intel wants to "sell itself" but still has important "legacy" left. industry insiders say the actual value is far higher than the market value
2024-09-21
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intel has a history of more than 60 years. under the impact of the huge wave of new technologies, this old american chip giant is making its last struggle.
after missing out on several transformation opportunities in history, intel's fate may be in the hands of others. the latest news is that qualcomm is negotiating to acquire intel's business.
the rumor has not been confirmed by either party, but it has sparked widespread discussion in the industry. intel's current market value is less than $100 billion.
winning by quantity is still the data centermain force”
sheng linghai, an analyst at research firm garter, told china business news: "we can't just look at intel's stock price. the stock price reflects profits, not the importance of its products. intel is too important. its actual value is far higher than what its market value reflects."
he added that intel's data center and pc businesses are still core components of the internet. "although intel has been overtaken by giants such as nvidia, it is still the main force in data centers. without data centers, there would be no internet," said sheng linghai.
he also said that antitrust review is an unavoidable "hurdle" when it comes to major mergers and acquisitions. in 2017, broadcom's failed bid for qualcomm was stopped by the trump administration due to suspected monopoly; and even if the united states approves it, it still needs to obtain approval from other countries and regions including china. qualcomm's failed acquisition of nxp is a case in point.
qualcomm is the world's largest mobile phone chip manufacturer, while intel is the world's largest pc and data center server chip manufacturer. in the view of industry insiders, if qualcomm can "buy intel on dips", it will be expected to boost qualcomm's valuation.
it is worth noting that the acquisition rumors came at a time when the federal reserve just announced a rate cut. sheng linghai believes that the greater driving force behind the acquisition of intel is capital seeking profits. he also said that the us semiconductor industry is in the process of industrial restructuring. "sometimes you don't need many reasons to do business. when market opportunities come, capital will think it is profitable." he said.
another senior person in the chip industry also told the reporter from china business network: "intel's valuation is at a low point, which is like real estate in a core area being discounted by half. if you miss it, you may lose it."
he believes that intel's assets are still valuable. "intel has good things, such as fpga, mobileye, gpu, etc. if intel keeps the ones it wants and sells the ones it doesn't want, it can still make a lot of money through capital operation," said the above person.
he added that intel continues to reap the benefits of apple, occupying the pc market on one hand and standing firm in the mobile phone market on the other. in the future, 6g and 7g will still rely on it. "broadcom's stock price surge in the past few years must have made qualcomm jealous. if it can acquire intel at a low price, it can also boost qualcomm's future market growth expectations." he said.
but he predicts that qualcomm may not acquire intel's loss-making foundry business, so one option for intel is to sell the foundry business to a stronger rival, such as tsmc.
in recent years, intel has been continuously streamlining its business lines. its current main business units include the client computing group (ccg), which covers desktop and notebook businesses, as well as the data center and artificial intelligence group (dcai), the network and edge group (nex) and intel foundry.
in terms of revenue sources, ccg and dcai are still intel's main businesses, with revenue contribution exceeding 80% in the fourth quarter of last year. however, in the new round of ai wave, intel's two main businesses not only did not benefit, but their revenue declined.
taking the data center business as an example, in the second quarter of this year, intel's dcai revenue was $3.05 billion, a year-on-year decrease of 3.5%. the market interpreted this as a signal that intel's growth was hopeless.
currently, intel still dominates the data center cpu market despite competition from amd. in the second quarter of this year, intel controlled about 76% of the world's data center cpu shipments, while amd's share was about 24%. in the client pc market, intel accounted for about 79% of the market share, while amd's market share was about 21%.
however, intel has been winning by volume in recent years. although its shipments are more than three times that of amd, its profits are far less than amd. the two companies' revenues from data center cpu business are the same, both around $3 billion.
intel's profit decline has also become a fundamental factor in the company's stock sell-off. according to the company's latest quarterly financial report, in the second quarter of 2024, intel's revenue was approximately us$12.8 billion, and its net loss increased by more than 200% year-on-year.
intel ceo pat gelsinger admitted that the company has not fully benefited from the ai wave because the costs are too high and the profits are too low.
in august this year, intel announced a 15% layoff of its global workforce, with more than 10,000 people expected to leave their jobs, and plans to cut costs by $10 billion. kissinger recently revealed that the company has completed about half of its layoff plan so far.
