Which Intel CEO is responsible for the current woes? Or is it actually the CEO of AMD?

0
57

As Intel Corp. investors try to fathom the ruins of its disastrous second quarter, one nagging question won’t go away: Which chief executive is responsible for the debacle — current CEO Pat Gelsinger, his predecessor, or rival Advanced Micro Devices Inc. CEO Lisa Su?

The chip giant reported a massive second-quarter miss on Tuesday, including a nearly $1.6 billion loss of revenue in its all-important data center operations, citing the macroeconomic environment and some internal execution issues. Intel’s INTC,
-1.17%
the results were so bad that while stocks fell nearly 10% in after-hours trading, an analyst on the company’s conference call asked why Intel didn’t announce the results beforehand.

“We were well into the quarter and we saw the market characteristics change quite suddenly,” Gelsinger said. “We wanted to be in a position where we had a thoughtful view of what the market would be like going forward.”

In a confusing conference call with Gelsinger and new Chief Financial Officer David Zinsner, one thing gradually became clearer: The chip giant had a major manufacturing problem, or bug, with one of its expected data center/server chips, codenamed Sapphire Rapids. Intel had to restart the manufacturing process, causing a further delay and a fee for a chip expected to enter volume production by the end of this year and into 2023.

ALSO READ  The stock market's post-Fed bounce is a 'pitfall', Morgan Stanley's Mike Wilson warns

“Sapphire Rapids is a year late,” explains Pat Moorhead, principal analyst at Moor Insights and Strategy.

Gelsinger made a few references to legacy issues when he returned to his alma mater as CEO in early 2021, replacing Brian Krzanich.

“A lot of these products were in full swing when we showed up,” Gelsinger said. “As we said, the culture of execution needs to be rebuilt and we are working hard to rebuild the culture of this team.”

Moorhead agreed that Gelsinger inherited the current roadmap from its predecessor, along with many problems.

“It takes four to five years to work on new architectures, he’s doing the best with what he has now,” he said.

But the real problem with Intel’s data center business may not be Krzanich’s tribulations, or Gelsinger’s inability to get Intel back on track quickly. It may be the success of AMD AMD,
+2.06%
and its top boss, Su, who has essentially built a data center company from the remnants of her predecessors’ failures and can follow Intel next week with its own earnings.

ALSO READ  Shock July Stock Rally Was A Monster The Fed Might Regret

“I think AMD will be making very good profits on their data center…because it’s the first time I’ve actually heard Intel talk about competitive pressure,” said Moorhead, referring to Intel’s accompanying slides showing competitive pressure below the statements. for a 16% drop in revenue and a 90% drop in operating profit in the data center business.

It doesn’t matter who’s to blame — or credit, in Su’s case — Gelsinger must hope Thursday’s disastrous financial results provide a bottom in his bid to make Intel great again, or at least the beginning of it. It’s possible the company will announce some job cuts or other cost-cutting measures next quarter, as Zinsner predicted the third quarter would include some restructuring costs.

To get there, Gelsinger may have to brave some very treacherous waters. Intel reported adjusted cash flow in the quarter was negative at $6.4 billion, after spending $7.2 billion in capital expenditures. That will hurt the second part of Gelsinger’s transformation plan, which includes turning Intel into a contract manufacturer, an expensive proposition.

ALSO READ  Peloton cuts 800 jobs, raises prices and closes stores in major overhaul

Gelsinger slumped a little under the pressure on Thursday, promising to cut Intel’s investment plans by $4 billion next year, the same day Congress approved massive subsidies to Intel and other chipmakers to expand production in the US. move that could bite Gelsinger, who had stood firm against Wall Street’s pressure to avoid major expansion spending to focus on straightening out the current ship.

“We are not satisfied with the quarterly and financial results we have given you today,” Gelsinger said in his closing remarks. “We’re earning some tough questions this quarter.”

The hardest question for Gelsinger is whether he is guilty, or if he is simply being outplayed by Intel’s former whips, AMD. In the end, it won’t matter if the double whammy of a chip delay and a looming economic recession keeps it from getting the ship afloat before long-distance investors decide to look for a lifeboat.