Lessons from Intel’s shocking fall from grace

Korean companies must not forget that they also can fall just like Intel from a moment of complacency.

Nvidia is replacing Intel in the Dow Jones Industrial Average as a blue chip starting Friday after the former chip behemoth reported its worst performance in the third quarter and is forced to streamline payroll and real estate assets against the fast changing dynamics of the chip industry. The PC component titan has enjoyed an unchallenged status in the Dow Jones Average for a quarter of a century since it joined the index in 1999. But now comes the new darling of the AI age, Nvidia, whose market cap has topped $3 trillion thanks to the insatiable demand for its GPUs powering AI capabilities.

The change of fortune represents a dramatic shift in the semiconductor paradigm. The Dow — a Wall Street benchmark together with the Nasdaq and S&P 500 — contains 30 components weighted by the share prices of individual stocks instead of companies’ total market share. The reason, the index manager said, was to ensure a more representative exposure to the semiconductor industry. In short, America’s blue chip today is Nvidia, not Intel.

Nvidia is unrivalled in AI chipsets, enjoying a near-monopoly status with its share in the discrete AI-devoted GPU market estimated to top 80 percent. The sky’s the limit for Nvidia’s share prices. The stock that gained 240 percent last year added more than 170 percent this year, placing its market cap at $3.3 trillion, a close second to Apple. Intel, on the other hand, suffered a stock price loss of a whopping 54 percent this year with its market cap dwindling to $99 billion. In August, the company announced it was reducing its head count by 16,500.

Intel’s fall from grace underscores the aftermath of a company failing to keep up with innovation ahead of the times. The unchallenged CPU supplier for PCs dominated the chip market until the mid-2010s through chips embedded in Microsoft software. But the mobile and subsequent AI age have changed the rule of the game. Intel gave up the opportunity to provide chips for Apple smartphones and missed the chances of acquiring or investing in Nvidia in 2005 and OpenAI, the ChatGPT maker, in 2017-2018. Intel lags even behind its domestic rival AMD in the CPU market. Worse, its foray into the foundry market has been making little strides.

The evolution of technology and the outgrowth in industrial and market paradigms have been progressing at a superfast pace. Any neglect in research and development (R&D) investments for immediate results can cost a company dearly. Korean companies must not forget that they also can fall just like Intel from a moment of complacency.