Time to Face Reality: Intel Is the HP of the 2010s
Intel (NASDAQ:INTC) is on its way to becoming this decade’s HP.
Hewlett Packard fell hard a decade ago because it got lazy, becoming a collection of inward-looking fiefdoms rather than a customer-focused team.
We know this now because the two pieces of the old HP, Hewlett Packard Enterprise Co (NYSE:HPE) and HP Inc (NYSE:HPQ), have both done well since their 2015 split.
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The same disease has infected Intel. The sudden firing of CEO Brian Krzanich over a long-ago sexual relationship is evidence of rot at the top, and an inward-looking executive suite that needs to be broken up.
Critics of that stance will note that Intel stock shares doubled on Krzanich’s watch, that the company is in its third straight year of growth, or that it regularly beats analyst earnings estimates.
But given its position in the market, that’s a low bar. Intel is rotten to the core.
Dumb and Dumber
Intel stock reached its all-time high of $80 per share in 2000, when the NASDAQ was at 5,000. The shares open for trade June 25 at a little over $51 each, while the NASDAQ is over 7,000.
Intel has admitted being late to mobile, but it was also late to graphics, and has missed the memory boom. Its continuing success with the 8086 chip line is down to price, and purchases by the Cloud Czars.
Intel’s efforts to go beyond the microprocessor market have been failures.
Intel bought McAfee in 2010 for $7.7 billion, then sold half of it six years later for $1.1 billion. In 2018 it sold Wind River, a real time operating system business bought in 2009. Intel has also sold off its Lustre file system business, adding to list of the company’s failed acquisitions.
Then there’s Krzanich himself. How is it the board allowed him to continue after he sold shares upon learning of its chips’ Meltdown and Spectre bugs, months before the public was informed? Then the board moves when it learns of unauthorized sexytimes?
I’ll be the first to admit that sex with an underling should get a CEO fired. It is, by definition, an unequal relationship, fraught with corporate peril. But is it worse than selling all the stock you can months before the public learns of a crippling problem with your best-selling product? Really?
Intel’s board, now down to 8 members, has been asleep far too long. Intel now has 36 corporate vice presidents and over 300 appointed ones. It’s filled with people who say, “yes sir,” and not enough who can make decisions.
Intel Is at a Fork in the Road
The best move Intel could make is one I suggested back in 2016: break the company up. Split the unit that makes chips from the units that design chips.
Intel is suffering from what I call Moore’s Second Law, the fact that as chips get more complex the capital costs to produce them rise. Intel is one of only two companies that both makes and sells its own branded microprocessors — Samsung is the other one — and Samsung has also been slowed by scandal.
Intel needs to be designing chips for the market, not for its arbitrary roadmap. Hardware is now software. Successful companies like Nvidia (NASDAQ:NVDA) don’t own production facilities.
The Bottom Line for Intel
The headlines being written about Intel today, about a “fight for its future,” could have been written about HP a decade ago.
Only now are reporters catching on to the rot. Intel has struggled to produce 10 nanometer designs competitors can easily handle. It still gets 85% of its profits from the old 8086 microprocessor line. Advanced Micro Devices Inc. (NYSE:AMD), which spun out its own fab lines years ago, is now running rings around Intel in terms of design.
Until the company confronts reality, avoid the stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
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