Gelsinger Out at Intel, 20 Years of Structural Challenges and Strategic Blindspots, The Board and What’s Next

A closer look at Intel's fall from grace in the wake of CEO Pat Gelsinger's sudden retirement and with the company facing a fresh round of questions about its future. Topics include: Ben's overview of a 20-year run of paradigm shifts and strategic missteps, Gelsinger's strengths and weaknesses, CHIPS Act funds and a looming inflection point, and the murky path forward for American made chips.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Andrew Sharp?

  Hello and welcome back to another episode of Sharp Tech. I'm Andrew Sharp and on the other line, Ben Thompson. Ben, how you doing?

• 0:15Ben Thompson?

  A little worried, concerned. This is our second take to start Sharp Tech. We somehow talked about the weather for two minutes and it wasn't even funny. It was very boring because like the worst cocktail party you've ever been to.

• 0:26Andrew Sharp?

  Yeah, it is what it is. But look, we're going to spare the audience any weather chatter here. We have a lot to get to, a lot to wrap our arms around with the state of Intel. Once more onto the Intel breach here on this episode. For anyone who missed it this week, about 20 minutes after Monday's podcast published, news broke that Pat Gelsinger, Intel CEO, would be retiring after nearly four years as the CEO of Intel.

• 0:55Ben Thompson?

  I have to correct you. It not would be retiring, it's had retired a day ago. Retroactive.

• 1:01Andrew Sharp?

  Backdated. So that's how you know the board meant it. There were subsequent reports that he was ousted by the board. He was at Intel for about 34 years overall. He joined the company when he was 18 years old in 1979. A pretty incredible run overall. Obviously, the story was a little bit more complicated over the last couple of years. Intel, one of the most successful companies in the world for most of Gelsinger's time there, but he left in 2009 after being passed over for CEO. And then after returning as CEO in 2021, Intel's sales have fallen by nearly a third and the stock has lost 61% of its value.

• 1:45Andrew Sharp?

  So you wrote a fantastic overview of Intel's decline and some of the missed opportunities in the modern era.

• 1:53Ben Thompson?

  I mean, you have a wink here. I'm not sure which article that goes to because I feel like I've written that article five or six times through the years.

• 2:00Andrew Sharp?

  Yeah, 10 years ago, you were writing that article and you've just been sort of continuing to beat the drum. You do now get being right points. The decline, it was happening very slowly and almost imperceptibly if you were looking at the stock price. And then this past year, it's happened all at once.

• 2:17Ben Thompson?

  So, no, I've been completely right about Intel, but I think the, it's been right in a sort of academic sense or a podcast sense, in a takesman sense.

• 2:29Ben Thompson?

  The problem, and this is really the core of the problem for Intel. It's the core of the problem for what happened this week. It's just, it's a problem with the Intel board where a lot of this goes back to. The fundamental problem is that chips take a long time. It takes, the design of a chip is three years, maybe if you're really fast. The building of a foundry, four to five years. And the overall sort of roadmap of what you're doing, we're talking sort of decade-long time scales and the investments that go into sort of new technologies. You take something like EUV, the big thing and a factor in, you know, in Intel sort of falling behind in manufacturing.

• 3:09Ben Thompson?

  Intel invented the concept of EUV in, I think, the early 2000s or something like, it might even have been the late 90s. So we're talking these huge lead times. And it is such a challenging portion of the industry because you're making decisions a decade ahead of time that don't hit the financial results for years and years later. And so the issue with me and analyzing Intel, to make this sort of solipsistic and, you know, Why not? Self-serving here, is I was, in 2013, when my first article was on Chitchekri, I wrote that Intel needed to change to being a foundry. And the reason for this is if you zoom out in the long run of time,

• 3:53Ben Thompson?

  you need volume as a foundry. Like this, to make these chips, the upfront R and D, the upfront, so there's two factors, is upfront R and D, that's similar to say a software company, where that's the actual like talent to create the new design and the concept. But also what's different than software is you have upfront capital costs. You have to actually buy the equipment. And the equipment at this point is on the order of tens of billions of dollars to sort of get these off the ground. And so the issue is if you don't have volume, you're not going to make that up. You're, you're, these are costs you're spending regardless. So your profitability over time is a function of how much can you spread those costs?

• 4:38Ben Thompson?

  Over discrete units, all of which on an individual basis don't cost anything. The it costs a few hundred dollars for a wafer. That goes into things and off of a wafer comes tens or hundreds of chips. And so like the the cost of goods sold for it, actually, the biggest factor is frankly, electricity to make this. But the actual like cost of goods sold for a chip is miniscule. All the cost of a chip and its profitability is depreciation. And also sort of your your amortized R and D. And so so you you have to have volume. The reason why Intel was already in trouble in 2013, when I wrote that article. And the funny thing is, when I wrote that article, my sense then was that.

• 5:21Ben Thompson?

  Well, I just started Stratechery, so I need to say this, but I might be too late. Which was they missed mobile. And by now, the reasons they missed mobile are there's a lot of the the commonly accepted story. Was one that Intel told. Which was, and I think Paul O'Leary, the CEO at the time, he's he's he's since passed away. But basically say something in the lines of, oh, yeah, Steve Jobs came to us. We thought it wasn't going to be, you know, make enough money and no, turns out it was this huge market. Oops, what a shame.

• 5:54Ben Thompson?

  I've passed on that story before I had Tony Fadell, who was, you know, basically the creator of the iPod. And the hardware portion of the iPhone.

• 6:05Ben Thompson?

  This is actually how I had him on my podcast. He came out, he's like, no, you don't understand this. We're going to talk about this. And basically his take was no, Intel was never competitive. The issue for Intel was they were always focused on performance. Even when they had ARM chips, they owned a an entity called Xscale that made ARM chips. They were all Intel's always sort of assumed it's plugged in. And and so they've always been focused on performance. And the problem with the phone is obviously the most important thing was efficiency. And and he's like, they just didn't have the view and mindset or product to do that. And so he said that's actually Steve Jobs desperately wanted to go with Intel. And, um, you know, it was clear they quit for the iPhone.

• 6:48Andrew Sharp?

  Point, yeah.

• 6:49Ben Thompson?

  And and and according to him, and this is all in a in a Strucker interview that we'll link to. When the iPad came out, Jobs was actually still on, okay, let's go, let's go with Intel for this one. And they had to be like, if you put an Intel chip in this, we're walking out the door. Uh, it's just not, it's not gonna be sort of what's gonna work. And that's how Apple, and that actually is what drove Apple then to acquire P A Semi. Which is like, oh, okay, we're, if we want the performance that we want from an Intel, but we want the efficiency of ARM, we're gonna have to do it ourselves. And and the crazy thing is, these discussions were happening, like what chip goes in the iPad. This, the iPad launched in 2010, the discussions weren't happening then. They were discussing in 2006, 2007, before the iPhone even launched.

• 7:33Ben Thompson?

  Because this is the timelines you're talking about. And so, so, and so this timeline bit is sort of really important. So anyhow, I'm doing a massive weave here, but I promise to come back to the beginning.

• 7:43Andrew Sharp?

  Okay.

• 7:44Ben Thompson?

