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INTEL

By Will Fastie • Comment about this article

In the nearly 50 years I’ve been following Intel, I’ve never seen the company in such disarray. Things are bad.

On August 1, Intel released its financial results for its second fiscal quarter ending July 31. Although there was a tiny bright spot in its Client Computing Group (up 9% year over year), net revenue was down 1% and the company recorded a quarterly loss of USD $1.6 billion, nearly $3 billion lower year over year.

Intel’s stock dropped by over 25% in the two following days. And that’s just one of Intel’s problems.

The financial results are far from what the investment community expected. Wall Street has shown some patience, because it had bought into the company’s long-range plan, but these poor results may have been the last straw for many.

Intel knew this would be the reaction, because it simultaneously announced draconian cost-cutting measures. The most gut-wrenching is the plan to lay off 15% of its workforce, about 15,000 employees. The details of this workforce reduction are not clear, but it will involve many abrupt terminations along with some accelerated retirement incentives. According to a variety of sources, only 3,000 of the jobs will come from the manufacturing side, with the remaining 12,000 coming from general and administrative functions.

A slide, leaked from an internal presentation, showed other cost-cutting steps. A notable change is the elimination of free fruit and beverages for employees, a decades-old perquisite for tech employees. In the broad scheme of things, this is a trivial amount. But it demonstrates that Intel is looking for every penny.

Although it will pay a dividend to stockholders for the second quarter, future dividends have been suspended.

Over the past month, a problem that has been festering for nearly a year finally wormed its way into the public consciousness. It involves problems with 13th- and 14-generation Intel Core processors. It has become evident that Intel tried to minimize these problems. Apparently, the company completely forgot how well it had handled its 1993 Pentium chip floating-point-division (FDIV) bug by instantly owning up to the problem and offering to replace every chip, no questions asked. This time around, Intel has been burrowing into the sand and fessing up only when caught. In just six weeks, it went from blaming motherboard manufacturers to offering replacements for all 13900K and 14900K processors.

That’s a lot of money right there, all of which will go directly into the loss column.

There are a couple of things to keep in mind about the chip problem.

First, Intel started off by saying the problem was not related to manufacturing. Now it has admitted that it was. The company says it fixed the problem nearly a year ago, albeit well after many of these processors were sold. But because Intel did not come clean about what was going on, it lost the trust of its customers. Even if a chip was manufactured after the fix, customers will still demand a replacement. When customers get angry, that’s one you can chalk up as a very bad management problem.

Second, the emphasis has been on chips with the K designation in their model numbers. These were the first chips identified as having the problem. “K” means the chip can be overclocked through BIOS (UEFI) settings; such models are in high demand by gamers and others requiring maximum performance. Intel initially tried to blame the problem on overclocking, but then it was discovered that the problem showed up when overclocking had not been enabled.

Is this problem related strictly to K-type processors? The answer is not entirely clear. Semiconductor manufacturers employ a selection process called “binning,” whereby chips are tested to determine their actual performance level. Because the chips can be tweaked to lock frequencies and voltages into place, it’s simply a matter of doing so and marking the chip as a lower-performing model. So, for example, a 13900K could become a 13900, a version without the overclocking capability.

Does binning work? Well, yes — it’s worked for years. This time, however, it appears that the manufacturing problem involves oxidation on the chip, something that happens over time. The chip could be perfectly fine off the line and then fail a year later when running on your desk. And that means a binned, non-K 13900 could fail even at its lowered performance settings.

Oxidation can cause problems with voltages, so one of Intel’s fixes involved tweaking settings on a chip to lower those voltages and thus lower the performance of the chip. A silent Windows update adjusted BIOS accordingly, meaning that Intel silently tweaked the performance downward without informing the owner. This tweak caused some PCs to indicate that the processor was not supported by Windows, thus turning the PC into a brick. That problem could be solved by hopping into the UEFI and making changes to certain settings.

This suggests that the entire 13th- and 14th-gen processor families might be faulty.

