Intel, once among the world’s leading technology companies, is struggling. Founded as a start-up in 1968, the US chipmaker grew to success over the years through savvy business and technology decisions combined with timely product investments.
Led by a brilliant founding team, the company quickly developed an outstanding reputation for building and protecting its market-leading position through the development of intelligent equipment and timely innovative products.
But those glory days are mainly gone. Today, Intel is fast losing competitive ground to overseas rivals while struggling to remain among the world’s leading chipmakers in an era rich with new opportunities.
Many competitive factors have undermined Intel’s position but perhaps the most important has been the company’s change in strategy.
Intel’s founders were brilliant strategists focused on maintaining global technology leadership through timely, forward-looking investments. This objective, met time and time again, achieved outstanding financial returns.
Then came along increasingly smart foreign competition that targeted Intel’s core products, decreasing their profitability. Senior management’s response has been to broaden the company’s product portfolio via acquisitions aimed at improving profitability – often at the expense of internal investment in improving manufacturing performance and new product development.
The results of this strategic shift are now apparent. Intel’s manufacturing performance has demonstrably slipped vis-à-vis rivals like Taiwan’s TSMC and South Koreas Samsung, while few, if any, of the acquisitions have built new market momentum or company profitability.
Meanwhile, Intel has mainly missed the boat on AI’s spectacular growth, leaving upstart rivals like Nvidia and possibly AMD to seize the lion’s share of emerging new chip markets.
Given its rich resources and new federal support through the CHIPS Act, Intel still has a chance to recover. But the company has already paid a heavy price by forgetting and arguably forsaking the roots of its initial success in search of easy acquisition wins when faced with powerful new competition.
To be sure, Intel is not alone. There are several textbook examples of once-leading US technology companies that have lost their way due to ill-advised shifts in strategic focus.
Take, for instance, the RCA Corporation. Founded in 1919, the company grew into one of the world’s leading technology companies, enabled and driven by RCA Laboratories’ extraordinary record of research-driven innovation.
At its innovative peak, RCA’s patent portfolio reached across consumer electronics (televisions), military systems (radar and space satellite communications), semiconductors (invention of CMOS) and lasers – to name but a few.
CEO David Sarnoff epitomized RCA’s original driving spirit and passion for bringing new technology products to mass markets. His strategy succeeded in building a multibillion-dollar revenue company, though often with uneven profitability.
His CEO successors sought to improve the company’s profitability through acquisitions in businesses that were less susceptible to the vagaries and swings of technology. That strategic shift saw the company diversify into food, car rental, finance services and other businesses at the expense of its core technology lines.
Those sprawling acquisitions did not perform as well as envisioned, transforming RCA into a mediocre-performing conglomerate that eventually was merged with General Electric.
The lesson here relates to the importance of senior management vision. Companies founded on technology and innovation need to refocus on the elements that spurred their initial success.
In my experience in private equity, the success of technology companies hinges on their ability to understand markets, marshal resources, and attract and retain the most talented employees who understand and are excited by their company’s mission.
Competition is natural and particularly acute in the technology business. Successful technology companies understand this and are organized with the resources and powered with the vision to compete and win. Intel’s senior managers would be wise to take note.
Henry Kressel is a technologist, inventor author and business leader. He has been a long term private equity investor in technology companies.
Last straw that hurts Intel is its decision to do foundry work like Taiwan Semi. Foundry business is harder than the management thought. CHIPS act simply enbolden the wrong vision: build too many fabs. I thought Intel was desperate when it announced fab in Cleveland, Germany, etc.
curse of being a public company. shareholders want growth, profits and stability and they want to only go up
anyone who does not is shown the door and there are shysters ready to promise the impossible in the short term with shenanigans and in the long term complete destruction
that is why a public company will never survive if it does not play the shell game