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MICHAEL DUNNE: I'm Michael Dunne. While Nike may reign supreme in the minds of Oregonians when they think about top companies in our state, it's Intel that is the true behemoth in terms of employment. Our largest private sector employer has been a tent pole for the growth of tech in the Beaver State, but right now, that tent pole is bent, and our tech tent is visibly sagging. Today, on the show, you'll hear a conversation with a long-time tech reporter at The Oregonian who's followed the fortunes and misfortunes of Intel for quite some time, and right now, the company's misfortunes may be the worst in its history, and the new CEO is dishing out some harsh reality about where the company is and the enormous hill it needs to climb to get back on top. Mike Rogoway, who is the technology reporter and business reporter with The Oregonian, thanks so much for coming on and talking with us.
MIKE ROGOWAY: Yeah, I'm very glad to be here.
MICHAEL DUNNE: Maybe it's a simple question with a complex answer. But what the heck is going on with Intel up in your neck of the woods?
MIKE ROGOWAY: Well, it goes back several years. The nut of it is that they fell behind in manufacturing process technology. And this is, this is the, what the technology that powers our PCs, our laptops, data centers, they fell behind on that. They had a series of technical missteps dating back to, we'll say, 2017 but perhaps it started a little earlier. The gap really started to show up about five years ago in 2020 when they fell behind their top manufacturing rival, TSMC. Which then now has a pronounced advantage in processor technology, and so Intel has been losing market share, and then there's a concurrent problem, and that a new field has emerged in semiconductors, around artificial intelligence and the advanced technology used to train the models that that power AI, Intel has nothing in that space that's owned by that's dominated by Nvidia. So, Intel has been losing market share in its core markets, PCs and data centers, and it has been totally shut out of the AI, the booming AI business, and so as a result, their sales are down by about a third over the last few years. They posted a $19 billion loss last year and cut 15,000 jobs, and now they've begun another round of steep layoffs.
MICHAEL DUNNE: Yeah, and there's so much to unpack there. But I'm wondering, was it strategic blunders from leadership that maybe didn't see what was happening. I mean, Nvidia seems to have just, grown by leaps and bounds, overnight become a multiple-trillion-dollar company and obviously, you know, they kind of saw this revolution happening. What do your sources and what's your research tell you about, sort of the direction of leadership from Intel of the past five or 10 years, because they obviously have a new CEO now. Talk about sort of that, that sort of the leadership vision or lack thereof?
MIKE ROGOWAY: Well, yeah, they've been through a succession of CEOs over the past several years. They've left for various reasons, and they did replace their CEO again. They pushed out their predecessor, the current CEO's predecessor, Pat Gelsinger, in December, and hired a chip industry veteran named Lip-Bu Tan, who's running the company now. In terms of what went wrong, you know, Intel, you know, clearly, I think, put some too much emphasis on dividends and share buyback going back several years, and not enough in reinvesting in technology. They envision things like the memory business growing very fast, and that's a business where Intel has not, not in many years, really thrived. And it's sort of an up and down business. They didn't reinvest in their core market, in PCs and data centers, in terms of AI, Nvidia has an excellent product. They have what they call it, a GPU, a graphics processor unit, as opposed to Intel's central processing unit, which turns out to excel in AI and in training these long, large language models. I don't think it was clear to anyone, including Nvidia, you know, just how quickly the AI revolution would happen, but Intel had dabbled in this GPU market for many years, and had never really gained traction. And so clearly, yeah, they didn't have the view of this, this market would explode the way it did, and they're essentially shut out on it. They're looking, they find, they think there may be ways into it, you know, and sort of side channels into it. But Nvidia has got the core of the market for the foreseeable future.
MICHAEL DUNNE: I believe it's your most recent article, you quote the CEO Lip-Bu Tan talking about the fact that, in the headline, “We're not in the top 10 of leading chip companies.” And I think his quote was, I think it's too late for us to catch up with Nvidia. It's a very frank and almost humbling statement from the CEO. But I want you to kind of unpack that article, because there's an element of reading that article that almost I'm not trying to put words in either your writing or what the CEO said, but there's it kind of almost sounded a little bit like defeat. How did you read it?
MIKE ROGOWAY: Well, it's interesting because Lip-Bu Tan, you know, he comes from another chip company called Cadence, the chip designer, and he hasn't said much publicly about the company since Intel hired him in March, he hasn't spoken to the media even once. He hasn't said much to employees, either. In the beginning of the week, he held a sort of a Q and A for employees, and they broadcast that. And then we were able to at the Oregonian, we were able to hear that, and it was a really frank assessment. And I think, you know, I think what he was trying to do, it wasn't so much defeatist, is he's trying to reset expectations, okay, and saying that, you know, Intel, for many, many years, for decades, was the world's largest chip maker and really, nobody was in a position to catch up. And now they're, they're very much a second tier in terms of the markets that they're in and in terms of their technology. That doesn't mean that they're beaten, but it means the climb back is going to be steep. And I think, you know, he said a couple times in this conversation with employees, that he's humble and that Intel needs to be humble. And I think one of the criticisms of Intel in the past was that it was sort of arrogant. Some people felt that because it owned the market for microprocessors, it completely dominated that space for so long and hadn't been listening to customers. And I think we need to be more responsive. We need to listen to customers, and we also have to be realistic about where we are in the market. You know, it's he's presented himself with a challenge, though he's coming into a difficult situation, to be sure, but now he's laying off 1000s of workers, including, you know, to start with 500 workers, 529 in Oregon, and many more to come, and they've cut back on perks and other benefits employees like so it's hard to say he's walking a narrow line. We're going to cut back there. Your perks are going away. It's going to be a less attractive place to work. And we got to play catch up, but we're but stay here if we haven't laid you off, we still want you and are trying to recruit people from outside to come join Intel and, you know, in a difficult situation, that's a tough thing to do. He is well connected in the industry, though, so he may be able to bring in some key personnel, there are people who trust them, and so he may be in a position to do this.
