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Intel Might Be Moving On From Its Gaming GPU Ambitions -- That Wouldn't Be a Bad Thing

@DominicBeck
Rumor has it thatIntel's(INTC-1.41%)Arc lineup of video gaming GPUs (graphics processing units) is already being nixed -- just a handful of years after originally being announced and long before any of these dedicated graphics cards ever really took root in the market. Therumor was recently circulatedby YouTube poster Moore's Law Is Dead. For sure, it's just a rumor, and Intel has subsequently defended its Arc gaming lineup as safe. Time will tell what happens next. Before I go into what I think all this means for the company (and the stock), I first want it known that I'm certainly not rooting against Intel. On the contrary; Intel is responsible for advancing much of the computing technology we take for granted every day, and I believe the world really needs this company to succeed. However, the fact is that times have changed, and the competitive landscape is very different than it was a decade ago. Intel axing its Arc GPUs might not be happy news for gaming enthusiasts, but it could actually be a really good thing for Intel's long-term health -- as well as the health of the tech industry at large. Let me explain. No low-hanging fruit in computing hardware Let's not be naive about this. Intel was always going to have a steep uphill battle in the consumer GPU market -- especially for high-end chips that appeal to serious video game hobbyists and professionals. This is a space exclusively dominated byNvidia(NVDA-5.28%)andAdvanced Micro Devices(AMD-6.69%), and they've been at it for years. Even if Intel could design hardware that could compete (and I don't doubt it could with enough financial resources to pour into it), marketing it in such a way that consumers would take a high-end Arc GPU seriously is another story entirely. Basically, Intel might simply need to cancel Arc because the payoff could take longer than it can afford to wait. Some estimates by industry analysts claim Intel has already lost billions on its Accelerated Computing and Graphics Group (AXG), and I don't think that is an exaggeration. Even simple chip-design work is costly and time-intensive. And you have to add the cost to set up new manufacturing lines to produce new chips because these modern tech building blocks are nothing short of marvels of engineering. But here's the real rub: Intel just started breaking out the revenue of AXG in 2022, and so far, it's been underwhelming. AXG hauled in $186 million in Q2 2022 (up 5% year over year) and just $219 million in Q1 2022 (up 21% year over year). One might argue that this GPU segment is growing, but bear in mind that this is at a far slower pace than the multibillion-dollar GPU businesses of Nvidia and AMD have maintained for the last few years. Plus Intelhas been losing market sharein its Client Computing Group (CCG), a catch-all division for consumer-facing PCs and laptops, for quite some time, which makes the recent AXG performance all that more painful. If that wasn't bad enough, Intel is going to take the same hit from the currentdownturn in consumer spendingthat other chip companies are starting to report. And even CEO Pat Gelsinger admitted that the Data Center Group (DCG, Intel's second-biggest moneymaker after CCG) would likely lose market share for at least a couple more years. If Intel was an asset-light chip-engineering company only, maybe this wouldn't be such a big deal. At the very least, perhaps the company could report lower sales but still salvage its profit margins. But this isn't an asset-light chip-engineering companyonly; it's a vertically integrated engineering and manufacturing company. Lower chip sales indicate the company is running manufacturing lines that aren't being utilized at an efficient capacity. In other words, Intel's profitability is about to get a really big haircut. With that being the case, it's time to start trimming the excess. My prediction? Farewell, Arc GPUs, we hardly knew you.$Intel(INTC)$
Intel Might Be Moving On From Its Gaming GPU Ambitions -- That Wouldn't Be a Bad Thing

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