Intel CEO Pat Gelsinger's departure has sparked debates in South Korea regarding the prospects for the equally struggling chip-making titan Samsung Electronics (Samsung). However, as Samsung pursues a different reform strategy, questions emerge about its potential for success.
According to reports from media outlets including ChosunBiz, both Intel and Samsung are integrated device manufacturers (IDMs) and semiconductor giants. However, both companies currently lag in the artificial intelligence (AI) sector and are undergoing major reforms. The announcement of Gelsinger's departure has shocked the industry.
In response to its challenges, Samsung's device solutions (DS) division will change its leadership in May 2024, appointing veteran Young-Hyun Jun to take charge. Gelsinger and Jun were born in 1961 and 1960 respectively, a parallel noted by South Korean media.
Board tensions and foundry losses drive leadership change
Industry observers indicate that Gelsinger's resignation primarily stems from prolonged tensions with Intel's board of directors. Amid the AI boom, Intel began losing its competitive edge, and several core board members reportedly expressed dissent regarding Gelsinger's management approach, ultimately presenting him with an ultimatum that led to his immediate retirement.
Upon assuming the CEO position, Gelsinger introduced IDM 2.0 to facilitate rapid transformation and expand external collaborations. While this reform initially received positive feedback, Gelsinger's subsequent substantial investments aimed at competing with global foundry leader TSMC proved controversial.
Intel invested US$20 billion in building an advanced 18A foundry facility in Ohio. Over the past two years, it has invested US$25 billion in its foundry business. However, these massive investments failed to generate immediate returns, resulting in over US$7 billion in losses for Intel's foundry operations in 2023, with cumulative losses in the first half of 2024 reaching US$5.3 billion. These mounting losses likely triggered Gelsinger's forced departure.
Memory focus marks Samsung's distinct approach
Gelsinger's sudden exit serves as a cautionary tale for Samsung, particularly as its foundry operations continue to accumulate losses.
In his retirement announcement, Gelsinger emphasized Intel's need to differentiate itself amid current market dynamics, referring to the rapidly evolving semiconductor ecosystem driven by the AI wave. This environment poses particular challenges for IDMs like Intel.
Despite attempts to reshape the AI chip sector with cost-effective Gaudi products, market reception has been tepid. Meanwhile, in its traditional server central processing unit (CPU) market, Intel faces intensifying competition from AMD, leading to declining performance.
Samsung's situation parallels Intel's challenges. While its primary focus remains memory production, competitor SK Hynix is gaining ground in the high-bandwidth memory (HBM) segment. Additionally, Samsung's multi-billion dollar foundry investments have resulted in significant quarterly losses.
However, Jun is pursuing a different reform strategy than Gelsinger. Where Gelsinger prioritized AI and foundry investments over stabilizing the server CPU business in hopes of reclaiming market dominance against Nvidia and TSMC, Jun has opted to dramatically reduce foundry investment. In the latest senior personnel changes, Jun has placed the struggling memory division under his direct control, prioritizing the restoration of memory business competitiveness as his primary post-appointment objective.
A South Korean industry source notes that while Samsung and Intel operate as IDMs, their core businesses and technological capabilities differ, necessitating varied problem-solving approaches. Nevertheless, both companies share the strategy of bringing back experienced veterans for rescue missions. As the AI wave transforms the semiconductor market, companies must adapt their decision-making processes, requiring leaders who embrace innovation and implement appropriate strategies.