MICHAEL DUNNE: I'm just curious. You know, in that talk with employees that the CEO did, I mean, did he kind of lay out, okay, if we do X, Y and Z, we can return to what we once were. Is there, I guess I'm asking, is there a path forward for Intel to perhaps regain some type of leadership position in in the technology sector?
MIKE ROGOWAY: I don't think he really articulated that vision Okay, to my ear as he was describing it. He may have intended to say that, but he didn't say that as. As far as I heard, what he was saying instead was that he used the term marathon, that it's going to be a long road back, and he didn't really articulate a strategy for getting there. And he hasn't, either publicly or in private, but to the extent he's adopted the strategy of his predecessor, Pat Gelsinger, I think one route for Intel coming back might be that they're trying to open their factories other companies to make chips yet and right now, TSMC is the unquestioned leader. Later this year, Intel has a new generation of processor that they call 18 that they say will put them on par or, or nearly on par, with TSMC. A couple years after that, they have another generation, 14, at which they say will be even more competitive. Well, if Intel is successful in delivering these new advanced processors, and if they are comparable to what TSMC could offer, this is Intel's ticket into the artificial intelligence game. You know, Nvidia doesn't want to. Nvidia doesn't make its own chips. It outsources its chips to TSMC. Uses TSMC advanced manufacturing process, but surely, Nvidia doesn't want to be tied to just one manufacturer. They would love to have an alternative, both so that they have some pricing leverage with TSMC and for the manufacturing and so that if something goes wrong at TSMC, they have a fallback, I'm sure. Jensen Huang, who runs Nvidia, he's originally from Oregon. He's an Oregon State grad. He said on a number of occasions that he's very interested in what Intel is doing in the contract manufacturing business. So that's Intel's in. It might not be Intel's AI chips, but if they were making them for Nvidia and other companies that could be fruitful. The problem is that it's been very slow for Intel to break into this contract manufacturing business. It's been painfully slow, much slower than they anticipated. The company planned to build out manufacturing in Arizona, Ohio, Germany, Israel, and expand significantly in Oregon. And many of those plans have been put on hold because the demand hasn't materialized. You know, Intel's own products, the sales are down, and they haven't been able to lure other companies in to make their chips for Intel to make these other company’s chips. So that's a slow process. If they get there, the payoff could be very large, but it will be slow. You know, to use Lip-Bu Tan’s terminology, it's a marathon. This isn't happening this year or next year, by 2030 maybe.
MICHAEL DUNNE: I know you're familiar with that sort of the old business cliche about a major corporation in a particular market that you know, if X Corporation sneezes, then the market catches cold. I'm asking because, you know, for us down here in Eugene and whatnot, how important is Intel to the Portland metro area. And I mean that in terms of both, obviously employment, but also just, status, and, being part of the Silicon Forest mythology about tech and Portland.
MIKE ROGOWAY: Yeah. I mean Intel is one of the state's main economic engines, and it's hugely important for a few reasons. Number one, they're the state's largest corporate employer. They have 20,000 employees in Washington County. For another thing, they pay really, really well. The average salary in the Oregon semiconductor industry was $180,000 last year, that's more than $100,000 higher than the statewide average. So, these are really good jobs. And you know, reason it matters to folks you know, down, down in the far, farther south, in the Willamette Valley and elsewhere in Oregon, is we're an income tax dependent state. It really helps to have a lot, have our largest employer also be one of our best paying employers, because it fuels, it feeds the state's coffers. It's a big part of the state revenue that's really important to Oregon. And then the other thing that that's important about Intel in this region is that when they build, they build big you know, these are our factories that cost several billion dollars apiece, maybe, maybe less here, because they do the R and D here, they don't do the high volume manufacturing, but it's, it's still 3 billion plus for a new phase of their research factory during the great recession, the labor the Trades Union, said that one in 10 construction workers were working on the first phase of Intel's D 1x research factory was a really big part of it. And beyond that, there's 1000s of people who are contractors, pipe fitters, electricians, who are working inside Intel's factories, who are coming in to install tools. And then there's a bunch of. People who maintain and supply them in the factory. So, there's a big ecosystem around there. And yes, it's part of the state's identity, you know, the Silicon Forest. This is, this is what we do. It's our main industry, yeah. And so, if it's stumbling, it's a big problem for Oregon. You know, are we looking at an out and out collapse? It sure doesn't appear so. But, you know, we went through a decade of pretty robust growth at Intel and that was really good for the state's economy. You know, if we're looking at a period of steady decline now, you would have the opposite effect.
