Market value plummeted 43%, what happened to Intel?

Intel Corp. executive Sandra Rivera holds what was once the most coveted job in the semiconductor industry: head of the company's lucrative data center division. Nowadays, this is the toughest.

Rivera, who has been with Intel for more than 20 years, became general manager of the division 14 months ago — shortly after Pat Gelsinger returned to the company as CEO. The company had clearly lost market share and technology advantage, but Rivera said she underestimated how much of a shift her new role would be.

"Certainly, I know we have a lot of execution issues that have been brewing for years," she said in an interview in her office at Intel headquarters. “I probably underestimated the amount of work we had to do.”

The business of providing microprocessors that run the Internet and corporate networks has long been the crown jewel of the world's largest chipmaker. The company's dominance of the market -- its components can sell for more than $10,000 each -- has helped Santa Clara, Calif.-based Intel generate huge profits.

But lately, Rivera's unit has begun to struggle on behalf of Intel. Data center revenue fell 16% year-on-year in the last quarter, and the business's operating margin fell to 5% from 38%. Intel missed its overall forecast for the quarter and lowered its annual forecast.

Meanwhile, rivals such as Advanced Micro Devices Inc. and Nvidia Corp. have been grabbing customers. Intel's stock price fell 43% in 2022, a deeper decline than the rest of the chip industry has suffered this year.

Gelsinger emphasized on the earnings call that one of the root causes of Intel's weak performance was delays in new chips for the data center market. Rivera said the frustration stems largely from past design choices. Intel was too ambitious in trying to develop too many new technologies and features. She said this was causing delays and preventing customers from receiving the products they were supposed to be getting by now.

Prior to his current role, Rivera served as Intel's chief people officer under Gelsinger's predecessor, Bob Swan. Before that, she was responsible for the company's attempts to get into the web. The executive, who is in his 50s, has an electrical engineering degree from Pennsylvania State University.

Rivera oversaw human resources during a tumultuous period for the company. Swann took the top job on an interim basis after CEO Brian Krzanich revealed he had an affair with a subordinate. The replacement CEO position was later made permanent, and she was tasked with fixing Intel's culture. This may still be a work in progress. The problem, Rivera said, is a fundamental change in the way Intel approaches innovation—a shift away from empowering engineers at all levels to have a say in key decisions.

It takes years to design and manufacture chips. Deciding how best to arrange billions of tiny transistors—in a way that predicts annual computing needs in the future—is extremely complex. Often the hardest part is deciding what to leave out. Intel is famous for its founders because it has compelling data and even the voices of low-level engineers can be heard, especially when problems are highlighted.

According to Rivera, the practice died and the company became a place where it took too much courage and perseverance to speak out. The old guard that Gelsinger replaced had become too safe in their beliefs. She said executives knew where the technology was going and didn't want to hear otherwise. Just as bad, Rivera said, was that Intel didn't listen to its customers and didn't adapt to changes in computing technology quickly enough.

“It takes more than heroes to drive an organization of Intel’s size, scale and complexity,” she said.

Gelsinger himself is a former chip designer with a fascination for detail. Rivera said the company has implemented mechanisms to reward those who speak up. It also establishes a baseline for judging whether programs are on track and whether they will produce the technology that customers want. That means their fate won't be subject to the whims or hunches of their leaders, she said.

Rivera's former responsibility - networking - is now a bright spot at the company. Intel is gaining a growing foothold in markets such as mobile phone equipment, where it previously had little presence. The division, currently run by Nick McKeown, had sales of $2.3 billion in the most recent quarter. That's an 11% gain.

Rivera is also exploring new opportunities in the data center business. But Intel knows it must solve more fundamental problems and regain the trust of current customers, Rivera said.

"I don't think we'll be allowed to talk about anything else until the core franchise is healthy," she said.

Intel has lost market share to AMD and seen big customers like Amazon.com Inc's AWS switch to their own chips. At the same time, Nvidia has taken a leading role in the exploding field of artificial intelligence computing.

But Intel remains the biggest force in computer processors, even if it's no longer the dominant company it once was. At the end of the second quarter, the chipmaker's market share for servers running on PC processors was 86%.

Intel's outsized role in the chip business is one reason its product delays are so painful. Customers and many others in the industry have become accustomed to timing their own products and programs to Intel's schedule. When Intel proved unreliable, more customers began to defect.

And the suffering is not over yet. Gelsinger warned in July that delays in Intel's latest processor models could cost it more market share.

Gelsinger, an Intel veteran who spent 11 years at VMware Inc., is trying to make his ship more compact. Rivera said he often holds senior management meetings on Saturday and Sunday mornings and is doing everything he can to keep Intel on track.

But advanced microprocessors have a long history, and current executives will spend years dealing with past mistakes. Products planned for release next year and the year after must arrive on time for Intel to regain trust, she said.

"The good news is we're in a large and growing market," Rivera said. "The amount of data that continues to be generated in the world—that needs to be processed, that needs to be moved, stored, encrypted, compressed, delivered—continues to grow." Intel just needs to show up on time.

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