  So the issue is, uh, Intel misses mobile. ARM becomes the standard, and and this was devastating to Intel on a few regards. One is which, when you restart a platform, when you start from scratch, all the software lock-in that Intel had sort of didn't matter. And you, this is actually where Gausinger enters the story. So Intel starts out with this, what's called a CISC architecture. Um, this doesn't really matter, just the way that instructions are sort of ordered. And there was generally, there's CISC versus RISC. And the general thought is that RISC is just fundamentally more efficient. But for various reasons, the the initial Intel eight zero eight eight processors and then eight zero eight six, which is where the x86 nomenclature comes from, were CISC processors.

• 8:30Ben Thompson?

  And and so the Intel made the, uh, I believe it was, they had the eight zero eight six, they had the, uh, I think it was then the two eighty six or three eighty six. Somewhere along those lines, there was a real movement within Intel to say, we need to.

• 8:46Ben Thompson?

  Restart this. We're on, we're not on the most efficient path. And Pat Gelsinger was the leader of the faction that said, no. What we need to do is actually, we now have five, six, seven years of entities building low level software, assuming x86 chips. We own the PC market. Yes, in theory, the risk approach is better than ours, but it will take at least two years to rebuild the sort of software layer on top of that. So it'll be functional. And in two years, guess what? We will have learned how to make the chips even faster through

• 9:26Ben Thompson?

  our manufacturing process. And so Pat Gelsinger was, and he ultimately won the day. He, he was deep, he actually was the lead designer of the 486. I mean, he's a very technically capable, but, but the big thing was the strategic bit, was he won the day by saying, it doesn't matter that we're sort of structurally less efficient because of the software moat that we have. And we can make up for the lack of efficiency through our superior manufacturing processes over time. And he was 100% correct. It was absolutely the correct call. Intel came to dominate, was one of the most profitable companies in the world, you know,

• 10:09Ben Thompson?

  for, for years and years and years because they own x86. Now, the whole Sisk versus risk thing is sort of less important over time. Like internally, the way these processors operate has changed a lot and there's sort of a transition layer, but x86, so it's sort of a less important detail today than it was then, other than to say, Gelsinger was, was critical in this major strategic inflection point within Intel, which where the outcome of the inflection point was that there was no inflection point. We're going to keep on the path that we're doing because we have this sort of lock in. So you fast forward to mobile. And so number one, you can see this Intel sort of intrinsic dismissal of efficiency is long rooted, right? It kind of goes back to that discussion.

• 10:55Ben Thompson?

  Gelsinger won by pushing the

• 10:58Ben Thompson?

  We don't have to be the most efficient because we'll make up for it manufacturing. We need to have our software mode sort of view. And again, it was 100% the right thing to do. He was right. If they try to reset to risk, you're resetting the whole ecosystem. You're giving up your advantage in the pursuit of a more elegant solution that opens the door for other companies to come in and compete with you. And so, so it was absolutely the right thing to do. And, but, but you fast forward to, to, to mobile. Just Intel structurally and culturally is a company that's optimized on efficient, is optimized on performance, sorry. And they gain that performance through their manufacturing process. Yeah. And so that's number one. So you, you get to mobile.

• 11:41Ben Thompson?

  And the problem with mobile, as I just discussed, is efficiency matters most. So that's number one. Number two, the key thing that Apple did with, well, like Microsoft, they were just trying to do a small version of Windows on the phone. And they sort of assumed they'd have sort of a compatibility and, you know, it'd be easier to port their programs and all those sorts of things like their, when like Microsoft mobile had a start button on it, like just to, like it was, it was definitely just a small version of Windows. And Apple correctly and appropriately realized, no, we need a complete reset. Yes, we will use the kernel of Mac OS, but everything in user space, everything that, that, that sort of matters is going to be completely rebuilt from the ground up. Guess what?

• 12:25Ben Thompson?

  If you're completely rebuilding from the ground up, suddenly all those little advantages, and if your number one priority is efficiency, there, the, the gains of staying on X86 kind of disappear because you're rewriting everything anyway. And, and, and this was, this was such a critical moment for Intel. It wasn't just that they didn't get those sales. It's that mobile inspired a ground up rewrite of all software.

• 12:55Andrew Sharp?

  Right.

• 12:55Ben Thompson?

  That actually undid sort of Intel's, Intel's core differentiation and moat in their sort of advantage. And so, so you fast forward, um, and so Intel has this, and then of course you have the classic disruption story of arms gets better and faster and there's all this volume behind it. But so Intel had this big problem in 2013, which was number one, we don't have the volume of mobile. Having volume is critical, especially as every time we, a new technology is introduced, like you go to FinFET, or you, you fast forward, you go to EUV, you, it gets so much more expensive, you need volume to do that.

• 13:33Andrew Sharp?

  And when you say you need volume, you, you need volume from third parties. And that's what they could have done had they gone the foundry direction.

• 13:41Ben Thompson?

  Well, so you just see volume period, wherever that volume comes from. In a perfect Intel world, they have the best performing mobile chips. And so everyone is just buying mobile Intel chips like they did for PCs. But that was my point in 2013.

• 13:52Andrew Sharp?

  They had already missed the boat there.

• 13:54Ben Thompson?

  You missed the boat, so you need to get in back on that wave. The only way to get back on that wave is to become a foundry so that, and, and what you can do is you can go to an Apple and say, look, well played, you got it, arms the winner. We have the best manufacturing, let us help you make the fastest possible chips. And, uh, they obviously, number one, did not do that. And then number two, everyone points to this as the Intel fail, as the Intel failure. But as we just recounted, actually they were in serious trouble before this happened, which was they got stuck at 14 nanometer and then 10 nanometer. And, and, and, and so, and, and TSMCs are past them. The reasons for this are long and complicated.

• 14:39Ben Thompson?

  You know, getting EUV to work was a real challenge. It was massively expensive. Intel felt confident they could use their old DUV sort of approach, do this sort of quad patterning. And they could get it to work. This is sort of relevant to the, to the SMIC and Huawei seven nanometer thing. They could make a 10 nanometer chip. They just couldn't do it in an economic fashion, which means their yields were too low. To spend the amount of money to scale that up, they would have been, they would. They they wouldn't have been able to make it up, make it up in volume as it were. And so, so, um, so they get surpassed. And suddenly that advantage that I was highlighting in 2013, look, you can still partake in the future. You just have to be a manufacturer. You're gonna need volume in the long run. This is actually a much rarer capability than chip design.

• 15:24Ben Thompson?

  Cause the other thing that happened was TSMC came along. And this fact, to have a foundry, you had this explosion of fabulous chipmakers where they could create their own chips without having to create their own foundry. And so suddenly Intel, like, like the, the design bit was, was less important than it used to be.

• 15:40Andrew Sharp?

  Yeah.

• 15:40Ben Thompson?

  Right. And so, so this is the reality is, is that Intel, Intel by 2013 was already screwed. Now, to take this back where we started, Intel's results and stock price returns in the 2010s were phenomenal. And this was, this is the challenge that I felt as an analyst, where I was 100% right. And yet, if you believed me and chose stocks based on what I wrote, you were getting screwed. If you shorted Intel, you're really screwed, but at the minimum, you're missing sort of all this sort of upside. And the problem is, uh, in general, I'm sort of skeptical of the, uh, people like to blame the stock market for sort of making short-term decisions.

• 16:24Ben Thompson?

  But this is an example that is very much in sort of the critics' favor. The, the, the, the stock market theoretically is valuing the long run terminal value of a company and all these sorts of things. That was not happening with Intel, because here's the reality. By 2013, when I wrote that article, Intel was screwed. The extent to which they were screwed was not fully visible until 2016, 2017, when TSMC passed them. But they were already screwed. And that was not reflected in the stock price until 2022 or so, when Pat Gelsinger is suddenly back as CEO.

