Learning From Intel's Current Location

I'm a HUGE Intel fan and have extraordinary reverence for the company's history and contributions. They have incredible people and will undoubtedly figure out how to solve their immediate challenges and succeed. I'm sure they already are.

I am interested in using situations like these as opportunities to understand how smaller companies can learn how to handle similar conundrums within their organizations to grow and build better outcomes.

An Ops Problem

Intel has an Ops problem. The company's Q2 2024 earnings call revealed a net loss of $1.6 billion, starkly contrasting the profits it recorded in the same period last year.

Underutilized Manufacturing and Elevated Costs:

At the heart of the problem is the issue of underutilized manufacturing capacity. Intel has historically been known for its leading-edge manufacturing capabilities, but it has struggled to keep its fabs running at optimal efficiency in recent years. When manufacturing plants are not fully utilized, the fixed costs of these facilities—labor, maintenance, and equipment—are spread over a smaller production volume. This results in higher per-unit costs, which erode profit margins and reduce the company's competitiveness in a market where cost efficiency is imperative.

The elevated costs associated with underutilization are compounded by Intel's ambitious investment in its foundry business. They are attempting to break into the contract manufacturing market, which companies like TSMC and Samsung dominate. However, scaling this business has proven difficult, expanding operating losses. The foundry business is capital-intensive. The slower-than-expected progress in this part of their business has strained financial resources.

The Role of Research and Development (R&D) & Strategic Priorities

Another critical factor contributing to Intel's operational challenges is its increased expenditure on research and development. Their rising R&D costs have yet to translate into market-leading products or technologies, especially new GPU-centric AI and machine learning offerings.

Where Andy Grove once led the company through a historic pivot from memory chips (DRAM) to microprocessors in the 1980s, as the chip landscape has shifted once again, they have yet to be prescient in their decision-making and resource allocation. The company's R&D spending needs to be aligned with its strategic objectives and the market's transitions. Market realities are placing a sizable financial strain on the organization. When investment does not increase revenue and market share, companies find themselves in a tricky spot.

Human Resource Capital Allocation and Role Management

When your most significant competitor in the new market your industry is serving is also the hottest, fastest-growing, most profitable company on the planet, keeping and attracting the best people is difficult. There are also reports of internal restructuring and changes in leadership roles that have disrupted the company's operational continuity.

Effective role management is crucial in ensuring that teams are aligned with the company's strategic goals and that there is clear accountability for outcomes. If critical roles are not clearly defined or there is frequent turnover in leadership positions, it can lead to a lack of direction and cohesion within the organization. This can be particularly detrimental in an industry (especially manufacturing) where rapid decision-making and execution are necessary to stay ahead of technological trends and to keep supply chains firing on all cylinders.

Conclusion: Three Learnings for Founders and Owners

1. When investing in Ops, be clear about how those dollars will ultimately create more revenue or save dollars that can be transformed into profit. Align your strategic objectives with your operational decision-making.

2. If your industry is experiencing disruptive changes, figure out your pivot, commit fully to the new direction, and then communicate, communicate, and communicate the changes to your team. Communicate excitement. Communicate with evangelical zeal to get your team on board and excited about the future you are all creating together. This will keep your best people on the bus and attract new talent.

3. If your capacity needs to be better utilized or you need to increase the capacity you have available, get your hands dirty digging into all the messy details of what doesn't work about current process, current technology implementation, and the current role placement of your employees. From an Ops-centric perspective, this is an essential task. Create better process. Create better tools and implementations of those tools. Create better teams by ensuring every member of your organization's best skills align with their roles. When you know what you don't have, find new talent with new skills and better tech with better capability.

Hope you found this useful and would love to hear your thoughts on elements I failed to discuss or learnings I failed to see or mention.

John