A few thousand people is a lot more than the number of gamers who'd buy an Intel GPU at market price. If they don't raise their ASP into the black they're going to ax the whole division.
For reference the B580 die is nearly the size of the 4070 but sells for a third the price.
mm2 is directly proportional to BOM cost and minimum profitable selling price. Intels software and hardware is much less efficient than nvidia so their products cost more to make and sell for less. Battlemage is at best break even, with alchemist they lost money. If they want to stay in business they need to raise their ASP. Since no one is buying intel for their games support they need to find a new market, thus SRIOV and local LLM. Unlike nvidia they don't need to worry about cannibalizing other business units.
On the die size argument, which I see being echoed a lot online:
Why would a customer care or factor that into their purchasing decisions? Saying that these dGPUs with large dies are what is going to put Intel out of business is ludicrous and the Xe cores are shared amongst many of Intel's most lucrative products.
You can afford larger dies on N4 compared to when the 40-series were launched. It's no longer the leading edge node and yields have likely improved.
dGPUs have pretty expensive GDDR modules, I do not have data on the exact proportion but I would bet that the memory modules is the more important line item.
BoM matters less on lower volume (compared to mobile SoCs) dGPU units. Masks masks, R&D and validation are big fixed up-front costs.
Recurring software support is also independent of how many units get sold. Xe cores are shared by many Intel products (client & server CPUs, datacenter GPUs and gaming GPUs).
B580 is widely popular for gamers, Intel cannot keep up the demand at the moment. I doubt they need to unlock SRIOV on the gaming segment dGPUs to get rid of stock, as you seem to suggest. Their datacenter GPUs [1] offer support for SRIOV, as you probably already know, so I assume you are bemoaning market segmentation.
Gamers are buying at $250. If you pay more you can find B580 on the shelves now. That Xe cores and driver development are shared with other products is the only reason they haven't canceled the dGPU division. The hardware business is all about designing IP and amortizing the cost in as many products as possible.
Of course consumers don't care about die size and cost, only the value of the end product. The problem is intel and their negative margins. Maybe people are too blitz scale brained but running a negative margin hardware business is a really bad idea. Typically they target 50% margins.
Now if intel was healthy maybe they could survive a few negative margin products by subsidizing from their profitable SKUs. However intel is not healthy and reported losses every quarter last year. It's a sinking ship and they need a come to Jesus monent before they go bankrupt.
I'm arguing that their product segmentation strategy is stuck in the past and a significant reason why they're unprofitable. On desktop CPUs they lock ECC even though the Xeons are cheaper because they remove the E cores so AVX512 will work. On dGPUs they lock out SRIOV even though the desktop iGPUs support it. On the server they created accelerators which they then tried to charge for which means no one bothered to write integrations to make it work with their software. It's a broken culture which is so up it's own ass that management only cares about intel and is completely disconnected from the customers. Intel needs product features and value differentiators that aren't just negative margin products, changing product segmentation is low hanging fruit.
Being intransigent and the same as the competition but slightly worse had led them to unprofitability and soon, bankrupty. Interest rates are going up and companies carrying debt are going to be in a rough spot.
Intel needs to vastly streamline and cut down their SKUs (antithetical to the PM regime they have built up over the last 25+ years).
They need to stop artificially crippling their products to segment them. Simplify naming and have mid, great and greatest. The lowend shit products should be dumped. This means SRV-IO and ECC available everywhere. All of their GPUs should shift right by 8GB or more.
Streamlining their SKUs would streamline their wafer processing in the fabs.
How much has SKU explosion lead to mask set explosion and having to do runs, bank that and switching to another set of masks?
At this point they should just produce Xeons and support at most 2 sockets. I don't care if they fuse off features with cryptographic keys. Ship one piece of silicon to everyone, streamline the shit out of that.
Agreed, Intel needs to win back customers. Removing the MBA-staple strategy of artificial market segmentation would be a strong signal that they are serious about becoming an actual customer-first company.
For reference the B580 die is nearly the size of the 4070 but sells for a third the price.