Quarterly earnings ARE very significant, especially in establishing trends. I agree it seems Intel is progressing technologically but at the same time the financials are quite frankly disintegrating with projected performance expected to get even worse. The financials will dictate if Intel can reap the benefits of its projected tech leadership. In a rate environment we haven’t seen in a decade and a half, the cost of servicing debt has gone up astronomically. All of this at a time where Intel will need to take on debt to execute on strategic plans to position its self for a comeback and it’s extremely capital intensive “IDM 2.0” strategy. The burning down of current assets even including the massive increase in inventories and the rapid increase in long term debt as well as profit sharing agreements with Brookfield and the like implies more financial pain in the future. This is really a bet the house play and it comes at a time where the foundation (financials) is at the very least swaying if not crumbling. I think this all at least begs a discussion of which we think it’s realistic that Intel can be expected to fully execute on Pat and boards vision. I welcome criticism on any faulty logic but I think a discussion on the financial health of the company and its financial capacity to execute on its plans are warranted.
Over many years I have often disagreed with Gelsinger. In fact, until his IFS strategy I'm hard-pressed to think of a time I agreed with him. I don't think Intel has much choice. There are four significant trends that are degrading the position of merchant chip vendors and improving the position of foundries:
1. The trend to cloud computing, which is making the choice of computing and communications hardware invisible to users.
2. The trend of cloud computing vendors to use in-house chip designs, fab'ing them at foundries.
3. The trend of open source hardware, which tends to reduce proprietary design market share (as it has in software), and further supports the trend to in-house design and chip foundry use.
4. The trend toward vertical stacks in client hardware, such as phones, tablets, and laptops, which increases in-house design in those markets.
Trend #4 is playing out more than I thought it would. Apple has just given Broadcom and screen vendors a kick in the gut by bringing 5G modem design in-house (via the team they bought from Intel), and producing its own display screens by 2024. Microsoft has been working on a new generation ARM-based client CPU for some time now, apparently to compete with Apple with their Surface products. It would not surprise me to see Lenovo or HP try to follow Apple too.
I also think Tesla doing their own ASICs is a trend related to #4 that other automakers are likely to have to follow. Vehicle designs are not like the PC market; vehicles are all different and custom. A PC-like one design for everyone seems like a competitive disadvantage. The big automakers are already far behind, and IMO probably not appreciating how behind they are.
So while I agree the IFS strategy will be expensive and risky, I strongly agree with Gelsinger's bet the company strategy for Intel.
Gelsinger also covets Andy Grove's legacy of transforming Intel (read the book "Strategy is Destiny" to understand this mindset), and if he does pull off IFS success my suspicion is he will be as legendary as Grove. Perhaps more so.