• 16:58Andrew Sharp?

  Right. Well, you talk about timing. I mean, Pat Gelsinger takes over and now tries to employ the plan that you proposed basically a decade ago, but they are too late.

• 17:10Ben Thompson?

  Okay. Well, here's another, here's another, uh, bit of, of history that is Pat Gelsinger related. So one of that, uh, one of Gelsinger's big projects before he left was called Larrabee. So I was pretty critical of Larrabee, but just to sort of explain what it was. Larrabee was basically a Nvidia competitor. Uh, where it was a, a, what's the word, uh, GP GPU or GC, it was a general computing on GPU, GC GPU. Where basically Nvidia started by making chips that were just for 3D graphics. But then they realized, wow, there's actually a completely different kind of computing. You can do on GPUs, this massively parallelizable computer. And Intel started out Larrabee as sort of a graphics competitor, but they sort of pivoted to like, no, this is just going to be a parallel compute architecture.

• 17:53Ben Thompson?

  And Larrabee, as you would expect from someone that was, uh, that was led by Pat Gelsinger, was x86 based. So all these little cores on there were x86 cores. And so on one hand, you could like, that's what Intel did. It's what Pat Gelsinger did in particular. No one was more married to x86 than he was. On the other hand, you like, uh, you could see that could potentially have real gains in terms of programmability. And like, there's like just understanding how it works. Maybe it was the wrong approach, like Intel's trying to shoehorn x86 into literally everything. They want mobile x86, they wanted, you know, all these, all these bits and pieces. So there's a lot, like, I generally thought Larrabee was a over, you know, a little too.

• 18:36Ben Thompson?

  The x86 focus didn't necessarily make sense. But in broad strokes, in sort of the grand scheme of things, it was in line with the future, which is this parallelizable sort of capability. And that Nvidia was a long-term threat in terms of taking over processing workloads. So Pat Gelsinger, uh, leaves in 2009, goes to EMC, eventually becomes the VMware CEO. And a year later, or six months later, Larrabee's killed. And, uh, and, you know, again, political infighting, whatever it is, again, some people don't just think it never would have worked. We're not here to sort of legislate

• 19:14Ben Thompson?

  where it be, other than to note that Intel also is suddenly sort of is nowhere in terms of the future of computing, which is AI. And this again speaks to the time scales. Like there is a, I just read the Nvidia way by interviews with Take Kim, the author of it on Shekri, which you know, will be coming out today as well. And he recounts this meeting in 2013 with, with Jensen Huang, where he's all in a panic because this AI sort of approach is we're a little late to this. All hands on deck, we're resetting things, we're moving forward. And you know, Nvidia was actually already very well placed.

• 19:59Ben Thompson?

  They had just in general, the idea of shaders, this paralyzable platform. They'd already invented CUDA back in 2006, which by the way, Nvidia was murdered in the stock market for doing. Like they were spending all this money, they were spending money on CUDA in two ways. Number one, the R and D costs were astronomical. So they were, to build this out, they're basically building out an entirely new platform and operating system and all these sorts of things, not operating system, but you know, that sort of platform. And then number two, they were putting CUDA dedicated cores onto their chips. So onto the chips, it's a, it's, it's die space. It's like, it's actually a cost because either number one, you're making your chips less

• 20:42Ben Thompson?

  performant because you're taking up space to put on these other cores that aren't useful for games, or you're making your die bigger, which means your yield's going to be worse because the likelihood that there's a defect on the chip goes up the larger the chip is. And so it was hurting their margins. It was hurting sort of their, their, their cash flow and Wall Street was killing them for that. They had an activist investor on board who was like a very upset about this and then you have to do this. And, and, and yet you look back, this period, 2006, 2013 is the foundation of everything that's happened to Nvidia over the last four to five years. Like this is how it works in semiconductors. The lead times are even longer than you think.

• 21:23Ben Thompson?

  And at that time, Nvidia was making the right investments and Intel was killing them and killing the appropriate investments on their side. And, and the whole point of all this is

• 21:38Ben Thompson?

  This is the period, this history that I'm talking about that seems ancient. This is why Intel's stock is in the dumper. This is why the results are down. They lost the x86 advantage because of mobile. Mobile starts this rebuild of low level software. You fast forward and not only does ARM progress extremely rapidly, but also when an AWS comes along and says, we should put ARM in our servers. There's already a ton of low level software written for it because it was already developed for mobile. And so they're like, the just ARM becomes dramatically more capable. One of the big things that Rene Haas, the current CEO of ARM has done, in part with Tony Fadell's help, who joined the board a few years ago.

• 22:21Ben Thompson?

  But, but is sort of ARM had this poverty mindset, which is, oh, we are just like the chip that's used for like your power windows in your car. And we can't sort of raise the price too much because, you know, someone else is going to come and disrupt us. What he realized is actually the whole mobile revolution has built up a software moat around ARM that is just as good as the x86 one used to have. So guess what we can do? We can jack up prices. We can force you into these new contracts. And that's why like the ARM sort of like, I got the ARM IPO wrong. In part because I was, I was a little too anchored on their, their just crappy business generally and sort of historical returns. And what Rene Haas got right is actually no, we have a lot of capacity to jack up price

• 23:04Ben Thompson?

  because everyone is stuck with us, just like Pat Kelsey realized. Everyone was stuck with x86 back in, back in the 90s. And, and, and, and all that's downstream, downstream from mobile. And so now you have ARM in the data center that is infringing on, on Intel and AMD both. You have AMD with frankly, better architecture and also on TSMC, a better process. That is, that is pressuring Intel. All this pre is before, it happened in the period. Well, some of it happened when Gelsinger was there. Again, the miss for mobile, he was there. But all this intervening period, it all happened then. And so there's a lot of mistakes that Gelsinger made, which we can get to in a moment.

• 23:44Ben Thompson?

  But the key thing is that all the problems Intel has go back years and years and years.

• 23:52Andrew Sharp?

  Right. Gelsinger's failure was a failure to stop a spiral that he didn't necessarily start, although it is interesting that some of his decisions were part of the failure to...

• 24:04Ben Thompson?

  Okay, well, so let's get to what his plan was. So you go back to right before or right around when he took over, I wrote an article saying that Intel needs to split up. And the reason is that, look, the design business over time, like Intel owns markets like on-premise and government, and they do very well in PCs. They do have a lot of surrounding technology. And also, like, an Amazon or a Meta or Microsoft is going to do the work to get AMD at par. If you're sort of like, you've been building on Intel forever, like a government agency, you're not going to buy anything else. It's just like, so they have, they have like, they

• 24:44Ben Thompson?

  have good, safe markets. Like, it's not growing, but you can bring a lot of money out of it, sort of, over time. And that sort of like, you become just a fabulous business, you become like AMD. And then you have this foundry bit, which kind of is behind and doesn't have a reason to exist outside of sort of national security concerns, to be totally frank. Like, there's just no economic reason. TSMC is ahead, they have scale, they're structurally better because they don't compete with their customers. And you really, and so...

• 25:14Andrew Sharp?

