5 lessons tech companies should learn from Intel

Financial results for the past two quarters have fallen far short of expectations. In the most recent quarter, Intel reported earnings of just $0.02 per share, while analysts were expecting $0.10.

Additionally, the company has suspended dividend payments. Now, after laying off more than 15% of its employees, the manufacturer is looking for the best way to move forward.

What started as a slow decline has turned into a free fall. But as Intel tries to correct its course, other tech companies can learn from its mistakes.

1. Capital is essential

At its peak, Intel had a cash flow of $10 billion (or more) per year. But by 2022, that flow had fallen to the point of becoming negative, and things have only gotten worse over the past two years. This has hurt the company’s ability to fund its core operations.

Capital investments always involve risk – and Intel has made some bets, such as investing $100 billion in manufacturing artificial intelligence chips and introducing laptop chips with dedicated AI processors.

Investors estimate that the current value of the company is much lower than that of its facilities and other assets.

However, it arrived too late to make a significant impact, which cost it time and money. And the return on these bets is still a long way off.

There is a big difference between investing now to make more money in the future and simply wasting resources. Leaders need to be able to identify when they are moving from one situation to the other.

2. Know when to change direction

Changing course can be difficult. It signals to investors and employees that a mistake has been made. But not changing course can be an even bigger mistake—perhaps a fatal one.

Intel still makes money from its current business, but not enough to cover the investments needed to expand its manufacturing and supply chain. The lack of a plan for this kind of situation has likely cost it billions of dollars.

The chipmaker has a history of being slow to act. It failed to anticipate the shifts in consumer behavior in the late 2000s. And instead of focusing on the growing demand for mobile chips, it kept its focus on the PC market.

It also insisted on manufacturing its own processors while its competitors outsourced production. More recently, it missed out on the opportunity to lead the market for AI chips, allowing Nvidia to take over.

3. Staying ahead is hard, but catching up is even harder.

Intel’s current CEO, Pat Gelsinger, has been under a lot of pressure, but almost no one blames him for the company’s troubles. He took over in 2021, hoping to get the company back on track after a series of missteps by previous administrations.

However, regaining its former status is proving to be much slower and more expensive than expected, and research and development costs will only increase as the company tries to make up for lost time.

4. Regaining investor trust is an almost impossible task

The problems have intensified in recent quarters, but the warning signs were already there—and investors took notice. Over the past five years, Intel’s stock has fallen 63%. By 2023, it had fallen 50%; and by August of this year, it had fallen nearly 60%.

Investors are now much less optimistic and estimate that the current value of the company is much lower than the value of its facilities and other assets on the balance sheet.

Headcount cuts and turnaround plans may help to some extent. But until Intel demonstrates the potential to become a major player in the AI ​​sector or launch a product that plays a relevant role in future technologies, it will be difficult to win back investors who have abandoned ship.

5. Don’t advertise a product until you’re sure it’s ready

One of Intel’s bets was to become a fabless design studio to attract business from competitors such as Taiwan’s TSMC. But that plan was thwarted after Broadcom tested its process and declared the company was not ready for large-scale production.

Intel says the system will be ready next year, but the setback could have lasting consequences as confidence in the company’s capabilities is increasingly shaken.