1 Common Tech Inventory to Keep away from

Intel (NASDAQ:INTC) is the leading manufacturer of central processing units (CPUs) for laptops, desktops, and data center servers. After launching the world’s first microprocessor in 1971, Intel rose to prominence in the 1980s as its x86 chip architecture became the industry standard.

However, over the last five years Intel has struggled with unprecedented manufacturing problems. At the same time, Intel stock has significantly underperformed the S&P 500, and things may get worse in the coming decade. Here’s what investors should know.

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Personal computing problems

In 1965, Intel computer scientist Gordon Moore told Electronic Magazine that the number of components on a chip would double every year. This became known as Moore’s Law, though it has been revised over time and now states that the number of transistors per chip will double roughly every two years, while the cost of computers will be cut in half over the same period. For decades Intel kept this cadence, releasing smaller and more powerful chips every two years.

The trouble started in 2012. At the time, Intel said it would launch 10nm chips by 2015. But manufacturing problems resulted in several delays, and Intel didn’t release a 10nm mobile processor until 2019 — four years later than originally planned.

Meanwhile, Taiwan Semiconductor Manufacturing Company (TSMC) started shipping 10nm chips in 2017 and 7nm chips in 2019. That allowed its partner AMD (NASDAQ:AMD) to launch 7nm mobile processors in 2020. As a result, Intel has lost market share.

Mobile Market Share

Q4 2017

Q4 2018

Q4 2019

Q4 2020

AMD

6.9%

12.2%

16.2%

19%

Intel

93.1%

87.8%

83.8%

81%

Data source: Mercury Research. Note: “Mobile” refers to laptops and notebooks.

Despite releasing 10nm mobile chips in 2019, Intel has so far failed to deliver a 10nm desktop chip. By comparison, AMD brought a 7nm desktop processor to market in 2019. Again, Intel has lost market share.

Desktop Market Share

Q4 2017

Q4 2018

Q4 2019

Q4 2020

AMD

12%

15.8%

18.3%

19.3%

Intel

88%

84.2%

81.7%

80.7%

Data source: Mercury Research.

In 2020, Apple decided to shift away from Intel’s x86 CPUs, opting instead to design ARM-based M1 processors for Macs. Notably, Apple’s M1 chips are made by TSMC — now using a 5nm process — and offer 3.5 times better performance and twice the battery life of previous Intel-based Macs.

This development is significant for two reasons: First, Intel is losing a big customer in Apple. Second, one in three developers use Mac, meaning Intel will likely lose a sizable portion of its developer base.

Data center problems

In 2021, after replacing CEO Bob Swan with Pat Gelsinger, Intel finally delivered a 10nm server CPU. By comparison, AMD launched a 7nm server CPU in 2019. Once again, Intel has lost market share.

Server Market Share

Q4 2017

Q4 2018

Q4 2019

Q4 2020

AMD

0.8%

3.2%

4.5%

7.1%

Intel

99.2%

96.8%

95.5%

92.9%

Data source: Mercury Research.

But Intel’s troubles are far from over. In 2018 Amazon started designing its own ARM-based Graviton processors for its data centers. These custom-built chips offer up to 40% better price performance than compute instances powered by x86 chips. Here again Intel is losing a big customer.

Bigger problems on the horizon

To summarize, Intel is losing ground on two fronts: AMD is gaining market share, and big tech companies are shifting to ARM technology. Currently, AMD is likely the bigger problem, but ARM CPUs are getting cheaper and more powerful by the year, which could make them the greater long-term threat.

In fact, according to Cathie Wood’s Ark Invest, 99.9% of developers currently build software for x86 systems. But that figure could drop to 18% by 2030 as the remaining 82% shift to ARM-based systems.

Moreover, while x86 chips currently control 92% of the data center market, Ark believes that figure will drop to 27% by 2030. In other words, Intel’s market share losses may accelerate in the coming decade.

All of this evidence leads me to one conclusion: Avoid this stock. That doesn’t mean Intel’s share price is going to plummet tomorrow; the company may outperform the market for several years to come, or maybe it won’t — no one knows the future. But given the trends, I think there are better places to invest your money.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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