You need to understand the history. Once a dominant force in the semiconductor industry, Intel was renowned for its innovative microprocessors and leadership in technology. However, a shift in management strategy led to a significant decline in its competitive edge.
This downturn can largely be attributed to former CEO Brian Krzanich, who prioritized short-term financial metrics over long-term growth. Krzanich's poorly designed remuneration package, which focused on earnings performance, drove him to make decisions that favored immediate financial gains.
His response was as follows. To boost earnings per share (EPS), he cut operating expenses, most notably in research and development (R&D), a move that starkly contrasted with Intel's legacy of innovation. Despite the importance of Moore’s Law, which emphasized the rapid doubling of transistors in integrated circuits, Krzanich redirected resources away from R&D and toward stock buybacks, inflating EPS at the expense of the company’s future.
In addition to slashing R&D, Krzanich delayed transitioning to more advanced manufacturing processes in an effort to reduce capital expenditures. This allowed competitors like TSMC and Samsung to surpass Intel in manufacturing technology, eroding its market leadership.
The lack of innovation and ambition led to a talent drain, as key engineers left for more forward-looking rivals.
Further compounding these strategic missteps, Krzanich adopted a progressive dividend policy. So not only did he deliberately restrict reinvestment in the business, but he chose to distribute investment capital as dividends. Krzanich increased the dividend sequentially throughout his tenure regardless of opportunity cost and the sum paid as a dividend per share more than doubled throughout his tenure despite the fortunes of the company declining.
Krzanich did significant damage to Intel, damaging a formidable business that had been developed over decades by Bob Noyce, Andy Grove and Gordon Moore. Perhaps the damage is irreparable.
Under new CEO Pat Gelsinger, Intel has begun scaling back dividends and refocusing on long-term strategy, but whether the company can fully recover remains uncertain.
Great writeup! Provided some helpful colour understanding the fab dynamics in the US.
What say ye now? All of the issues you raise are still unresolved.
Morris's incisive declaration could be said of multiple industries in the United States.
Intel will likely get continued support from the national security and defense industry.
Thank you for your thoughtful article.
You need to understand the history. Once a dominant force in the semiconductor industry, Intel was renowned for its innovative microprocessors and leadership in technology. However, a shift in management strategy led to a significant decline in its competitive edge.
This downturn can largely be attributed to former CEO Brian Krzanich, who prioritized short-term financial metrics over long-term growth. Krzanich's poorly designed remuneration package, which focused on earnings performance, drove him to make decisions that favored immediate financial gains.
His response was as follows. To boost earnings per share (EPS), he cut operating expenses, most notably in research and development (R&D), a move that starkly contrasted with Intel's legacy of innovation. Despite the importance of Moore’s Law, which emphasized the rapid doubling of transistors in integrated circuits, Krzanich redirected resources away from R&D and toward stock buybacks, inflating EPS at the expense of the company’s future.
In addition to slashing R&D, Krzanich delayed transitioning to more advanced manufacturing processes in an effort to reduce capital expenditures. This allowed competitors like TSMC and Samsung to surpass Intel in manufacturing technology, eroding its market leadership.
The lack of innovation and ambition led to a talent drain, as key engineers left for more forward-looking rivals.
Further compounding these strategic missteps, Krzanich adopted a progressive dividend policy. So not only did he deliberately restrict reinvestment in the business, but he chose to distribute investment capital as dividends. Krzanich increased the dividend sequentially throughout his tenure regardless of opportunity cost and the sum paid as a dividend per share more than doubled throughout his tenure despite the fortunes of the company declining.
Krzanich did significant damage to Intel, damaging a formidable business that had been developed over decades by Bob Noyce, Andy Grove and Gordon Moore. Perhaps the damage is irreparable.
Under new CEO Pat Gelsinger, Intel has begun scaling back dividends and refocusing on long-term strategy, but whether the company can fully recover remains uncertain.