TOP STORY
🤝 Intel Might Get Acquired by Qualcomm After Its Worst Quarter Ever

😰 Intel has had an incredibly rough year, down 54% YTD, posting its worst earnings report ever and announcing plans to cut 15,000 jobs.

🙏 CEO Pat Gelsinger made matters worse by posting prayers on Twitter, leading to hilarious headlines like “Intel CEO reads his last rites.”

📈 Meanwhile, other chip manufacturers have had an exceptional year. Nvidia ($NVDA) is up 141%, Taiwan Semi-Conductor ($TSM) is up 71%, and even Intel’s smaller rival Qualcomm ($QCOM) is up 20%.

🤞 But this week, Intel investors saw a glimmer of hope, with the stock jumping 9% after reports that Qualcomm has approached Intel about a takeover (which would be one of the biggest-ever M&A deals).

🐝 So, for today’s buzz, let’s dive into how Intel fell from its position as one of the most important companies in modern technology and break down what’s next for the struggling chip giant…

😭 Intel’s Embarrassing Fall From Grace

📈 Intel was founded in 1968 in Mountain View, California, and despite a boom and bust during the dot-com bubble of 2000, saw an incredible recovery throughout the 2010s, surging over 340% from 2009 to 2021.

👩‍💻 As personal computers surged, so did Intel, since Intel was the dominant maker of the ‘CPU’ (essentially the brain of the computer). In the 2010s, Intel controlled 80% of the market and had a massive technological advantage over its competition.

😴 But since then, Intel has been caught sleeping at the wheel and has made a series of massive strategic blunders leading them to the position they’re in today:

📲 Neglecting Smartphones

• Instead of designing new CPUs for mobile phones, Intel tried to use the same architecture they used for personal computers, which required too much power and were too expensive.

• This opened the door for mobile-specialized Arm and Qualcomm to team up and dominate the market.

• Intel massively underestimated the size of the mobile market and had to shut down its mobile processing business in 2016 since it was so far behind.

🤖 Neglecting GPUs

• While Intel focused on CPUs, a little company called Nvidia started focusing on GPUs, which specialized in ‘parallel processing’ and were primarily used for video games and scientific research since they could process complex visuals and deal with intense simulations.

• Intel thought this use case was too niche, and largely ignored it, but it turns out these more complex GPUs are exactly what’s needed to train AI models so when AI took off, Intel was left behind.

• Intel has tried to catch up, launching Arc GPUs in 2022, but is still far behind Nvidia in its technology, and Nvidia passed Intel in revenue in 2023.

🇹🇼 Competitors Catching Up Through Specialization

• Intel has not only missed out on the booms from mobile and AI, it’s even lost its head-start in its core business of CPUs for Personal Computers to competitor AMD.

• AMD outsourced manufacturing to Taiwan Semi-Conductors so it could specialize in design, and made significant technology breakthroughs to bring it’s chips to the same quality (or better) than Intel.

• While in 2019, AMD’s revenue was only 10% of Intel, it’s risen to over 40% in recent years.

📉 All this has led to a deep strategic problem for Intel, and that’s reflected in the numbers. In Q2, Intel’s revenue fell 1%, and it expects it to fall another 8% in Q3.

💡 Before we dive into CEO Pat Gelsinger’s attempt to save the sinking ship and the details of the potential Qualcomm acquisition, a quick word from this week’s sponsor Harvest ETFs!

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TOP STORY CONTINUED
🚢 Can Intel Turn Things Around? Or Will it Be Acquired?

🛟 Gelsinger’s Attempt to Save the Ship

To be fair to Intel’s CEO Pat Gelsinger, he only took the reigns in 2021 and immediately started making investments to catch up, but these investments take time to pay off:

But what used to be Intel’s biggest strength - its integration of both the manufacturing and the design - has become its biggest cash drain, with the company bleeding billions as it invests deeply into manufacturing.

🏭 Separating Manufacturing and Design

😣 These investments have been a big drain on Intel’s other business units, but a big announcement this week might change that, with Gelsinger announcing plans to spin off its Foundry business (aka its chip manufacturing) into an independent subsidiary with its own operating board.

