Why Intel's Pat Gelsinger Can't Fully Smile Despite the US Semiconductor Support Act Enactment

Intel CEO Pat Gelsinger (right) and U.S. President Joe Biden shake hands at the groundbreaking ceremony for Intel's new semiconductor plant in Ohio on the 9th.
[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] On the 9th (local time), Pat Gelsinger, CEO of Intel, appeared wearing black sunglasses at the groundbreaking ceremony for a new semiconductor factory in Ohio, USA. After expressing his thoughts on the groundbreaking, he stood face-to-face with U.S. President Joe Biden, who came up to the podium to give a speech, exchanged brief words, and smiled brightly. It was the moment when the Ohio groundbreaking ceremony, which Gelsinger had postponed three months earlier while urging the U.S. Congress to pass the Semiconductor Support Act in June, was held again. The Semiconductor Support Act has completed all procedures including President Biden's signature, and Intel is considered a leading company to receive support under this law.

◆ "Increase Profitability" Shareholders' Demands

Gelsinger has been a prominent leader in the U.S. semiconductor industry actively supporting the Biden administration's enactment of the Semiconductor Support Act. Although the act was enacted as he wished, there is an interpretation that Intel cannot simply smile. While Intel will receive political support from the Biden administration through this law, it cannot avoid pressure from shareholders to improve profitability. The Wall Street Journal (WSJ) recently mentioned Intel's case, reporting that the revival movement of semiconductor manufacturing in the U.S. is clashing with Wall Street's demands.

Wall Street's demand is clear: increase profitability. WSJ stated, "In the U.S., the private market allocates capital to the highest-yielding places. That is advanced manufacturing," adding, "For more than a decade, economies of scale have been overwhelming. The cost of building a factory reached $10 billion (about 14 trillion KRW). Large-scale manufacturers have found it difficult to meet the scale that satisfies the returns investors want." This means that building a manufacturing facility requires enormous funds, but profitability falls short of investors' expectations.

Wall Street prefers fabless companies focused on semiconductor design. This is because they can invest minimal capital in intellectual property and other areas to gain huge profits. U.S. semiconductor company AMD transitioned to a fabless company in 2009 and outsourced semiconductor manufacturing to Taiwanese foundry companies like TSMC. Gus Richard, an analyst at investment bank Northland Capital, said, "If AMD had been obsessed with fabs, it probably would have gone bankrupt. It almost did."

[Image source=AP Yonhap News]

Since taking office, CEO Gelsinger has declared a re-entry into the foundry business and announced plans to compete with Taiwan's TSMC and Samsung Electronics. He also announced plans to invest $100 billion in manufacturing facilities over the next several years. However, compared to TSMC and Samsung Electronics, which are competing in advanced processes below 3 nanometers (nm; 1 nm is one-billionth of a meter), Intel's technology is still considered inferior. Investors foresee that it will take a long time for Intel to increase its market share and generate profits in this market.

◆ Intel Surpassed by AMD in Market Cap... "Stock Price Decline Likely to Continue Next Year"

According to U.S. IT media Tom's Hardware, CEO Gelsinger stated at a conference earlier this month that Intel's stock price is expected to continue declining at least through next year. He predicted that Intel's market share in the data center market will gradually decrease next year, with stock prices slowly recovering from 2025 and 2026. He hinted at the possibility of withdrawing from some businesses, emphasizing, "In 2024, we will definitely have competitiveness, and in 2025, we will regain undisputed leadership in transistor and process technology."

WSJ reported that Wall Street's response to Gelsinger's plan has been cold. Intel's stock price has fallen about 50% since Gelsinger returned as Intel's head in February last year. This year, Intel's market value was even overtaken by AMD, which was once a "challenger." Until 2018, the market capitalization gap between the two companies exceeded 300 trillion KRW, but while AMD's stock price surged, Intel faltered, resulting in a reversal of market caps over the past five years.

(Source: The Wall Street Journal, FactSet)

WSJ analyzed that Intel's situation facing shareholder pressure differs from semiconductor companies in other semiconductor powerhouses such as Japan, Taiwan, South Korea, and China. Companies in these countries often have founders or governments as dominant shareholders, so compared to U.S. companies, they are relatively less focused on capital returns, earnings per share, and stock prices. In particular, WSJ added that China mostly has state-owned enterprises or government-majority shareholders and actively controls market entry by foreign companies to protect domestic firms.

Last month, Intel's decision to form a joint venture with Brookfield Asset Management to build a plant in Arizona was interpreted as a response to investors' concerns about capital expenditures. Intel holds 51% of the joint venture's shares, Brookfield 49%, and profits will be shared. Intel explained that this move was intended to maintain balance sheet capacity and increase flexibility to create a broader and more resilient supply chain. At the time, foreign media evaluated this investment method as "a new capital-raising model for the capital-intensive semiconductor industry."

This content was produced with the assistance of AI translation services.