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Today let’s talk about the world’s largest manufacturer of personal computer parts and CPUs — $Intel (INTC.US)$
As of May 27, Intel closed up 0.16% after the market to $44.62. Shares have fallen for five straight quarters and have fallen back to where they were at the start of 2018. However, since the beginning of 2018, the return of the S&P 500 (purple K line in the picture) has exceeded 55%, and Intel has far underperformed the index.
According to the statistics of authoritative investigation agencies, in the fourth quarter of 2021, Intel continued to lead the overall GPU shipments, accounting for 62% of the market share . In 2021, global semiconductor revenue will total $595 billion, a year-on-year increase of 26.3%. Intel ranks second with a market share of 12.2% , slightly behind Samsung’s 12.3%.
As the leader of GPU, the stock price is sluggish. Why is the market so pessimistic about Intel?
First, in the post-pandemic era, the personal computer (PC) market demand is shrinking. IDC data shows that global PC shipments (in thousands of units) shrank from 84,800 units in the first quarter of 21 to 80,500 units in the first quarter of 22. Most manufacturers’ shipments have shrunk to varying degrees. .
Image source: International Data Corporation IDC
Personal computer sales growth driven by the epidemic in 2021, but the growth that began in 2022 has ended, and IDC predicts that PC demand will continue to shrink in the future.
Image source: International Data Corporation IDC
Affected by the overall decline in market demand for PCs and intensified competition, the 22Q1 financial report shows that Intel’s largest business, Client Computing Group (CCG), saw a 13.3% year-on-year decline in revenue . ARM-based CPUs are beginning to “eaten” the market share of traditional X86-based chips. For example, $Apple (AAPL.US)$ abandons Intel’s chips and begins to switch to self-developed M-series chips, $Qualcomm (QCOM.US)$ cooperates with Lenovo , announced the launch of the first high-end Windows on ARM laptop ThinkPad X 13s based on the Snapdragon 8CX chip.
Image source: Intel 22Q1 Presentation
Second, the market share of the vertically integrated manufacturing (IDM) model that Intel is good at is gradually shrinking. The IDM model is characterized by integrating multiple industrial chain links such as chip design, chip manufacturing, chip packaging and testing, and is the model adopted by most integrated circuit companies in the early days. At present, only a few companies can maintain, such as Intel, Samsung, $ Texas Instruments (TXN.US) $ . However, at present, the self-developed chips of leading technology companies have gradually become the mainstream. Large companies such as Apple and Microsoft have begun to develop their own chips. The pure foundry model (Foundary) integrated circuit manufacturing enterprises are separated from design and manufacturing, which has better privacy. , become the choice of more companies.
Image source: Xingxingcha
Third, the process lags behind its rivals – IDM for success and ID M for failure. In 2014, Intel was at its peak, producing the world’s most advanced 14nm process chips at that time. With the increasing profits of the foundry industry, Intel has begun to increase its investment in the foundry business, boasting the world’s first crystal density on various occasions. But it didn’t take long for Intel to be overtaken by TSMC and Samsung.
The root of Intel’s decline lies in the IDM model that it has insisted on for many years. The advantage of the IDM model is that it has strong production capacity and can implement its own strategy in an all-round way. The disadvantage is that the enterprise has a long production front and a large investment cost. The disadvantage of the mode is manifested in Intel’s internal tick-tock strategy. This plan is based on a two-year cycle. The first year tick is an update of the CPU process technology, and the second year is based on the new process to upgrade the tock architecture. Until the 14nm stage, the rhythm of tick-tock is still tight. But at this time, Intel’s technology and manufacturing business group began to focus on improving the density of chip crystals rather than the process, so there were strange phenomena in the 14nm+, 14nm++, 14nm+++ industry, and 10nm mass production was far away. As a result, Intel is busy dealing with the traffic jam of 14nm production capacity, and has no spare time to develop 10nm and 7nm process technology, and the process technology progress has since fallen behind.
At the same time, TSMC (TSM.US) $ pioneered the foundry model, the manufacturing link of the three cores of All in semiconductors, and the process technology began to surpass Intel.