Thus my recommendations:

I believe Intel will lose some market share over this. Also, make another notation in the loss column — you can count on Intel being sued, especially by companies who bought pallet loads of these things for servers. Those folks aren’t out a few hundred bucks; they lost hundreds of thousands.

Client computing at Intel is in chaos.

I buy Intel processors with the K designation. That’s not because I intend to overclock. I never overclock. I’m after headroom.

I realized many years ago that a processor capable of overclocking was much more likely to run at or near its maximum turbo-boost clock rate when overclocking was turned off. It meant that I was unlikely to hit thermal throttling because the processor clearly was capable of more, but I’d never push it that far.

For example, my Windows 11 PC is powered by an Intel Core i5-11600K. It has a base frequency of 3.9GHz and a turbo-boost frequency of 4.9GHz. At the time the processor was introduced, many articles and YouTube videos reported overclocking to 5.1GHz. I certainly don’t care about the 4% boost I’d get from overclocking, especially because overclocking is on us — no warranty. But I’ve seen this PC hit 4.9GHz and chug along without my cooling system revving up into jet-engine territory. And I know I’m safe because I’ve got that 4% margin, aka headroom.

The point is that I can trust this processor at 4.9GHz. Can the same be said for 13th- and 14th-gen Core processors?

A key ingredient of Intel’s long-range plan is the creation of a foundry business. This means that Intel will make chips for anyone, just as Taiwan Semiconductor Manufacturing Company (TSMC) does. This represents a huge investment by Intel. The project is several years old and is just reaching the point of availability. But, as seems to be the case with everything Intel does these days, there are some troubled waters ahead. Mostly, it’s a matter of trust.

First, Intel did not meet its financial goals in the last quarter or, for that matter, in previous quarters. Given that, is it realistic to trust Intel’s promises about the foundry business? If you go back a few years and look at Intel’s foundry plans, you’ll quickly see they have changed several times. I would not exactly call this chaos, but I’m not convinced the project is on plan.

Second, if Intel can’t build its own chips, can it build others? If you had a chip design, would you take it to Intel or to TSMC? After all, the latter is also building new foundries in the US and the UK.

Skepticism is warranted.

Signs. You know, the ones that say, “Go Packers” or “Vote For Me!” and that fans wave any time they think the camera might be pointed in their direction.

Intel CEO Pat Gelsinger has been carrying one everywhere. It says “AI.”

That may sound a bit facetious, so let me tell you about my inbox. I have a special folder just to hold Intel press releases. Since January, I’ve collected 76 Intel press mailings. The vast majority of these are not very interesting. Very few of them talk about client computing, such as announcing the debut of a new chip or family. There’s a lot of fluff, but there’s also one odd thing.

59 of them are about AI.

Every time I look at an Intel video of Mr. Gelsinger giving an address, up comes that sign. A shrink might call it obsessive. I call it deflection. “Look over here at all this neato AI stuff and pay no attention to my crumbling client computing business behind the curtain.” But let me not be too harsh. I’m sure all the Intel AI stuff is great. That’s undoubtedly why Microsoft’s newest Surface devices incorporate Qualcomm chips. And the same for Dell, Lenovo, HP, and more. (Windows on ARM is here!)

Aside from being snarky, I should also mention that Intel is pursuing the corporate and datacenter market for AI acceleration and processing. But this is an area where Intel lags AMD, which saw this opportunity very early because of its work with graphics acceleration. Dig into this more deeply, and you’ll find that Qualcomm has a very powerful, industry-leading story to tell. (My Qualcomm inbox is much smaller, but the emails are more interesting.)

Intel is a company in serious trouble. Will a 15% cut in its workforce be enough to turn the corner in the next quarter or two? I have no idea, and I’m sure many people, including those on Wall Street, don’t know, either.

Resources

The contents of this article are not to be construed as investment advice. Will Fastie is not a financial analyst and no longer holds SEC licenses. Please consult your personal broker or financial consultant for guidance.

Contribute your thoughts in this article’s forum!

Will Fastie is editor in chief of the AskWoody Plus Newsletter.

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