  So, before we get to Gelsinger's plan, that was one of my questions. It's like, and we're now 25 minutes in, great overview of Intel history and where it all went wrong. But why is Intel important today? Is Intel important today? They don't make the best chips anymore. They don't have the best manufacturing. And, you know, what used to be a central role in the story of American technology now looks more peripheral or ceremonial. So like, is that an unfair assessment of where Intel stands in 2024?

• 25:46Ben Thompson?

  Economically speaking, no. Um, there's no reason for any company to uh work with Intel when they can work with TSMC. And TSMC is kind of going for the kill. Like, they're, they're building a ton of 2 nanometer capacity. They built a ton of 3 nanometer capacity. They're not giving space to Intel, um, which is, I mean, kudos to them from a business perspective, but that is one of the many problems sort of Intel faces. Uh, and then, yeah, the x86, I mean, yes, there, there are niceties and advantages that come with Intel chips, uh, as opposed to AMD, like, and there's things like Firewire and, and some of the various standards that they're involved in, uh, not Firewire, Thunderbolt. Um, but so there, there's, there's things that, uh, but by and large, no, there's no, there's not really

• 26:27Ben Thompson?

  a reason for them to exist. There is a long run, uh, I think one of the critiques of TSMC is they did bring EUV to market. In the history of semiconductors, every few years, there's some sort of transformative new technology that has to come to keep Moore's Law going on. And, and the thing about Moore's Law is it's not an inevitability, it's a choice. You choose to figure out what's, like, we hit a wall here, what's something else we can innovate on, to sort of figure out what's going forward. And people are locked onto lithography, because most people never knew what a chip was until three years ago, and at that time lithography mattered. Lithography was just the current one. Before that, before lithography, it was FinFET. So FinFET was, uh, changing, basically making, uh, transistors

• 27:11Ben Thompson?

  3D instead of 2D. And of, of extremely difficult, costly change, that was pioneered by Intel. EUV was pioneered by Intel. Backside power, which is a, a new shift coming forward, was pioneered by Intel. The reality is, is that Intel, for all their flaws, has been the driving force between Moore's Law. They, they are the company that just has relentlessly, not just pushed forward their chips, but has been investing and thinking about long-term technologies.

• 27:43Ben Thompson?

  To the extent where TSMC is just been copying what Intel did for almost its entire existence.

• 27:49Andrew Sharp?

  Okay, so does that culture still exist? You wrote on Tuesday that they spent a decade throwing spaghetti at the wall. Culturally, can they?

• 27:57Ben Thompson?

  That was a product perspective. From the actual, like, what's happening, like, so Gate all around is a new transistor type and Backside Power? That is downstream from Intel. Like, I think there's legitimate questions and concerns. Is TSMC, yes, again, the EUV was great. But again, that was ultimately an Intel invention and ASML played a big role in that. And for various reasons, Intel didn't. But is TSMC culturally capable and willing to push through Moore's law? To keep it going? Can they be the standard bearers for it? I certainly hope so, but I would say that remains to be seen.

• 28:34Andrew Sharp?

  Is that a challenge that all of these companies face? I mean, it's similar to Intel where they had really successful business lines 12 and 13 years ago and didn't want to disrupt that.

• 28:45Ben Thompson?

  Here's the core Intel problem. This goes back to my, my general view on life and people in general. Like, when I give career advice or whatever it might be, which is you have to understand two things. Number one, your strengths are your weaknesses. There are two sides of the same coin. Number two, you should focus your career on accentuating your strengths and doing the bare minimum necessary to ameliorate your weaknesses. Like, that is how you get a friend. And so many people, they get so frustrated with their weaknesses or they see the weaknesses in others without appreciating that is part and parcel of the strengths. And they want a world of no trade offs where you just get all the best thing of everything. But then number two, they spend way too much time sort of ameliorating their weaknesses.

• 29:29Ben Thompson?

  And the reality is, is Intel is, if they were a person, it's the cockiest son of a bitch you've ever seen. They think they're the best in the world. They think they can defy physics. They can defy the limitations of, of materials, of light, of quantum mechanics.

• 29:47Andrew Sharp?

  Right.

• 29:47Ben Thompson?

  And you know what? For 50 years, that's exactly what they did. And the problem is that the sort of entity that does that and is capable of that is really horrific to work with. Everyone hates Intel in tech. Everyone hates them. They they've treated everyone like crap. They screw you over. They they like, well, if you try to work with them, they're they'll steal your tech and and they're they're just and and their their whole way their processing would work was their manufacturing was such king of the world. They would like tell the design what to do. You need to adjust to figure out to work with us, X, Y, Z. All of this is the exact opposite of how TSMC works. TSMC is there to serve you.

• 30:30Ben Thompson?

  They're going to help you out. They're going to figure it out. They have great customer service. They're going to have all the pieces you need. They're going to like adjust, like try to figure out, oh, can we adjust our process to get this to work for you? All these sorts of things. And I think the the and so so the problem with Intel becoming a foundry is they ended up in a situation where their success depended on getting really good at the exact stuff that they were bad at. And that's just that's just a tough place for a a person to be, and it's a tough place for a company to be. And on the flip side, the worry I have about TSMC in the long run is they are too good at customer service.

• 31:10Ben Thompson?

  And do they have the arrogance and the annoyingness to work with to force the industry forward by sheer force of will?

• 31:17Andrew Sharp?

  Push it all forward. Yeah.

• 31:19Ben Thompson?

  That's right. And so and so and so like, and so the problem, the the the point I came to a couple of months ago, and I was so angsty writing this article, I felt angsty afterward, and I still feel angsty today, like to do like, is that this cultural problem can't be overcome. I just don't see how Intel ever acquires a meaningful customer base outside a a national security incident.

• 31:42Andrew Sharp?

  And that's the answer to why is Intel important today? It's a national security concern going forward is the way the American government has framed it anyways.

• 31:50Ben Thompson?

  Yeah, the US, the US is like, like we we talked before, like, like Trump has accused Taiwan of like, you know, being like the mafia and holding them up over chips. And the reason why, uh, number one, that's correct, because number two, it's true. We are completely dependent on Taiwan and Taiwan does not properly invest, in my estimation, in multiple facets in its own sort of self-defense, because it just assumes the US will save them because the US has no choice. And so

• 32:14Andrew Sharp?

  Everyone's right.

• 32:16Ben Thompson?

  Yeah, the people again, this is it's an all time example of people getting really mad at Trump for saying something that's like just 100% true because of the way he said it.

• 32:25Andrew Sharp?

  Well, and Taiwan and TSMC is they are also correct that we have no better option but to defend Taiwan.

• 32:30Ben Thompson?

  That's right. And so, so the thing I kept coming back to is like Intel's never going to fix this cultural problem. I think that's a reason they don't have any customers. No one trusts them. No one thinks they'll do it. Now no one's going to really trust them, right? Especially after they just kneecapped the guy that was building out this whole thing. And so just to go back to Gelsinger's plan, his plan, he comes back to Intel and he's like, yeah, we're going to become a foundry. We're not going to split. We're all in. And there's a lot of logic to that. If you're going to build a foundry and you want to get customers, but you have, you need scale and Intel has its own scale. They sell a lot of chips. And so they were sort of their first best customer. The concern all along is if you don't truly split Intel, can you actually have a customer centric foundry?

• 33:12Ben Thompson?

