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Intel: New Products must generate 50% gross margin to get the green light

X

Xebec

Well-known member
Intel draws a line in the sand to boost gross margins — new products must deliver 50% gross profit to get the green light
Lip-Bu Tan is "laser-focused" on getting Intel back to maximizing shareholder value

Intel will not be entertaining any projects that do not promise to double its money going forward. Michelle Johnston Holthaus, CEO of Intel Products, announced at Bank of America's global technology conference that Intel is no longer approving new projects that cannot be proven to earn at least 50% gross margin "based on a set of industry expectations."

Holthaus explained Intel's new risk-averse policy as "something that we probably should have had before, but we have it now so that product doesn’t move forward; you actually don’t get engineers assigned to it if it’s not 50% or higher gross margins moving forward."

Holthaus also clarified that while Intel is not expecting or projecting 50% gross margins across all operations, it is a number the company is aspiring toward internally. All of Intel's future roadmap operations, including Panther Lake and Nova Lake, are also currently expected to reach the 50% gross profit number that the rest of the business aspires to.

The drive behind this initiative is reportedly coming from Intel's new CEO, Lip-Bu Tan. Tan is reportedly "laser focused on the fact that we need to get our gross margins back up above 50%." To accomplish this, Tan is also said to be investigating and potentially cancelling or changing unprofitable deals with other companies.

Intel's margins have slipped to new lows for the company in recent months. MacroTrends reports Intel's trailing 12 months gross margin for Q1 2025 was as low as 31.67%. Intel's gross margins had hovered around the 60% mark for the ten years leading up to the COVID-19 pandemic, falling beneath 50% in Q2 2022 and continuing to steadily fall ever since.

Holthaus predicts a "tug-of-war" to ensue within Intel in the coming months as engineers and executives reckon with being forced between a rock and a hard place. "We need to be building products that... fit the right competitive landscape and requirements of our customers, but also have the right cost structure in place. It really requires us to do both."

CEO Lip-Bu Tan has done much to streamline Intel's operation and right a rocking ship inherited from previous Intel chief Pat Gelsinger. Another major round of layoffs, potentially up to 20% of the remaining workforce, is coming in Q2, arriving after a major leadership change-up to remove middle management between Tan and other team leads.


Source: https://www.tomshardware.com/tech-i...-get-the-green-light#xenforo-comments-3880758
 
I personally understand this because Intel is in a dire financial situation medium-term, but this is what caused Intel to lose out on Mobility, and possibly AI..
 
Xebec said:
I personally understand this because Intel is in a dire financial situation medium-term, but this is what caused Intel to lose out on Mobility, and possibly AI..
Click to expand...

Then they will destroy their low-end business, which is madness.

That will concede enormous market, which will be inevitably swallowed by ARM smartbooks with Android, or even Window (if the trouble between Microsoft, and Qualcomm is indeed that bad). At the moment they are crappy enough that it keeps them away from the mainstream market, but if ODMs will be left with no choice, they will switch to Rockchips, however bad their chips are.

But I completely understand that Chen is playing to Western financial people's expectations of some kind of a "tough", "hard core" crisis manager CEO, which is mostly theatrics to win their approval, if he were to go to them for money.

You should ask "Weren't previous Intel bosses demanding exactly the same, and how it ended?"
 
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Xebec said:
Intel draws a line in the sand to boost gross margins — new products must deliver 50% gross profit to get the green light
Lip-Bu Tan is "laser-focused" on getting Intel back to maximizing shareholder value

Intel will not be entertaining any projects that do not promise to double its money going forward. Michelle Johnston Holthaus, CEO of Intel Products, announced at Bank of America's global technology conference that Intel is no longer approving new projects that cannot be proven to earn at least 50% gross margin "based on a set of industry expectations."

Holthaus explained Intel's new risk-averse policy as "something that we probably should have had before, but we have it now so that product doesn’t move forward; you actually don’t get engineers assigned to it if it’s not 50% or higher gross margins moving forward."

Holthaus also clarified that while Intel is not expecting or projecting 50% gross margins across all operations, it is a number the company is aspiring toward internally. All of Intel's future roadmap operations, including Panther Lake and Nova Lake, are also currently expected to reach the 50% gross profit number that the rest of the business aspires to.

The drive behind this initiative is reportedly coming from Intel's new CEO, Lip-Bu Tan. Tan is reportedly "laser focused on the fact that we need to get our gross margins back up above 50%." To accomplish this, Tan is also said to be investigating and potentially cancelling or changing unprofitable deals with other companies.

Intel's margins have slipped to new lows for the company in recent months. MacroTrends reports Intel's trailing 12 months gross margin for Q1 2025 was as low as 31.67%. Intel's gross margins had hovered around the 60% mark for the ten years leading up to the COVID-19 pandemic, falling beneath 50% in Q2 2022 and continuing to steadily fall ever since.

Holthaus predicts a "tug-of-war" to ensue within Intel in the coming months as engineers and executives reckon with being forced between a rock and a hard place. "We need to be building products that... fit the right competitive landscape and requirements of our customers, but also have the right cost structure in place. It really requires us to do both."

