Intel is a dead company whose technologically backward products are losing huge market share."Reimer wrote.

The sluggish performance also triggered a chain reaction. After the financial report was released, Intel announced a $10 billion cost-saving plan, the most eye-catching of which was a "15% global layoff", and it is expected that 15,000 people will leave Intel. "Our revenue growth has not been as expected, and we have not fully benefited from powerful technological trends such as AI. Our costs are too high and our profits are too low. We need more decisive action to address this problem. Our financial performance and outlook for the second half of the year are more difficult than previously expected. Layoffs are the most difficult decision I have ever made in my career." Kissinger said when announcing the layoffs. In addition, Intel also announced that it would suspend dividends starting in the fourth quarter of 2024. This is the first time Intel has suspended dividends since it continued to pay dividends in 1992.

The setback affected Intel's project to build two world-leading semiconductor wafer fabs in Magdeburg, Germany.As the project has not made any progress, the German government said on the 19th that it is planning to sell the factory land.

Zhang Xiaorong, director of the Deep Technology Research Institute, told the Global Times that Intel's competitiveness in the market is weakening, especially in the fields of AI and advanced chips, where Intel's technology and products are somewhat behind those of its competitors. In addition, Intel's strategic layout in the AI ​​market also has some problems, with its CPU chips facing pressure from declining market demand and intensified market competition, which has further exacerbated its performance decline.

China's market performance is affected by US policies

In addition to internal reasons, Intel's performance, like other US semiconductor manufacturers, is also affected by geopolitical factors. Since last year, the US government has repeatedly imposed restrictions on chip exports to China, and Intel and other companies have also been directly affected.

According to Reuters, on May 8 this year, Intel Corporation stated in a document submitted to the U.S. Securities and Exchange Commission that it had received a notice from the U.S. Department of Commerce to revoke certain licenses for exporting consumer-related products to Chinese customers, effective immediately.

The Nihon Keizai Shimbun commented that the confrontation between China and the United States in the IT field has cast a shadow on the Chinese business of large American semiconductor companies. The Wall Street Journal believes that the revocation of existing licenses may have a significant impact on American chip manufacturers.

Citing Intel's financial report, US media said that in 2023, the Chinese market will account for 27% of Intel's total revenue, which shows the importance of Chinese customers in the company's business. In addition, a report by the Financial Times last month revealed that despite the escalating competition between the United States and China in the field of science and technology, Intel's venture capital department is still one of the most active foreign investors in China's artificial intelligence and semiconductor industries.

The report said that as of now, Intel holds shares in 43 Chinese technology startups.Since the company established its venture capital arm in the early 1990s, Intel has invested in as many as 120 Chinese companies.

Considering the importance of the Chinese market, some US chip companies, including Intel, have previously stated that restrictions on such products are not good for the US chip industry because they will cause chip companies to lose revenue to fund domestic research and development. On June 4, local time, Intel CEO Henry Kissinger said at a meeting in Taipei that the company hopes to supply as many chips as possible to mainland China. He also warned thatOverly strict U.S. export controls will only stimulate major Asian economies to develop their own semiconductors.

Kissinger claimed that Intel is technologically ahead of its Chinese competitors, which could give Intel a competitive advantage in the Chinese market. "As we continue to produce processes below 2 nanometers or more advanced, Intel products will be attractive in the Chinese market. Therefore, I believe we will continue to have good market opportunities. But Kissinger also added that if the United States cracks down on China's chip industry too hard, there is a risk of backfire."

Data released by China Customs show that the quantity and value of China's integrated circuit imports will drop significantly in 2023. In 2023, China's cumulative imports of integrated circuits will reach 479.5 billion, down 10.8% from 2022; the import value will reach US$349.4 billion, down 15.4%. Analysts believe that the decline in China's integrated circuit imports reflects changes in global demand, but the data is also affected by China's efforts to increase domestic production to reduce its dependence on imported chips.

Didn't help Intel out of trouble? The Chip Act is questioned

Intel used to be the representative of the high-end manufacturing and semiconductor industries in the United States. The difficulties it is facing now have become the focus of attention and analysis by the media and industry insiders. The Wall Street Journal believes that Intel's current problems are largely due to the fact that the sales of its chips are not as good as before, especially the company's once booming data center business has been hit hard, and its share in the server CPU chip field has lost to AMD.

Reuters reported that Intel has been missing opportunities over the past decade, taking a longer time span into account. According to multiple foreign media reports, around 2000, Intel missed the opportunity to transform from computers to smartphones and even refused to cooperate with Apple. After that, Intel missed the explosive demand for AI chips, and insisted on using CPUs when rivals such as Nvidia switched to GPUs. It even missed the opportunity to invest in OpenAI, the developer of ChatGPT.

The Cato Institute, a US think tank, analyzed that Intel has always refused to accept the new division of labor in the semiconductor industry, that is, companies like Nvidia specialize in design, and manufacturing is outsourced to foundries such as TSMC;Intel insists on the IDM model, not only designing chips by itself, but also producing chips by itself. "This is widely regarded as a costly strategic mistake."

Analysts say that the IDM model used to be a reflection of Intel's leading position in the industry, but when Intel has been unable to break through the 10-nanometer process technology and its chip manufacturing technology lags significantly behind TSMC and Samsung, competitors such as AMD and Qualcomm have been able to continuously launch the latest process chips.

Currently, Intel is still investing heavily in its own chip manufacturing plants.The company had previously announced that it would invest $100 billion in the United States over the next five years to build new chip factories and expand existing production capacity in Arizona, New Mexico, Ohio and Oregon.

The confidence behind Intel's continued large-scale investment is the support of the US government. In March this year, the US Department of Commerce officially announced that it would provide Intel with a subsidy of US$8.5 billion and a loan of US$11 billion through the Chip Act. Raymondo said that this is the largest subsidy given to a single company by the US government in accordance with the Chip Act passed by Congress. Earlier, US President Biden also personally went to Intel's new factory in Phoenix, Arizona to show his high hopes for this American company.

Currently, semiconductor companies including TSMC, Samsung, and Micron Technology have received subsidies from the US government through the CHIP Act, but Intel has received the most direct financial support.An article from the Cato Institute in the United States believes that "for many in Washington, the success or failure of the CHIPS Act will depend on Intel."

Zhang Xiaorong believes that Intel is undoubtedly one of the biggest beneficiaries of the Chip Act. However, huge subsidies are not necessarily the key factor that prompts Intel to improve its competitiveness. Although subsidies can provide certain financial support for enterprises, they do not necessarily lead to technological breakthroughs and expansion of market share.

US media analysis said that according to the current plan, Intel's capital expenditure this year is as high as 25 billion US dollars to 27 billion US dollars, and it will continue to invest more than 20 billion US dollars next year. However, poor financial performance and financing environment may directly affect Intel's subsequent investment capabilities.

"We still don't know whether Intel can actually make cutting-edge chips in a commercially viable way... We don't know yet whether the CHIPS Act spending will translate into a vibrant, cutting-edge U.S. semiconductor industry," the Cato Institute said.