  And I think that was the sort of the concern of lots of folks. At the same time, by all accounts, Gelsinger did a really good job fixing their technical processes. Like they're coming out with 18A next year. Now it's still TBD how well this is going to scale. They have their own internal 20A or do they skip 20A like Intel 3? Their the cost, their margins were horrible last quarter because their costs were out of control when they tried to scale it up. This is the big problem with the whole five nodes in four years. There's a lot of learnings and tacit knowledge that comes from not just inventing a process, but scaling a process. And it's TBD if Intel can scale 18A in sort of a meaningful way, but 18A is a is a big technical achievement.

• 33:53Ben Thompson?

  It's new transistors, gate all around transistors, and it's a new, it's backside power where it used to be, you would have sort of the transistor level. And then you'd have these, all these communication wires, you have power on top. And the problem is these wires are getting thinner and thinner. You'd have this real problem of like interference of like trying to send power down these big thick cables and all these communication cables around it. Now you're putting power on the bottom, transistors in the middle and the communication layers on top, which is much more elegant. You don't have the interference problem. It's also much more challenging because you're, you're. In your process, you're laying down all those power layers before you do the transistor layer, which is the most fragile, which means if you screw up on the transistor layer, you're throwing away a lot more work than you were sort of previously. That's why transitions

• 34:38Ben Thompson?

  run the bottom first. You do the hardest stuff first, uh, because if you screw up, then you, uh, you, you lost sort of less process time. Um, so we don't know if it's going to scale, but it is a technical achievement. It is the sort of achievement that is helping push the industry forward, which is what Intel does. And, uh, my view is, look, at the end of the day, there's not an economic reason for the Intel foundry to exist. To the extent we want it to exist, the US government needs to pay for it. If the US government's going to pay for it, it needs to be, to be viable in the long run, it needs to be separate from Intel.

• 35:14Andrew Sharp?

  A standalone entity, yeah. Because the third-party customers, we've talked about this in the past, but the third parties that would potentially be working with Intel are taking a risk on a process, a manufacturing process that may not be as reliable as TSMC. It may be more affordable in the short term, but like, also, if it works-

• 35:35Ben Thompson?

  It might be faster too. It's possible that Intel does retake the, the process lead, by the way.

• 35:39Andrew Sharp?

  Well, but the other concern for third-party customers is that if Intel is also serving itself with that foundry, then Intel is going to get the priority going forward. And so it, it makes more sense to sort of sever the connection, uh, if you're trying to market as a service business to third parties. Is that right? Am I remembering our previous conversations correctly?

• 36:01Ben Thompson?

  I think that's correct, and you also can't overstate the extent to which everyone hates Intel. Like, it's, it's, it's a very real and true thing that I think is underrated by, and this is one where all the analysts, there's a lot of semi analysts that got mad about my article and really disagreed with it. And I think they, they had all intellectual reasons that were correct. I think this is one area where I was influenced by being in Taiwan. And in Taiwan, I've, I've known lots of people that work in lots of suppliers and lots of areas that do semi-chips, and, uh, you just can't escape that sentiment. Like, there is a sense where you have people on an intellectual level want Intel to succeed because they understand why it was important, and they're also just delighting in their

• 36:41Ben Thompson?

  downfall because they fucking, excuse me, because they hate those guys, right? Like, and, uh- Yeah, so to your point, the other bit about is if you go with Intel for a major chip order, TSMC is not going to let you back in. Like, you're back of the line. And, and guess what? You can't afford to be back of the line today with TSMC.

• 37:01Andrew Sharp?

  It's a very competitive line with TSMC these days, yes.

• 37:04Ben Thompson?

  That's right. That's right. And, and TSMC was, you know, I think TSMC can be hardball in their own right. They can actually be very hardball. And this was a, or play, play hardball. And so, yeah, you were just sort of stuck in this limbo. And I do think that, you know, so anyhow, we could talk about sort of paths forward, but that was the situation. And so, I do, I do think there's a bit where if only, again, Gelsinger's overall view of the world may have been incorrect. It was a view of the world that led to Intel missing mobile.

• 37:41Andrew Sharp?

  Hmm.

• 37:43Ben Thompson?

  And so, in where I be, I'm not sure was the right, it was in broad strokes, in the right area, I'm not sure if it was the right approach. But if Intel would have embarked on this manufacturing shift in 2012, 2013, when I sort of wrote about it, not only would they be partaking in the volume of mobile, they'd also be partaking in the volume of AI. Like, that's how you, like, and this was my point, the way, like, if you're a founder, you're going to take part in everything. And, uh, which is not just a good thing, it's also a necessary thing, because you sort of need the volume. And so, I think Gelsinger's plan was the right one a decade ago. If Intel had done that and embarked on this, they would be in great shape right now. The problem is, is by the time you fast-forward

• 38:28Ben Thompson?

  a decade, is it doable and viable? Or is it sort of gone too far? And so, this is why I have a real, on one hand-

• 38:35Andrew Sharp?

  I mean, there's a real symmetry. Both you guys were dead on, but off by 10 years. So, it's great.

• 38:41Ben Thompson?

  Yeah, I mean, and this is why like I gave him a lot of rope because I think this is unnecessary. Now, big mistakes he made, if you're embarking on this, you have to realize every dollar of cash is critical. He needed to kill the dividend day one. They've spent billions on dividends since he was CEO. They needed to lay off a lot of people on day one. You needed to realize you're going to have a massive cash crunch to pull this off. And I think there's a bit where, and again, is that his fault? Is that the board's fault? The reality is, Intel's board is an absolute disaster. It's one of the worst boards in the history of technology. They've been a problem for years and years. They've hired the wrong CEOs again and again and again. They've been focused on short-term shareholder

• 39:26Ben Thompson?

  outcomes again and again and again. This dividend has been their number one priority again and again and again. And the reality is, they were a decade behind doing what they needed to do. They were 15 years behind having missed mobile and thus fundamentally changing their long-term trajectory. And this piece of crap board has not recognized or realized a single thing. And if you are going to bring Pat Gelsinger back in 2021, and he says this is the plan, and you say you support him, then it's like, wow, you actually are putting your rear end on the line because this might not work. It's super aggressive. It's going to be really hard. But hey, if you're all in, you're all in.

• 40:07Ben Thompson?

  And then to turn around three years later and fire the guy because of results that are downstream from your lack of governance is disgusting. Every single person on that board is disgusting and should be ashamed of themselves. And yet, they seem to have no, no awareness this is the issue. You can go back and say, actually, Gelsinger was the wrong guy for the job because Intel was already dead. And they should have embraced that, and they should have split the company and had this pathetic x86 design team that can muddle along and make their little chips for PCs and government entities, and get someone to take on the foundry and try to build something better. That would have been a legitimate outcome. That's exactly what I prescribed when Gelsinger took over. But

• 40:51Ben Thompson?

  if you're going to commit to this guy, if you're going to go down this direction and then give up after three years, you have no right to be anywhere near the boardroom of a chip manufacturer, a business that requires decision-making in decades. These guys can't look back a single quarter. It's disgusting.

• 41:10Andrew Sharp?

  Wow, lot of heat there. I love it. So we should also note another mistake that Gelsinger made is he did not lay off enough people because this was going to be really expensive.

• 41:21Ben Thompson?