CEO Lip-Bu Tan has done much to streamline Intel's operation and right a rocking ship inherited from previous Intel chief Pat Gelsinger. Another major round of layoffs, potentially up to 20% of the remaining workforce, is coming in Q2, arriving after a major leadership change-up to remove middle management between Tan and other team leads.


Source: https://www.tomshardware.com/tech-i...-get-the-green-light#xenforo-comments-3880758
Click to expand...
With this mindset, Lunar Lake, the most interesting and successful product from Intel in last 3 years would not have happened. Some even say, without Lunar Lake, the blow from Snapdragon X Elite would have been more impactful. Intel management needs to understand bean counting while they are lagging in tech is not going to lead to profitable growth.
 
I don't think 50% GM target means losing shares. The process forces them to design competitive products. Ultimately, margin is determined by the competitiveness of the products. Perhaps, MJ should frame the answer differently.
 
XYang2023 said:
I don't think 50% GM target means losing shares. The process forces them to design competitive products. Ultimately, margin is determined by the competitiveness of the products. Perhaps, MJ should frame the answer differently.
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No, you can always keep milking the captive clients more, and they have a lot of them. I am very sure, Intel can demand almost a double the price for Xeon, and they will lose only at most 20% of clients.
 
Paul2 said:
No, you can always keep milking the captive clients more, and they have a lot of them. I am very sure, Intel can demand almost a double the price for Xeon, and they will lose only at most 20% of clients.
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Look at AMD vs Intel in server AMD is dishing out good products for like 5 years ? and they reached only 33% market share.
 
siliconbruh999 said:
Look at AMD vs Intel in server AMD is dishing out good products for like 5 years ? and they reached only 33% market share.
Click to expand...

Yes, because with such an obscene premium which Intel was charging prior to frist Epycs, everyone it their same minds should've jumped on the on the day one, but very few did, even with 2x+ higher performance per buck.
 
I've been trying to look at this "glass half full" with respect to Intel ARC discrete GPUs. There are at least a few possible outcomes...

1. "Give up" - Intel might decide that they can't get 50% margin on discrete GPUs, and exit the market. (i.e. Gaining market share via low margin is no longer acceptable).

2. "Build Better" - Intel could aim for higher end segments that do tend to have larger profit margins.

3. "Compromised Product that doesn't succeed" - It could also chase them into (financially) engineered solutions that look good on paper but compromise performance in such a way that the market isn't willing to pay the premium. i.e. ARC A770

I suspect Lip-Bu Tan is encouraging more "build better", but I'm concerned the bean counters in the company may steer to #3 and ultimately #1.
 
Xebec said:
I've been trying to look at this "glass half full" with respect to Intel ARC discrete GPUs. There are at least a few possible outcomes...

1. "Give up" - Intel might decide that they can't get 50% margin on discrete GPUs, and exit the market. (i.e. Gaining market share via low margin is no longer acceptable).

2. "Build Better" - Intel could aim for higher end segments that do tend to have larger profit margins.

3. "Compromised Product that doesn't succeed" - It could also chase them into (financially) engineered solutions that look good on paper but compromise performance in such a way that the market isn't willing to pay the premium. i.e. ARC A770

I suspect Lip-Bu Tan is encouraging more "build better", but I'm concerned the bean counters in the company may steer to #3 and ultimately #1.
Click to expand...
They can focus on the professional/high end. Personally, I don't like the idea of giving silicon at cost to gamers to build market share. All reviewers do is to compare fps at very high refresh rates. Also Intel should try to use its own fabs if possible.
 
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This is correct company strategy. Don't spend money recklessly before finding the right track.
I estimate that after Intel's assessment, they might not be able to enter the AI track.
There's no way for a latecomer to achive 50%+ profit margin in a very short time.
 
DanX said:
This is correct company strategy. Don't spend money recklessly before finding the right track.
I estimate that after Intel's assessment, they might not be able to enter the AI track.
There's no way for a latecomer to achive 50%+ profit margin in a very short time.
Click to expand...
I disagree. The AI market is huge, and Intel has all the components needed to succeed in it. AI PCs target edge AI, which is becoming a viable and attractive option. I can already develop agentic workflows on the edge without relying on the cloud.

What Intel really needs to push, however, is data center AI for more complex applications, such as AGI level applications.
.
 
I'm being semi-facetious here, but if 50% gross profit becomes the metric for new products, does that mean they'll favor outsourcing manufacturing vs. in-house (Intel Foundry)? Or is manufacturing cost not a concern because in-house will always use "market rates" to size those costs?

If it's the latter, then the metric is kind of meaningless. If the goal is to ensure there's a profitable market for future products, there's a whole lot of projected sales hand waving that can be done to get just about anything over that threshold.
 
XYang2023 said:
They can focus on the professional/high end. Personally, I don't like the idea of giving silicon at cost to gamers to build market share. All reviewers do is to compare fps at very high refresh rates. Also Intel should try to use its own fabs if possible.
Click to expand...

Even low margin GPUs can 'fill out Intel's fabs' helping lift margins on more profitable segments like Core and Xeon...
 
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