⭐️ This will hopefully solve two big problems:

• Intel’s chip design rivals (Qualcomm, Broadcom, Apple, and AMD) should feel more comfortable trusting Intel for their manufacturing without fearing their IP will leak to the rest of Intel.

• This should make financing easier as strategic investors (such as foundry customers who want to reduce reliance on Taiwan) would likely be more willing to invest in a separate entity.

🏳️ A Flagship Customer

🤝 All this might be starting to pay off, with Intel announcing a big win this week: a multi-billion dollar deal with Amazon AWS to co-invest in custom chip designs and AI semiconductor manufacturing. 

🏆 This is a big win for Intel as AWS represents a great reference customer for Intel Foundry and shows that Intel can support some of the biggest companies for their manufacturing needs.

🇺🇸 Things Get Political

Investors aren’t the only ones who want the company to catch up. Intel falling behind is a big strategic and geopolitical problem for the US as it would lead to complete reliance on Taiwan for chip manufacturing.

And the government is committing billions to solve this problem, with Intel announcing this week that it was awarded $3B under the Biden-Harris CHIPS Act to expand semiconductor manufacturing for the US government.

🤝 The Qualcomm Deal

🤔 So, with all this in mind, what would the Qualcomm-Intel acquisition/merger mean?

Well, some, like analyst Dylan Patel, think it would be an “odd fit” with “no ability to turn around the data center business.”

👎 The New York Times also flagged that it would likely be difficult for Qualcomm to take over Intel’s factories, calling them “a costly business that most chip designers avoid.”

🔥 Some are less pessimistic, with one commentator saying that the merger could enable the creation of a more formidable competitor to Nvidia: “Collaboration between the two companies could lead to the development of AI processors that neither could create on its own.”

From my research, though, this is quite a rare take, with Business Insider quick to point out that Intel’s Gaudi 3 AI Chip is only set to generate $500M in sales this year, far behind the billions Nvidia is pulling in.

In any case, the deal is still very early days and any offer would come under intense regulatory scrutiny given how important Intel is strategically, so I’ll be sure to keep you updated as more unfolds.

🤔 What does all this mean for investors?

😅 This was a wild amount to unpack and possibly was one of the most difficult Weekly Buzzs I’ve had to write so far, but to sum it all up, acquisition or not, Intel certainly has its work cut out for it.

🙋‍♂️ There are still many open questions for investors. To me, the core three are:

• Will Gelsinger’s investments pay off and help Intel catch up to competitors?

• Will spinning off the foundry business help attract more customers and more capital?

• Can Intel create a compelling AI GPU to compete with Nvidia?

👍 As for me, I think the news this week was very encouraging for Intel’s turn-around story and has made me much more interested in the company!

👀 I’ll be keeping a much closer eye on Intel and researching a bit more over the coming weeks to decide if I’d like to add it to my portfolio. Excited to hear some of your thoughts on Blossom!

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BLOSSOM NEWS
🤩 Blossom Team at Futureproof!

🏖️ This week I had a chance to fly out to Huntington Beach for the epic Future Proof festival to hang out with thousands of financial advisors and other folks in the finance industry! While the conference was mostly advisor-focused, it was great to be there and make sure the Blossom community and retail investors were represented 😎

🧐 The conference made me think a lot about the role financial advisors will play in the shifting tides toward more DIY investing. It was cool to see a lot of companies moving away from the managed AUM model to more of a fee-for-service model, which I think makes a lot more sense for folks who want to manage their portfolios themselves, but want a bit of guidance along the way.

🤝 Another big highlight was meeting the legend Ben Felix, who gave a great talk in the Canadian ‘Tiki Lounge’ (what Canada and Tiki have to do with each other I don’t know 🤣) - we had an awesome lunch and got into an interesting discussion on renting vs owning a home.

🤩 Overall I had such a blast and can’t wait to go next year! Shout out to Future Proof for having me out as a media partner 🙏

FROM THE BLOSSOM COMMUNITY
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