  I did mention that, but like, and the question, like, I also feel sympathetic for him. Like, the one thing that really screwed Intel was COVID. And the reason it screwed Intel is because they had phenomenal results that were undeserved. And when you're getting phenomenal results, your stock prices back up, it's hard to lay off a bunch of people and it's hard to kill your dividend. And so I'm actually, even though those critiques, I'm fairly sympathetic to them. Where I'm less sympathetic is Intel, to take this job and to try this, you have to be a really optimistic guy. And again and again, Intel's forecasts were too optimistic. I think there was a real CFO failing as well. Gelsinger needed someone in there who was

• 42:03Ben Thompson?

  just the biggest wet blanket of all time. That was like, that would have seen the COVID overhang ending.

• 42:10Andrew Sharp?

  I mean, I came away from the Gelsinger interview on Sir Tekkari a couple of years ago, rooting for him and also feeling like, maybe this can work because there was just a lot of positive energy and sometimes that's what's required. Yeah, exactly.

• 42:23Ben Thompson?

  Intel needed that internally, but they needed a CFO that was going to make sure they didn't overforecast and then miss projections and all these sorts of things. And again, could he have realistically pushed through a cut to the dividend and a cut in workforce during COVID when their results are great? Probably not. That doesn't change the fact it was still a mistake. Like, that should have happened sooner. But Gelsinger was clear. I asked, the first question, I've interviewed him twice, the first time I interviewed him, this is the first question I asked, was about this split or whatever. And his answer was, if you wanted to split, I was the wrong guy for the job. The board agreed with me, they're behind me, this is what we're going to do. Well, guess they're not agree with you and behind you anymore. This idea that you're going to execute this plan and see results

• 43:05Ben Thompson?

  in three years, it's infantile. Again, you can go back and say, okay, Pat, you're not the right guy for the job. We're not going to hire you because we're not sure we can do this. Okay, that's mature board management. To hire the guy and say you're behind him and to fire him after three years, it's disgusting. There's very few episodes in technology that have made me more disgusted than this one. Even as the board might be correct, it might be the wrong plan, but it doesn't matter. You don't sign up for it and go for it and give up after three years when you're the idiots that didn't see this coming a decade ago.

• 43:39Andrew Sharp?

  There you go. It sounds like the arrogance at Intel has actually yielded real benefits over the course of the last several decades.

• 43:48Ben Thompson?

  The board are not technologists.

• 43:49Andrew Sharp?

  It's just arrogant.

• 43:50Ben Thompson?

  No, there's all these finance people and like they, the, the, the, now again, I don't want to, I'm not necessarily going to the mat for Pat Gelsinger. I think the plan might've been a bad one. There's, you know, he's also of, by all accounts, a pretty arrogant guy that thinks he's always right about everything. I think he made a lot of really critical mistakes. Intel regularly like was carrying too much inventory. They didn't understand consumer trends. They had some real misses in terms of products. Their margins exploded out of control last quarter because they, they had scaling issues and things like that, which they didn't forecast anyone on the streets. So it was a total surprise that that's what sort of triggered all this sort of, sort of right now. He's made some real fundamental management. It's, it's interesting.

• 44:34Ben Thompson?

  I'm criticizing these folks for all being finance folks. Gelsinger screwed up a lot of the financial stuff.

• 44:38Andrew Sharp?

  Could've used a couple of finance folks.

• 44:40Ben Thompson?

  Yeah, exactly. But, but again, just it's the broader, it's the broader trend of Intel having its eyes closed as they wandered into this ditch.

• 44:51Andrew Sharp?

  Well, and it's also, it's just completely incoherent to bring Gelsinger back in 2021 and commit to this path. And now a couple of years later say, oh my God, look at the stock price. Someone needs to take responsibility for this and we need to go a different direction. I hear what you're saying. I love the energy out of you. You said you got a good night's sleep for the first time in a week since coming back to Taipei. I can feel it here on the podcast. We've gone too long though, without talking about what's next. So there's an email we got from Sean and I actually had a similar question, reading your daily update earlier this week. So Sean says, hey guys, in Tuesday's daily update, Ben noted that the CHIPS Act grants Intel $7.9 billion for investment into America.

• 45:37Andrew Sharp?

  American fabs, but requires Intel to own at least 50.1% of Intel Foundry. Ben then concluded in his update, "The Intel board has cold feet about Intel's Foundry efforts, and this provision forced their hand. The best way to quote, 'Put our product group at the center of all we do,' which is a quote from Intel, "is to preserve the ability to separate it from the Foundry business and potentially go fabulous, just as AMD did 15 years ago. That option, however, is about to be foreclosed." So, and Sean's question is, is Ben implying that Intel's board is now on a path to,

• 46:15Andrew Sharp?

  one, selling Intel Foundry off, and two, returning the about $8 billion back to the Department of Commerce? This seems ludicrous to me for a company that lost over $16 billion last quarter, driven by the Foundry investment. Or, he asks, is the case that Gelsinger wanted to take the money to go all in and bet the company on Foundry, but the board said, "Maybe we just take the chips money, half-ass this Foundry thing, go fabulous and contract everything to TSMC, then ask the government for more money when the fab stuff fails." Do you have thoughts on that question? Because I wasn't sure what exactly you meant in terms of the board getting cold feet and the path that they've chosen to go down at this point.

• 47:01Ben Thompson?

  So, at the end of the day, it's all about cash flow. And Intel is, the reason why all the panic is about Intel is they have a potential cash flow problem. They have like $25 billion on hand or something like that, but they lost like $6 billion last quarter. So, and again, this isn't about profits. Because the profits for a semiconductor company are very divorced from the actual reality. Because again, there is cash out the door to buy this equipment that only shows up in the earnings as depreciation over a number of years. And like, when you're building like a shell, that shell might be on a 30-year depreciation schedule. The equipment might be on a five-year depreciation schedule, I think is what it usually is. But the point is, it's not actually hitting the numbers until you're actually, you know,

• 47:45Ben Thompson?

  producing this sort of stuff, but the money is going out the door. And so- There's a bit where Intel could take the world's largest loss of all time by simply stop buying stuff and writing down all the stuff they've bought. But that doesn't change, that's not like they would report like tens or hundreds of billions of dollar loss. But that doesn't, it actually improves their cash flow position because they're not sending money out the door anymore. Right? Like they're, they're successful chip in the market right now. Lunar Lake is made by TSMC, like TSMC is spending the money there. And so there's a bit where like, sorry Sean, it's not ludicrous. Like it's a, it's a cash flow issue. They can stop buying stuff and fix their cash flow sort of issues.

• 48:29Ben Thompson?

  Now, again, a massive accounting loss, but from a cash flow loss, you know, they can sort of get a better position. So the issue with this, this CHIPS Act grant is, again, it's not very much money.

• 48:42Andrew Sharp?

  I was gonna say, eight billion dollars is really not much money.

• 48:45Ben Thompson?

  It's not much money. This is just an aid, a, a, a help. It's not even remote, these fabs cost like 20 billion dollars. It's not gonna really help, or it's not gonna pay for it. And it comes with the tie that you're locked in to the foundry business. Because guess what you can't do? You can't sell it off for pieces, right? Now, Intel could sell, they have all this equipment, right? Uh, you know, it's gonna be a boon for, they bought high N A EUV machines from ASML, which is like to get to like one nanometer and beyond. Uh, TSMC I think has bought like one from ASML. It's driving ASML crazy. They keep replaying on the earnings calls because TSMC is like, oh, we don't need it yet. Again, number one, TSMC being conservative.

• 49:28Ben Thompson?