MICHAEL DUNNE: Is there another shoe to drop? IE, oh, you know, maybe a big, big player like Intel may look at Oregon and say, gosh, you know what? Again, especially if they're in a cost cutting mode, there are other states that might be more business friendly. Has there been any talk, even rumor about that? Maybe as part of this marathon, as you've talked about that boy Intel might look at a place like Florida or Arizona or something like that?
MIKE ROGOWAY: Well, this is what scared Oregon three years ago or so, when Intel announced plans to expand in Ohio, and there was a sense at every level of Oregon's private sector and public sector that the state had neglected its semiconductor industry, and so it rushed to create this Oregon chips Act, which fueled hundreds of millions of dollars and research tax incentives, tax incentives for research into the industry that said the semiconductor industry does appear to be coalescing outside Oregon right now. It seems to be that Arizona is, is the hotspot, hotbed of activity, and to some extent, other places like upstate New York, and part of that is because Intel is so dominant here, whereas in other places, there are multiple companies playing a role. And I think some companies may be a little reluctant to come and play in Intel's backyard, or at least they have been in the past. You could imagine the opposite dynamic. Now, if Intel's a little weaker. Maybe some companies arrive and poach their workers, or something like that. But it's, it's hard to talk about those things in terms of, I think one misperception people have about Oregon is that, you know, with its high tax state, it's hard for businesses to operate here. That may be true in some industries. It's not true in the semiconductor industry. Oregon's tax structure is very favorable to large manufacturers that sell most of their products outside of the state. Oregon and Washington County give Intel tax breaks worth hundreds of millions of dollars a year. There's no sales tax here either. So, when you're buying a $400 million manufacturing tool, which is what the most advanced manufacturing tools cost. Intel is not paying property tax on that, or at least they're paying reduced property tax. They're paying no sales tax on it either, which is something they would have to pay in most other states. And so that's why the semiconductor one of the reasons, not, not, not the only reason, by any means, but it is one of the reasons why the semiconductor industry has thrived here over the last several decades is because we are a very favorable state in terms of taxes, not for the people, not for the highly paid executives working there, but for the business itself. I see we're a favorable place for that.
MICHAEL DUNNE: I see. Mike before I let you go. My last question is simply this, you know, given that Intel is almost like a tent pole holding up a lot of other technology companies, just generally speaking, how do you view the health of the overall tech sector in the market that you cover in the state that you cover? Are we doing pretty well overall in terms of technology companies here in Oregon?
MIKE ROGOWAY: No, okay, no. In the years after the Great Recession, we had sort of a startup renaissance in Portland, and there were a lot of people starting new businesses and interesting ideas. And unfortunately, none of those grew into anything durable. Some of them got bought, and became important parts of other businesses. Some of them collapsed or were sold and dispersed. Now we haven't had many new tech companies arrive in quite a while. There are some promising ones, like agility robotics coming out of Corvallis and Salem making human humanoid robots to work in warehouses, places like that, that there may be some potential with that. Some top Intel engineers left the company last year and started the company that's now in Beaverton called ahead computing that's gotten a lot of attention and they're growing. Really fast, but we don't see the breadth of startups that other states do, and certainly other places on the west coast have, and as you use the term tent pole, you know our tent pole. Semiconductor companies have stumbled recently. It's not just Intel, Microchip and on semi have both had a tough, tough stretch these last couple years. Their markets are cyclical, and they have been in a down cycle. And so, you know, this is not a great time for the Oregon tech industry, but as I said a moment ago, it is cyclical, yeah, and the semiconductor industry always has been. Intel's problems are not cyclical. These are structural. But if Intel can overcome its problems, and that's a big if, and it's not going to happen immediately, but if they can over time, they can be just as important to the state's economy as they have been in the past.
MICHAEL DUNNE: Mike Rogway, who is a long-time technology reporter for The Oregonian, really appreciates you coming on and giving us this update about technology, Intel and your market.
MIKE ROGOWAY: Very glad to do it. Thanks for having me.
MICHAEL DUNNE: That's the show for today. All episodes of Oregon On The Record are available as a podcast at KLCC.org. We recently interviewed the new police chief for Springfield, and we received many comments. Here are a few. One listener wondered, can she keep the masked men, (meaning ICE agents), from disappearing our residents? Another said that we're incredibly lucky to have Chief Resch in our community. Yet another warned that she will try to turn Springfield into Portland, where she used to work. But another said that the new chief seems to be a lot more approachable than the last one. Keep sending in comments and questions to us via our pages on Facebook, blue sky or Instagram, or email us at questions@klcc.org and we'll read them on the air. tomorrow on the show. You'll hear about PacWave, the OSU Wave Energy Lab, looking to help usher in a sustainable energy revolution off our coast. I'm Michael Dunne, and this has been Oregon On The Record from KLCC. Thanks for listening.
