Intel. Thoughts On Some Recent Developments

Are Intel's Process Technology Issues Really Resolved?

With Intel and AMD tied for market cap supremacy (both are now ~$118 billion), we think it makes sense to review some recent developments at Intel and share our thoughts.

Q3 2022 Market Share Results

The latest Mercury market share results were released earlier this month and are nicely summarised here. Starting with server, it's clearly been an incredible journey for AMD over the course of the past four years.

Source: Mercury Research via The Register

AMD has slowly but inexorably gained market share from Intel every single quarter since Q1 2019. In the latest quarter, that share hit an all time high of 17.5%.

Keep in mind that Intel's CEO Pat Gelsinger has himself recently admitted that it will take Intel up to four years before they expect to regain server market share. We discussed this previously here.

Our Take: Intel is in real trouble when it comes to server. Falling four years behind over the space of the past four years is disastrous. Combining this with AMD’s fantastic value-for-money server products based on their comeback “Zen” architecture, we think Intel will never return to the days of almost 100% dominance of the x86 sever market.

There was a rather unusual move in AMD’s desktop market share last quarter as the following chart outlines:

Source: Mercury Research via The Register

AMD’s share dropped from 20.6% to 13.9%, the largest sequential drop since we’ve been keeping records. It was a similar, even slightly worse decline in their notebook market share:

Source: Mercury Research via The Register

Here, AMD’s market share decline from 24.8% to 15.7%. Again, this is an unprecedented sequential decline. So, what gives?

Our Take: Sequential declines of these magnitudes are unprecedented. We doubt very much that the competitive position between Intel and AMD changed to such an extent during the quarter. Most likely here is a timing issue. Intel had their PC segment collapse in the second quarter, AMD in the third quarter. We suspect that their relative market shares will normalise again in a quarter or two.

For the record, we believe that Intel has managed to remain relatively competitive in the desktop and notebook markets. We don’t expect to see major incremental gains from AMD for the foreseeable future. Rather, we expect that AMD and Intel will flip flop on relative share gains as each releases their latest products.

Foundry Chief Quits

Intel’s foundry chief Randhir Thakur is leaving Intel, details from the Register here. In an email to employees on the matter, Intel CEO Pat Gelsinger noted:

Randhir Thakur, senior vice president and president of Intel Foundry Services, "has decided to pursue other opportunities" but will continue to lead the business unit through the first quarter of 2023 to "ensure a smooth transition to a new leader,"

Some commentators claim that this was an expected departure, the plan being that Tower CEO Russell Ellwanger would take over when ( or if ?) the proposed acquisition closes sometime in Q1 2023.

Our Take: If this was the plan, it wasn’t a very good one. Mr Gelsinger rolled out his Intel Foundry Services (IFS) plan as part of his IDM 2.0 strategy back in March 2021, naming Dr. Thakur as its head, reporting directly to himself. As a critically important leg in his IDM 2.0 strategy, why would Mr. Gelsinger appoint someone to lead IFS on a temporary basis, for eighteen months? Furthermore, if the plan was to wait for Russell Ellwanger to come on board, those plans may be on shaky ground according to this article by

Fabricated Knowledge

. Intel's turnaround under Gelsinger is at a critical juncture. Having senior executive leadership announcing that he's quitting eighteen months into a critical role is a really bad look.

CEO Gelsinger’s “Inducement Plan” Amended

Last week, The Register reported changes to Mr. Gelsinger’s compensation package. To encourage Mr. Gelsinger to rejoin Intel and take up the CEO role early in 2021, he was offered an oddly-named “Inducement Package”. This essentially made it possible for the CEO to earn hundreds of millions of dollars over the coming years based largely on the share price performance of the company. The more the share price would appreciate, the more he would earn. You can read the specific details of the changes in this SEC filing. In a nutshell, it raises the bar for Mr. Gelsinger to achieve the payouts outlined in the original plan. Interestingly, this information was packaged in an SEC filing relating to the appointment of a new independent director, Barbara G. Novick. We can find no company press release relating to this announcement, if you know of one, please reach out and let us know.

Our Take: Mr Gelsinger’s Inducement Plan was build around one key concept, share price appreciation. Since Mr. Gelsinger took the helm, Intel’s share price has declined precipitously from a peak of around $68 in March 2021 to a trough of $25.7 in early October. It’s almost as if those putting the plan together had never imagined that Intel’s share price could down as well as up after Mr. Gelsinger’s on-boarding. Linking Mr. Gelsinger’s compensation solely to share price appreciation was a really bad idea. This has since been recognised by the board, based on the following “commitment” made in the same SEC filing as the compensation changes:

“Committed to not use stock price growth as the sole metric for any future NEO new-hire inducement awards.”

Despite acknowledging the foolishness of how they structured their new CEO inducement awards, the Board continues to tinker with the numbers instead of scrapping them entirely. The original target of a 30% price appreciation to $64.54 (based on a ~$50 average share price in the 30 days before he joined Intel) has now been increased to 50% , or $74.47, and the share price must remain there or above for 90 days instead of the original 30 days.

Just One More Thing…

Something very interesting keeps popping up periodically in Intel’s earnings reports. You can see it again in Intel’s latest earnings report in the following slide, highlighted by our red arrow:

Why is this important and what does it tell us about the health of Intel’s process technology?