  Uh, number two, um, they're, they can hold out, there's no rush, you know? This is why when people say like, oh, why doesn't ASML take all the profits in the industry? It's because they have one buyer. That's why, like they're, they're gated by sort of the, the overall thing. And, um, and so maybe it'll be like, hey, we'll sell off our high N A machines. We'll just sell them to TSMC, right? Because we're, we're closing down our fountain. Like they can get some of this money back. They can sell the pieces. They can like, Intel, by the way, has been selling a ton of stuff to the Chinese, uh, over the last, uh, they've been selling off everything. All their old stuff, anything that Moves Intel's been selling for a while. No, they have been. They have been. You talk to people in the supply chain. It's been a big thing of all this intel equipment, old intel equipment that is just sort of being sold off for, sold off for pieces.

• 50:10Andrew Sharp?

  Sad beleaguered national champion here. So.

• 50:13Ben Thompson?

  It is, it is an irony where they're the national security champion and they're just selling equipment left and right to China.

• 50:18Andrew Sharp?

  Whatever you guys need. We just need cash. So.

• 50:21Ben Thompson?

  It's been a lot of it happening.

• 50:22Andrew Sharp?

  Would they actually give the $8 billion back in that scenario?

• 50:25Ben Thompson?

  Well, so I was reading through the Intel disclosure and basically all the penalties are like, you have to give the money back. There was one, which is, and other things that are available to the Department of Commerce. It's not like, basically, this is my view of what happened. And this is influenced by the suddenness of this decision and why over Thanksgiving weekend and he's retroactively retired to a day before. Taking this money and spending this money is an aspect of we're truly committed to the IDM 2.0, the Pat Kelsey vision.

• 50:57Andrew Sharp?

  Yeah.

• 50:57Ben Thompson?

  And I think the board has had cold feet about it for a while. And this was a forcing function where we're truly locked in. And I think that they got very, this is pure speculation, to be clear. My sense is, like I said, they got cold feet. And like, well, we need to preserve our, our options, X, Y, Z. And I think Pat Kelsey was like, you said you supported me on this. We're going down this road. And they're like, eh, and he's like, if you don't go down this road, I'm out. And they're like, so we put the retirement for yesterday. That's, that's my, that's my, I think just the, the circumstances around it. That's my view on what happened.

• 51:39Ben Thompson?

  By all accounts, the board was pretty blindsided by this. They have no one in place. There's no succession plan. Kelsey was like, yeah, I'm not staying on as a consultant or it's not chairman emeritus or whatever. He's just, he's like, fine, I'm out, I'm done.

• 51:50Andrew Sharp?

  Yeah.

• 51:50Ben Thompson?

  And by the way, I think it's completely justified. He came back on the point that they were going to support him in doing this. And I think the way, the abruptness of this exit, the ugliness of it, I would bet more details come out, speaks to the fact that he felt stabbed in the back by them. Now again, big picture. This might be a, the worst person in the world was right scenario where the board might be right. This is the right way to go, but uh, but the, the, the uh, that's my view on probably what happened is this was a forcing function. Now again, I think here's life advice for you. I think people do, there's a bit with fallacies where people get so obsessed with avoiding fallacies.

• 52:32Ben Thompson?

  They actually make bad decisions. Like I always talk about, oh, confirmation bias. I want to be very careful of that because of the way that I write. And then I wrote an article because I was like looking for disconfirming evidence that showed that I was wrong. And I thought I found some, so I wrote the article and I was totally wrong because I actually had, was right all along. I got so obsessed with ameliorating my weakness in that regard that I like just wrote the wrong thing. And I think there's a bit with sunk cost fallacy where it's a bit where everyone's wary of sunk cost fallacy. Don't be overly biased in your decisions by what you've already spent money on or what you've already done. I think there's an inverse of that where you already made decisions, like it is what it is. You're at the position you are in life. You're at the position where you are as a company. There's so much to go back with Intel and change. You don't get to make decisions as if it's day zero.

• 53:16Ben Thompson?

  And I, I think this is maybe a case, like I wrote the Intel split thing in 2020 or 2021. That was the time to realize we're not going to go down this route. But once you commit, commit and they didn't commit. And that's why I have such scorn for them, for the board. Uh, and um, and so, yeah, anyhow, that's my, this is speculation.

• 53:38Andrew Sharp?

  We just nade bombed the entire boardroom. Um, it's wonderful. Well, so what did he?

• 53:43Ben Thompson?

  The Intel board is disgusting. It's been disgusting for 20 years. Like that's the thing. If this isn't a one-time thing, this is an entity that has prioritized financial engineering and financial results for 20 years. And Intel's disaster is 20 years in the making.

• 53:58Andrew Sharp?

  I mean, that's the thing, like looking at it from afar, it's like half a blockbuster story where this is some, some, to some degree, there's just like natural disruption that's happened as the paradigms have shifted and chip making has become more modular and the trajectory makes sense to me. And then there's also this sort of Boeing. Angle to everything where

• 54:21Ben Thompson?

  It's a Boeing story. I'm pretty sympathetic to Blockbuster. They're a bricks and mortar retailer. Why do we expect them to figure out streaming?

• 54:30Andrew Sharp?

  Well, totally. But I'm also sympathetic to Intel in certain respects.

• 54:34Ben Thompson?

  No, I don't have any sympathy to Intel and Boeing. They were pursuing financial results. They drove out longtime engineers. They moved manufacturing out of the Northwest because they wanted to deal with the union. They moved their headquarters. This is, don't get me started. Boeing and Intel really are two peas in a pod. They're two entities and airliners are another industry that requires decades out sort of investment. This idea, we're just gonna do another 737, even though it was created in the 1960s, is too low to the ground. Because it wasn't even conceived of modern jetways or anything along those lines. Instead of doing a clean sheet design because it costs too much, or we're gonna outsource the entire production of the 787 without figuring out how to make it first because we're trying to be cheap.

• 55:16Ben Thompson?

  They're two peas in a pod. They're long-term companies that depend on long-term thinkers at the top that prioritized and got obsessed with short-term financial results.

• 55:26Andrew Sharp?

  Totally.

• 55:26Ben Thompson?

  They are very much two versions of the same story. Yes.

• 55:29Andrew Sharp?

  Okay, I don't want to argue too much on Intel's behalf, but where I'm coming from with the sympathy is you look back on

• 55:36Ben Thompson?

  It is your job here.

• 55:38Andrew Sharp?

  On missing mobile.

• 55:39Ben Thompson?

  Can't wait to call you an imbecile.

• 55:41Andrew Sharp?

  You look back on why they missed mobile. Well, they were really good at making chips for the things that they did well at that point. And you talk about some of Gelsinger's decision-making, that was rational until it wasn't. And in terms of some of the sort of warrants that he signed for them. And like, I understand how that could happen to a company that was already really successful. Unless I'm misunderstanding the history that we went through at the beginning of the episode. Some of those decisions were rational.

• 56:11Ben Thompson?

