Intel ( INTC ) is in the midst of one of the most turbulent periods in its 56-year history. Declining sales, missed opportunities to compete in the AI ​​space, and a massive effort by CEO Pat Gelsinger to return the company to earlier glory are putting significant pressure on the chip giant’s bottom line and stock price.
And the company thing just got more interesting.
Last Monday, Intel announced that it had signed a deal with Amazon ( AMZN ) to build custom chips for Amazon Web Services, a positive sign for the company’s third-party foundry business.
Then, on Friday, the Wall Street Journal reported that Qualcomm ( QCOM ) was approaching Intel about a blockbuster takeover deal that would give Qualcomm a bigger foothold in the PC and AI space. Not only that. On Sunday, Bloomberg reported that Apollo Global Management (APO) has offered a multibillion-dollar investment in Intel to keep Gelsinger’s process moving forward. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
It’s a lot to follow and even more to make any sense. Luckily, I’m here to help you do it all.
Intel sales and AI issues are slowing
Intel has been dealing with sliding sales and the unenviable position of having to take on Nvidia’s market leader in the AI ​​space. For 2023, Intel reported full-year revenue of $54.2 billion, a 14% year-over-year decline from the $63.1 billion the company sees in 2022.
That includes an 8% decline in Client Computing Group Intel, which sells chips for PCs; a 20% decline in Data Center and AI revenue; and a 31% decrease in Network and Edge sales. However, Intel reported a 103% increase in Intel Foundry Services, but only $952 million.
Part of Intel’s woes is due to the fact that the explosion in PC sales at the start of the pandemic pulled the Client Computing Group’s revenue forward for several quarters, creating a boom and bust. Consumers are buying new computers in droves for work and play, sending chip revenue soaring. But millions of consumers don’t usually buy new PCs at the same time. With more people holding on to new computers, fewer consumers are looking to upgrade, and sales are experiencing a steady decline that has sent shipments down for eight consecutive quarters.
Sales are picking up again, though. In July, IDC said the PC market grew 3% in the second quarter, the second consecutive quarter of growth. But the industry still has a way to go.
At the same time, Intel faces a new threat from Qualcomm, which began offering Snapdragon X Elite and X Plus chips in Windows PCs earlier this year as an alternative to Intel processors. The chips offer better performance and power than Intel’s older offerings and are intended to compete with Apple’s ( AAPL ) outstanding M family of chips that power MacBooks.
But Intel is fighting back. Earlier this month, the company showed off its line of Core Ultra 200V processors that it said could outperform Qualcomm chips.
Marked PC sales also hurt graphics giant Nvidia (NVDA), which saw sales of video game graphics chips deteriorate after the pandemic boom. But the company, unlike Intel, has been able to exploit its initial investment in AI to take advantage of the surge of interest caused by the debut of OpenAI’s ChatGPT in November 2022.
That helped Nvidia accelerate the semiconductor industry and send its stock to incredible new heights, rising more than 860% over the past two years and 191% over the past 12 months.
Intel is trying to catch Nvidia with its own Gaudi AI accelerator. On Tuesday, the company launched its latest Gaudi 3 AI accelerator and announced that IBM will use it as part of its IBM Cloud offering.
But with Gartner estimating that Nvidia controls more than 70% of AI chip sales, it’s an uphill battle.
Intel foundry services
Intel is also fighting for its position as a chip manufacturer for third-party clients. The plan is for the company’s foundry business to operate as an Intel subsidiary that builds processors for customers looking for an alternative to TSMC, which is one of the world’s largest chipmakers.
But the building is expensive and Wall Street is not yet sold on the idea. Analysts at Citi Research say Intel needs to exit the foundry business entirely in order to grow profits and earnings per share.
However, in September, Intel announced a multibillion-dollar deal to “produce AI fabric chips for AWS on the Intel 18A, the company’s most advanced processing node.” The company will also make a special version of the Xeon 6 chip for Amazon.
The news comes after Intel announced that Microsoft signed on as a manufacturing customer in February. The two big companies are certainly a start for Intel, but they will have to sign off on customers if they hope to grow their manufacturing division to match rival chip fabricators.
Qualcomm and Apollo
PC crashes and Intel’s AI have become potential takeover targets, which is where Qualcomm and Apollo enter the mix. Qualcomm, according to the Wall Street Journal, wants to buy Intel, although it is not clear whether the company will hold all of Intel or sell part of the business segment. The deal will also raise a lot of antitrust concerns, as the companies are two of the most important chip companies in the US.
Apollo, meanwhile, appears to like Gelsinger’s plan and could invest up to $5 billion in Intel to pursue the effort, Bloomberg reports.
Now investors will have to wait and see if Intel moves forward with either company or continues to try to go it alone.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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