Intel has yet to release its Arc discrete GPUs in the US, and already a top analyst is wondering when CEO Pat Gelsinger will decide to stop the bleeding. Respected industry commentator Jon Peddie has a new blog post asking this tough question, and his logic is based on several factors. The TL;DR version is that this new division has been hemorrhaging money for years, and what we’ve seen of Arc so far has been discouraging. Given its recent financial difficulties, how long can it keep this up?
For starters, Peddie has been around for a very long time in the PC world, and he is considered a thoughtful and well-informed analyst. His company’s reports are based on industry research, but his latest missive is just his opinion, which is important to keep in mind. That said, his argument is pretty easy to follow. It starts with the fact that Intel has recently cut its losses on many of its “non-essential” business units.
The most notable of which is Optane, which Intel said it would be winding down in the near future. At the same time, it announced it was taking a $559 million “Optane inventory impairment” charge, according to Anandtech. That was on top of Intel posting the worst quarter for its business since 1999. Peddie notes Intel also ditched its drone business, its NAND group, sports group, McAfee, and its Russian operation. In total, that’s six business units Gelsinger has dumped in the recent past. This shows Gelsinger isn’t shy about making cuts, even to businesses he likes.
Then he turns to its effort to launch a new GPU architecture, which started way back in 2016. As some might recall, it famously hired Raja Koduri from AMD as a sign of its seriousness. The company eventually created a new division named AXG, for Accelerated Computing Systems and Graphics. It has continued hiring too, most notably poaching Tom Peterson from Nvidia, and then sending him on a media tour to tout Arc’s capabilities.
Peddie says that since Intel began reporting numbers for AXG in Q1 of 2021, it’s lost at least $2.1 billion. However, he estimates it’s more in the neighborhood of $3.5 billion. That number includes its investments to get set up at TSMC for its Arc GPUs. Despite this investment, Intel has very little to show for it.
However, that’s all about to change as it prepares to launch its first Arc GPUs. Or at least, that’s how it was supposed to go, but regular readers are aware that’s not the case. To put it mildly, the Arc launch has been a bit of a mess. There have been delays on top of delays, with reports of bad drivers being partially responsible. Just last week Gelsinger himself said its Arc drivers were not up to par, and it will be partially responsible for the company not hitting its target of shipping four million GPUs this year. Peddie calls the long and painful rollout of Arc “an embarrassment,” and suggests the inevitable: sell the entire thing off.
The logic is simple; Intel is in a tough spot. As we wrote above, its Q2 earnings were not good. Gelsinger said he believes they are “at the bottom” right now, as far as revenue goes. Meanwhile, it’s battling with TSMC for foundry business, and with AMD in the CPU market for consumer and enterprise. On top of that, both AMD and Nvidia are about to launch their next-gen architectures. Those will end up competing directly with Arc, and it seems unlikely Intel will come out on top in those battles. After all, Intel and AMD are established companies with powerful hardware and rock-solid drivers.
Given this environment, Peddie says it should just sell Arc and write the whole thing off. It simply can’t continue to make payments to its large staff, and to TSMC for wafers, while also asking the government for subsidies to build fabs stateside. Those same fabs aren’t even building parts for Arc, he notes. Otherwise, it faces “years of losses as it tries to punch its way into an unfriendly and unforgiving market.”
Peddie makes a convincing argument, and it’s indicative of where the community is right now. As Intel edges closer to Arc’s launch, which it says is “now in sight,” these are not the types of rumblings Intel expected. This comes at the same time it’s being reported that Intel is having trouble finding partners for its Arc launch as well. Despite this somewhat negative atmosphere, its PR team is still making the rounds. Yesterday it posted benchmarks for 48 games in DX12 and Vulkan. We still don’t have a launch date or pricing though, which will be key factors.
We’ve said all along we hope Intel succeeds with its GPU effort. After all, more competition is always a good thing. However, at this point all signs point towards “let’s wait and see.” Peddie notes Pat Gelsinger was brought on board to clean up Intel’s various messes and get it focused on the future. He laid out a very aggressive roadmap to do so, and part of that strategy includes jettisoning products that aren’t pulling their weight.
Whether he will pull the plug on Arc remains to be seen, but Peddie certainly thinks it’s the right course of action. Despite these murmurs in the press about Intel dumping Arc, graphics chief Raja Koduri says it won’t happen. Or at least, not this year. He wrote on Twitter, “We are very much committed to our roadmap. We are ramping Alchemist and will continue to improve the experience. You will see more updates from us this quarter. AXG is also on track to ramp 4 new product lines by the end of the year.”