  You're good, Andrew. I completely agree. No, I think you're totally right. Actually, I'm more sympathetic to Intel missing mobile than a lot of people for the exact reasons that you said. They missed mobile for the same reason Microsoft did, which like in the grand scheme of things, like on like an objective basis, it's bad. On the other hand, this is what happens. You're focused and optimized. That's right. That's right. I think, but that's why. What Microsoft did, and it took them a while to get there, but what they ultimately did with missing mobile, and why I was so critical of Steve Ballmer was he was, he couldn't let go of the paradigm. He couldn't let go of Windows. And what Microsoft did was they let go and they

• 56:51Ben Thompson?

  realized, okay, given the fact that we lost mobile, how can we participate in the future growth of this industry? And that was through Azure and the cloud. And that prepared them for the AI wave to come along. They were already ready for it. Intel didn't do that. The, the answer, and by the way, the cloud, a much lower margin business than Windows, they, they could step down to that because it offered opportunities for growth and participating in the future of technology. Microsoft pulled off what Intel did not. It was under, you're totally right, Andrew. It was understandable that Intel missed mobile. But what they didn't do is they didn't

• 57:32Ben Thompson?

  pivot to leverage their strengths to participate in the future, even if it was lower margin. They couldn't do it. The board could not do it. And, and, and they, it was fine for a while because the cloud wasn't, Intel sold all those processors in the cloud. The cloud went hand in hand with mobile. But in the long run, they, they're not a part of AI because they weren't investing like Nvidia was 20 years ago. The way to be a part of AI would have been to be a foundry making Nvidia chips. The way to be a foundry making Nvidia chips is to have pivoted to be a foundry making mobile chips in, in, in 2010. And, um, and that is the great bifurcation of these two companies that were, that came up together.

• 58:14Andrew Sharp?

  Okay, so I'm going to make you chairman of the board for Intel right now. As they search for a CEO, how would you define success for Intel in five years? Like if you're chairman of the board, what's the North Star that they should be aiming for? Okay?

• 58:29Ben Thompson?

  It's over.

• 58:30Andrew Sharp?

  We're just punting?

• 58:31Ben Thompson?

  For all Gelsinger's flaws, you're not going to get anyone of his level and capability. Who's going to take this job? Number one, no one's going to trust them ever. Like, why would you imagine anyone that, that had signed up? If Apple had signed up with Intel, so I guess, you know, I guess theoretically he wouldn't have been pushed out if that had happened. But regardless, um, uh, the, the

• 58:52Ben Thompson?

  Path is to figure out a way to spin out. So what should happen? To spin out the, they just become like AMD. They become a, a, a, a fabulous business. They make their chips on TSMC, whatever. The real question is more a US government question. What do you do about if you want a US fab?

• 59:09Andrew Sharp?

  That was my follow-up. Yeah.

• 59:10Ben Thompson?

  I think, uh, the US government is going to need to fund this. And I think there's a bit where, of course, I'm generally anti like the, the socialization of an industry or whatever. You just gotta take it over. It's gotta be built. And I think the way you get volume is, uh, there was this sort of, there was like a congressional report a few weeks ago about a Manhattan project for AI. Um, okay, let's do that. Let's do all up. We're going to build our own AI systems. We're going to do that, design our own chips. We're going to make our own chips and figure out what that looks like, what it is like. And, uh, and I think there's a bit where we, we talked about the trade stuff. You want to bring manufacturing back. How do you do that competitively? Well, you integrate because US has differentiation in software.

• 59:55Ben Thompson?

  And so you leverage that to overcome the higher cost of doing stuff domestically. There's an extent to which Tesla sort of has, has pulled this off to a certain bit. And is there a route of the US building out its massive AI capability? And actually integrating all the way down to the chip level and making sure that all the key pieces are domestic. Um, I think, I think you go more all in as the US. You, you, you take up the fabs, you say the volume's going to come from us. We're building our AI systems. We're going to build these hundreds of thousands, million dollar chip clusters. So we're going to be the biggest customer. And over time, it pushes through and becomes successful and can bring on third parties because it's proved itself. And maybe can be spun out to a private company again.

• 1:00:39Ben Thompson?

  Again, this all sort of makes my skin crawl, but I think if, like, the reality is, is, and this was, Pat Gelsinger was a gift to the US government because I do think there was a bit, and this came across in our interviews, like just being fairly, like, it was. Strategic to be patriotic because that they needed government help. But I also think he was patriotic and doing IDM 2.0 in defiance of Intel's reality. Because the US needs its own foundry. That was a great gift to the US federal government because they they wanted that. And the reality is, is there's a bit where the incentives were just always a little bit off. It never made economic sense. If the US wants this, they need to pay for it and they kind of need to own it. And I think that's the answer to the fab business.

• 1:01:24Andrew Sharp?

  Interesting.

• 1:01:25Ben Thompson?

  And the reality is, you can kind of get it for free. Like if Intel didn't have the fab business and just started making all their chips at TSMC, they would immediately be a very profitable company, right? They're gonna, they're gonna be fine.

• 1:01:36Andrew Sharp?

  So the losses are all derived from the foundry business that is currently floundering.

• 1:01:41Ben Thompson?

  It'd be really hard to spin this out and figure out a way to do it effectively. It's not, AMD struggled for years and years and years after doing this. I'm not trying to say it's easy. I am saying the core Intel design business has a functional market. It has products and it, it, they can make chips at TSMC and make money.

• 1:01:58Andrew Sharp?

  Okay, good, because a couple of minutes ago, I thought we were just hanging up the Intel shingle for good after an illustrious 50-year run. But there's a version of Intel that doesn't need to shutter entirely.

• 1:02:10Ben Thompson?

  An Intel that doesn't make its own chips isn't.

• 1:02:12Andrew Sharp?

  A sadder Intel, yeah. Well, and in terms of funding the sort of project that you're spitballing here, there would need to be just way more money than the Chips Act has currently allocated to these companies. Is that right?

• 1:02:27Ben Thompson?

  Right, I think you justify that by saying like, this is a national security concern. We're allocating.

• 1:02:32Andrew Sharp?

  We actually need a Manhattan project in 2024. Okay.

• 1:02:36Ben Thompson?

  That's right.

• 1:02:36Andrew Sharp?

  Yeah, well, a lot of ground covered here and I'm sure there will be more to cover next week. We got an email about Bob Nois that I'm rolling over to the mailbag. I'm excited to hit that and who knows what else we'll get into. Maybe we'll talk more about the Manhattan project that may or may not ever get off the ground here. But Ben, great energy across the board here. Any final thoughts before we sign off for the weekend?

• 1:03:04Ben Thompson?

  Oh, it's sad. Um, it's kind of a bummer, but I do wonder, I probably, like I said, I, I wasn't, this is, it's, it's the thing. I wasn't fully on board with, with the Gelson plan, but I wanted to succeed.

• 1:03:19Andrew Sharp?

  Yeah.

• 1:03:20Ben Thompson?

  Uh, yeah, and I wanted to succeed. And if, like I said, from a board perspective, if you're going to say you support it, you got to support it. And, um, it's a weird thing where they may be doing the right thing.

• 1:03:31Andrew Sharp?

  Mm hmm.

• 1:03:31Ben Thompson?

  And yet, in a way, that only just increases my disdain for them and their performance over the last 15 years.

• 1:03:38Andrew Sharp?

  Absolutely. Boeing for the last 20 years. Boeing without the regulatory capture seems to be the Cliff Notes version of the Intel story.

• 1:03:47Ben Thompson?

  Yeah, with network, Boeing with network effects.

• 1:03:50Andrew Sharp?

  Yeah, well, unfortunately, they're all we got. So maybe we can fold the Intel foundry into the future here. Uh, for now, Ben, this was delightful and I will talk to you on Monday for another Monday Mailbag. People can continue to send questions, email at sharp tech.fm. And until then, I hope you have a great couple of days. I'll talk to you soon.

• 1:04:14Ben Thompson?

  Talk to you later.