Can Intel Make a Comeback In the Battle With AMD over AI?
August 13, 2021
Intel (NASDAQ: INTC) has been struggling for years. The company has fallen behind rival AMD (NASDAQ: AMD) and it has made major management changes in order to make an attempt to, if not reclaim its spot at the top of the pecking order, to at least become a stronger player.
The chip/processor market has become incredibly important as artificial intelligence (AI) becomes more prevalent. Simon Erickson joined the August 6 “7investing Now” to look at where Intel stands now and to discuss whether it can get back to a place where it’s true competition for AMD. He also lays out a path to success for the company where it’s not the leading brand but it still plays an important niche part in the market.
A full transcript follows the video.
Dan Kline: So Simon, this is what you brought to our attention. So there’s a battle going on between Intel AMD in the arm and AMD in the artificial intelligence world. But basically, AMD is trouncing Intel. And Intel is in the midst of a turnaround. What do you set the table a little bit for where we’re going to go with this? And then we are happy to get into the discussion?
Simon Erickson: Well, the foundation of the table is actually a statistic that Matt brought up fairly recently, which was showing Amazon Web Services growth of 37%, year over year. Right. So this is the largest cloud computing infrastructure provider out there. We’re building software as a service. We’re offering infrastructure as a service platform as a service.
Everything is being built on the cloud right now, nobody’s doing on the corporate data center. And when you see a number that large, for the largest player in the space, you start to have to think yourself, okay, well, how is actually how is Amazon going to keep up with that demand? You know, how are they going to have the servers that are going to keep up with the machine learning that everybody’s asking for, for all this cloud based processing is taking place out there?
And it’s turned me to look at the chipmakers? You know, these are the companies that are producing the processors that are going into the servers that are powering those cloud data centers. And I’ve compared them and it’s, it’s pretty striking that we’ve got some winners and some potential losers in this race, Dan. And that’s what I kind of wanted to chat about here on the show today.
Dan Kline: Yeah. So right now, AMD has a big lead. But I think you could argue that there’s room for more than one, it’s probably not great for AMD to own this market. Can Intel make a comeback? And sort of what moves they made? Because they’re actually losing sales? And that’s not great in a growing market?
Simon Erickson: Yeah, we looked at you know, there were we just saw quarterly earnings from all the big chip makers, and I wanted to highlight a couple of important key points from this. The first was that AMD is enterprise embedded and semi custom group. So the really high performance chips that they’re making grew 183% year over year, that’s fantastic for a company that’s got over $100 billion market capitalization. You also look at in video, you know, we know that Nvidia has really focused on the data center to Nvidia is data center sales are up more than 79% to $2 billion in the quarter last quarter.
So this is really, really fantastic, right, you’re seeing these, these custom chip makers, getting a ton of revenue from the cloud data center. But then I look at Intel, who reports it their own data center sales fell by 10%, year over year. And I think that a lot of this has to do with with Intel wanting to have so much of the manufacturing and the production of those chips coming from its own fabs where it’s had some its missteps in recent years did it hasn’t kept up with AMD and Nvidia who are strictly designers of those chips, who are then sending them off, sending the designs off to Taiwan semiconductor, to actually do the manufacturing of them, that’s allowed them to get much smaller transistors on those chips and much higher performance chips. And it’s weighing them a lot of really good contracts, not only with the cloud providers, but a small Fruit Company from Cupertino that wants them for really, really high performance smartphones.
Dan Kline: So let’s talk about why this is more relevant. Now. We teased AI in the beginning, but artificial intelligence is going to exponentially increase our computing needs. So is this a case where AMD is just going to own that and maybe Intel has to spin into other areas? Or, you know, can Intel? And look, I think we want we don’t want all of our chips being made by Taiwan semiconductor, that that that seems to be a problem. But can you you know, equal that innovation? Obviously, Apple has been able to do it with with some of its own innovation. But do we think you know that that AI can lead to more companies winning? And will Intel be one of them? Or is it someone we’re not talking about?
Simon Erickson: There’s gonna be a lot of computing demand in the next couple of years. You know, we always talk about AI, we talk about the highest performance, you know, the best of the best, or we had seven nanometers or we had five nanometers, we’re gonna get down to one nanometer. I mean, we keep kind of pushing the bar. Everyone says Moore’s law is dead. It’s really not. I mean, you see CPUs that are getting smaller and smaller transistors that are processes that are being that are doing all this computing out there.
And that’s what we talk about, but we forget that there’s a ton of other industries that are going to need a lot of computing to right, we talked about the Internet of Things. wearable devices are very, very small, small form factor, there’s going to be a lot of computing that’s taking place there. the automotive industry is in a severe shortage right now. You know, the chips that are going into self driving cars are the console’s of entertainment systems of cars.
They can’t even get supply right now because they’re so backed up on things like this. Yeah, well, yeah. And has addressed a lot of this because even if they are not at the cutting edge of the most innovative chips that are out there, Dan, they know that they’re gonna have to expand their own capacity. You see him putting $30 billion to spend in their own fabs in the United States. They want to go out and buy global foundries for another 30 billion dollars, there’s a huge demand out there. It’s just Can you keep up with it?
Dan Kline: I did not know until the chip shortage that like our televisions use use chips. And we’re actually probably gonna see a black friday season where you don’t get those crazy. Like, I think I bought a 65 inch television last year for like 280 bucks. You may not see that this year, simply because there’s a lack of availability. So is this an area where well one let’s let’s talk about the history five years ago, AMD was maybe not even Pepsi to Coke.
They were like Virgin Cola/Coke, like they were way down. So there is a path and a history that shows a turnaround as possible. But for Intel, do you like their management? Are you confident that even if it is going after all of these lower end uses, that they can stay? They do have the name recognition, we still think a little noise and Intel Inside? Can they sort of become a stronger player because they have changed the management up? Are you confident that they’re gonna get there? They’re there.
Simon Erickson: They’re the horse that’s behind in this race right now, Dan, I mean, if you look at AMD, like you mentioned 10 years ago, or even seven or eight years ago, they were kind of a second supplier, right? laptops are really big desktops are really big. And then Intel kind of missed the opportunity to get into smartphones. And then they kind of missed the opportunity to get into Cloud computing with the data center.
And I think that because they wanted to keep the manufacturing in house and they haven’t kept up with their competitors. This puts them at a disadvantage right now in a really crucial time. Now, the interesting trump card on this is that they’re bringing back one of their most highly regarded executives, Pat Gelsinger has just come back as CEO of Intel, he worked with Gordon Moore, you know, back in the 70s, when Moore’s Law was just kind of getting, you know, its feet on the ground.
And so for him to say something like this, it really is a statement, because he’s a very innovative guy, really a fan of disruptive innovation, and all of all of these things that we’ve grown to love about computing, maybe that reinvigorates Intel, but I will say it’s not like you can just snap your fingers and all of a sudden become number one horse in this race. The race for AR race, race for AI is a very lucrative, very addressable market, it’s going to be hard to fight this one. And Intel is coming from a position of disadvantage right
Dan Kline: Now, we’ve seen a lot of tech companies do this, there were points where Microsoft and Apple were similarly on the ropes and managed to turn it around. On the other hand, there’s IBM, which has been trying to turn things around for a very long time. But while they’ve had some successes, they are certainly not the company. they once were. This is an area we’re going to talk about quite a bit. I think AI if we had to list like five topics that are going to come up the Internet of Things, AI, space would be three of those five. So this is something we’re going to come back to.