Image source: Yuanchuan Research Institute
Fourth, Intel’s gross profit margin has declined year by year in the past five years. Gross profit margin dropped from 62.25% in 2017 to 55.45% in 21 years. The latest financial report 22Q1 data shows that the company’s gross profit is 53%, and the guidance given to 22Q2 is only 51%. The weak gross margins are a sign that AMD, Nvidia and others are grabbing high-end chip market share with higher profit margins, while Intel is only gaining share in the lower-margin chip market. An improvement in gross margins would be the first sign of a recovery in the business, but Intel has yet to offer any signs of recovery.
Can Intel, which has fallen from the altar, still be reborn? Where will the future go, and are there any bright spots worth looking forward to and investing in?
1. Overweight the AI market and release a new generation of AI computing chips
$NVIDIA (NVDA.US)$ claims that the future of artificial intelligence is a trillion-dollar market, and envisions a future where all enterprises will build AI data centers. In this regard, Nvidia’s strategy is to go all out to invest in artificial intelligence, regardless of hardware or software. Of course, Nvidia is not the only company pursuing this market opportunity, and Intel has also begun to increase its weight in the AI market.
On May 10, Intel’s Habana Labs released a chip focused on AI computing – Gaudi2 , emphasizing that the workload is almost twice that of the NVIDIA A100 80GB processor. Compared with the current NVIDIA solution, using Gaudi2 can Reduces training costs by up to 75%.
But Intel’s lead was short-lived. Because NVIDIA has launched the A100 two years ago, and is about to switch to the new product H100, it is expected to start supplying in the third quarter. According to Nvidia’s own introduction, the overall performance of the H100 can reach 6 times that of the A100.
On a higher level, 2022 is an important year for Intel’s AI strategy. After Gaudi2, Intel will further introduce Ponte Vecchio GPUs (which should perform similarly to the H100), as well as Sapphire Rapids Xeon Scalable processors with Advanced Matrix Expansion (AMX) support. In the second half of this year, the Sapphire Rapids processor with support for high-bandwidth memory will also be launched, and the industry claims that the performance is twice that of the AMD EPYC Milan-X.
Nvidia is far from the only competitor in the AI market. By the end of this year, Intel will have not one but three leading products to compete in this space. Given Nvidia’s premiums and profit margins, the current market share status quo seems untenable.
In addition, in the field of AI, Intel also announced the launch of the “Apollo Project” with Accenture, which aims to provide enterprises with more than 30 open source AI solutions that have been optimized and designed so that they can be used in local, cloud or edge environments. Easier to deploy AI. The first kits for the Apollo program are expected to be released in the next few months.
Sandra Rivera, executive vice president and general manager of Intel’s Data Center and Artificial Intelligence Group, said, “Intel’s artificial intelligence logic chip market is expected to exceed $40 billion by 2026. We are seizing this opportunity with great strength, I have full confidence in the future.”
2. Under the IDM2.0 strategy, foundry is expected to become the largest Alpha
Since Intel launched the IDM2.0 strategy early last year and restarted the foundry business, after a year of development, Intel’s foundry business has also achieved good results. In 22Q1, Intel Foundry Services (IFS) revenue of foundry business was US$283 million, a year-on-year increase of 174.8%, mainly from orders from more than 30 customers such as Cisco and Amazon, and it was the fastest-growing business. Although there is still a big gap compared with TSMC and UMC, it has gradually approached TSMC and other manufacturers.
In the era of IMD1.0, the “biggest bug” in Intel chip production is that it cannot enjoy the economic benefits of the old process. Because Intel previously adopted a tick-tock strategy, transitioning to the next process every two years to produce the most advanced logic chips. Compared with foundries such as TSMC, Intel’s move brings huge financial pressure. Because foundries can pursue advanced processes to produce the most advanced chips on the one hand, they can also use relatively old but lower-cost processes to produce chips such as MCU, CIS, FR, and PMIC. Under the IDM2.0 strategy, Intel’s external foundry services (IFS) can revitalize the relatively backward production capacity and greatly improve the company’s asset turnover.
Image source: Money Butler
References:
[1] Shengcai Research Institute: Intel’s 22Q1 financial report: “Cloud” business continues to grow, IFS has become a new performance growth point, and long-term competitiveness is highlighted
[2] Arne Verheyde: Intel Takes AI Leadership From Nvidia
[3] Stone Fox Capital: Intel: Still A Have Not
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