Intel Burned $16B Last Year. Can Its New CEO Save the Company? | WSJ

- [Narrator] After nearly 25 years as the world's largest chipmaker- - [Representative] This symbol outside means you have the standard inside. - [Narrator] Intel is struggling. Look at the yellow bars on this chart.

That's the company's cash flow. It burned through almost $16 billion last year. It's indicative of a big problem on one side of Intel's business, chip manufacturing, but there's a problem with the other side, chip designing, too.

You can see it in this line, which shows Intel's market cap, and it may not look that bad, but these lines show its competitors. (inquisitive music) Now new CEO Lip-Bu Tan has been tasked with fixing both sides of Intel's business. - There are things you can do, but it's going to be incremental and it's going to be extremely risky.

- [Narrator] Here's how a mistake the company made decades ago has snowballed into an overwhelming obstacle that Lip-Bu Tan will have to face. Since it was founded in 1968, Intel dominated the chip market. - Inside this package is a chip of silicon, which provides the electrical equivalent of many transistors, resistors and diodes.

- Basically, they had a technological monopoly. There were few other competitors. - [Narrator] The company churned out industry standard after industry standard of CPUs, or central processing units.

They're essentially the brains of a computer. - [Kent] Now anyone can have all the brain power they want. Just look for a PC with an Intel Processor inside.

- [Narrator] By 1992, it became the world's largest chip maker by revenue according to the company. By 1997, its chips served as the brains of 84% of the world's computers. And in 2000, the stock hit an all-time high.

Intel was the king of chips. But while the company was riding high, the rest of the industry was making a change. By the 2010s, it had split.

Most companies specialized in either designing chips, like AMD or Nvidia, or manufacturing chips, like TSMC. That shift happened for two main reasons. - One is that as the manufacturing technology became increasingly sophisticated, the equipments needed to support that to cut things that small are costing one, two billion easily.

- [Narrator] This meant that foreign manufacturers, like TSMC, were able to produce chips cheaper and faster, with low-cost labor and fewer regulations. The second reason, Intel's development slowed down. - Before, Intel was unquestionably number one, the power of their chips.

So they were making things around 14 nanometers. But every year, they're able to upgrade their technology every 18 months or so. But between 2014 and 2020, that cycle slowed down significantly, and TSMC and Samsung ended up catching up to them.

- [Narrator] By 2017, experts said that competitors' CPUs were less expensive and faster than Intel's. And in 2021, in the midst of- - The semiconductor shortage, global supply chain challenges and associated rising costs faced by American families today. - [Narrator] this guy, Intel's CEO, Pat Gelsinger, made two massive financial moves that are still weighing on the company today.

With funding committed from the Chips Act, Intel broke ground on two new factories in Arizona worth $20 billion. Officials thought- - That money attracts money, it attracts investment, it demonstrates we're all-in. - [Narrator] The next year, it started building a mega site in Ohio, estimated to cost $100 billion when complete.

These uncompleted factories will create challenges that Lip-Bu Tan will have to deal with. - I mean, the goal is, you have to be technologically competitive in foundry business. You have to be able to compete with TSMC.

It's uncertain whether you can do that, but without taking back the technological leadership, all these investments do not make any sense. - [Narrator] Last year, the company doubled down on its plan, announcing a $36 billion upgrade to existing factories in Oregon. This massive investment means that Intel's assets are worth more than its market value.

And now it's engaged in talks with competitors like TSMC to spin off the manufacturing side. - You face huge pressure to spin off, especially because this is a very heavy asset side of the manufacturing. When this comes to valuation side of things, it's dragging down the more profitable SLI design side of things.

- [Narrator] And all of this focus on bringing chip manufacturing to America left Intel vulnerable on the design side. While Intel was busy building factories, a new trend was emerging in the industry. - Artifical intelligence.

- The high demand for AI chips. - Everybody's talking about AI. - [Narrator] But Intel didn't specialize in GPUs or graphic processing units necessary for AI.

- Intel's architecture, the design philosophy is being really good at one complex computation. GPU was, let me do lots of simple computations in parallel, their existing capabilities weren't naturally so compatible with the GPU revolution. - [Narrator] Sales deteriorated, the company's AI product, Gaudi, didn't perform.

- You won't be making the the outline target of $500 million in sales for this fiscal year or calendar year. Why? - The AI world has moved very rapidly and innovating very quickly, and the robustness and the completeness of the Gaudi software stack hasn't been as great.

- [Narrator] In December, Gelsinger was ousted from his role, leaving the company in turmoil. - What they will try to do, whether it's successful or not, it's very uncertain, so they will try to be competitive in the foundry manufacturing space. It takes very aggressive investments.

And whether the investors are patient enough or willing to tolerate that, that's a big question mark. - [Narrator] And the investors are now being tested. Intel reported the largest loss in their 56 years of business.

But Tan isn't deterred, he said, "I am joining because I believe with every fiber of my being that we have what it takes to win. " - Let's not sort of underestimate the success of Intel so far. I mean, let's remember, Apple almost went bankrupt.

But whether there will stage a successful turnaround, anybody who says that with conviction, I'm a little bit skeptical.