"intel is a 70-year-old man, reaping the benefits of the pc era. qualcomm and amd are 40-year-old middle-aged men, reaping the benefits of the mobile phone era, and nvidia is an 18-year-old young man, demonstrating the possibilities of the ai era," commented an industry insider.
intel's decline began to show in 2021. that year, the company's annual revenue was close to $80 billion, and then it fell sharply at a rate of $10 billion per year. in 2023, intel's annual revenue fell below $60 billion, and its revenue dropped by one-third.
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intel has also been seeking business adjustments over the past year. with the development of its two core businesses, pc and data center, hindered, intel began to vigorously develop its foundry business. although it benefited from subsidies from the us chips and science act, this business has become a "bottomless pit of money burning" for intel.
intel said earlier this week that it was creating an independent entity for its foundry business, a structure that would allow it to raise external funding. "the foundry business is a bottomless pit, you can only keep throwing money into it, and it's not certain that you can actually make it," sheng linghai told yicai global.
so far, the foundry business has been the main factor dragging down intel's profits. market analysis data estimates that intel has spent about $25 billion on the foundry business each year in the past two years.
although intel's foundry division generated $4.4 billion in revenue in the first quarter of this year, most of that revenue came from internal sources. intel adopted the so-called "internal foundry" model at the beginning of this year, where its product divisions and external customers will purchase manufacturing and packaging services from intel's independent internal division, intel foundry.
"most of intel's foundry division's revenue still comes from chip foundry for intel itself," sheng linghai told the first financial reporter. "this part of the revenue can be understood as 'fake revenue.'"
according to data disclosed by intel, intel's foundry department will lose approximately us$7 billion in 2023, and the loss in the first quarter of this year reached us$2.5 billion.
a law firm in the united states has claimed that the growth and profits of intel's foundry services were falsely stated and called on intel investors to join the class action lawsuit against the company.
at present, intel is still investing in chip manufacturing projects and receiving a lot of subsidies from the us government.
the us government is increasing its investment in semiconductor production. earlier this week, the biden administration provided intel with up to $3 billion in funding under the chips and science act. under the act, intel received $8.5 billion in government grants and $11 billion in loans in march this year. this is also the largest subsidy given to a single company by the chips and science act.
on september 16, intel also announced a cooperation project with amazon's cloud computing division aws, involving billions of dollars in orders. according to the cooperation agreement, intel will produce ai chips for aws based on intel's 18a (1.8 nanometer) foundry process node in the next few years. this is intel's most advanced chip process node to date. the company hopes to challenge tsmc's 2 nanometer process technology.
intel said it will do its most advanced manufacturing, including artificial intelligence chips for aws, at a plant currently under construction in ohio. "all eyes will be on us," gelsinger said. "we need to fight for every inch of ground and execute better than ever before. because that's the only way to quell our critics, and we know we have the ability to do it."
however, the industry generally believes that intel's idm model is a "costly strategic mistake". the so-called idm model means that the company not only designs its own chips, but also produces its own chips. the cato institute, a us think tank, analyzed that intel has always refused to accept the new division of labor in the semiconductor industry, which has led to today's losses.
according to intel's plan, it will continue to invest more than $20 billion in wafer fabs next year. however, poor financial performance and financing environment may directly affect intel's subsequent investment capabilities, and waiting for a takeover may be one of the options facing the company.
"we still don't know whether intel can actually make cutting-edge chips in a commercially viable way, nor do we know whether the spending from the chips and science act will lead to a vibrant and cutting-edge u.s. semiconductor industry," the cato institute said.
the cost of building a wafer fab is extremely high. some institutions estimate that the cost of building a 2nm factory with a monthly output of 50,000 wafers is about us$28 billion, and the cost of a 3nm factory with the same capacity is about us$20 billion.
sheng linghai also told the reporter from china business news: "it is difficult to be an idm with advanced technology. this is not a problem that can be solved by investing a lot of money."
(this article comes from china business network)
