Intel has been grappling with a rough year, losing over half its market value and facing the worst single-day drop in 50 years following a lackluster earnings report. However, the company is making bold moves to regain its footing. Earlier this week, Intel announced a major structural shift by separating its manufacturing division from its core business of designing and selling computer processors. This comes on the heels of speculation that Qualcomm is eyeing a potential takeover, one of the most significant tech deals in history, though Intel has yet to comment on any discussions.
This week’s developments have sparked a modest rally, with Intel's stock rising by 11%, its best performance since November. But for CEO Pat Gelsinger, who took the helm in 2021, this moment of relief is fleeting. Intel has lost its title as the world’s biggest chipmaker and is trailing far behind Nvidia in the AI chip space—an industry reshaping the future of technology. With market cap disparities showing Nvidia’s dominance at nearly $3 trillion, Intel’s $90 billion valuation underscores just how much ground it needs to cover.
Despite the challenges, Gelsinger remains resolute in his vision for Intel’s future. He emphasized that Intel will continue as an independent entity, with no plans to spin off its foundry division. Instead, Intel is establishing a separate internal unit for manufacturing, giving it more governance flexibility and the potential to attract external funding. According to Gelsinger, keeping the design and manufacturing functions together is crucial, with both units “better together.”
Intel's restructuring is part of a broader strategy to invest over $100 billion in chip factories across four U.S. states, aiming to become a leading domestic manufacturer. This pivot is critical as the U.S. government pushes to reduce reliance on overseas production from companies like Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung. The foundry’s success, however, will take time. Intel estimates it won’t see meaningful external sales until 2027, and it's pausing certain international projects, including its factories in Germany and Malaysia, to recalibrate market demand.
The company has landed major clients like Amazon, which recently signed on to use Intel’s foundry to produce networking chips. While Intel hasn’t named many American semiconductor customers for its new manufacturing services, the company assures that more big announcements are on the horizon, with Microsoft already committing to custom chip production for cloud services earlier this year.
Still, Intel has a steep climb ahead. Competing with TSMC’s manufacturing capabilities is daunting, especially given that even Intel relies on TSMC for some of its high-end processors. Yet, Gelsinger remains optimistic, pointing to increased customer interest in Intel’s foundry business. The company has a goal of $15 billion in external foundry revenue by 2030, a milestone that seems distant but not impossible.
Intel’s push for a domestic manufacturing boom has caught the attention of the U.S. government, which has backed the company with billions in funding through the CHIPS Act and other programs. Earlier this year, Intel secured up to $8.5 billion in CHIPS Act grants and could receive up to $11 billion in additional loans. The company is also building specialized “secure enclave” facilities for U.S. military and intelligence chip production, though details remain classified. Government support is crucial, as Intel positions itself as a critical player in securing America’s chip supply.
However, Intel’s challenges aren’t limited to manufacturing. The company’s core PC and server chip business continues to lose market share to competitors like AMD and Nvidia. Revenue in the PC chip division dropped 25% from its 2020 peak, and server chip sales plummeted by 40%. While Intel has added AI features to its processors in hopes of gaining an edge, it remains far behind Nvidia, whose GPUs dominate the AI chip landscape. Intel’s Gaudi 3 AI accelerator generated just $500 million in sales last year, a stark contrast to Nvidia’s $47.5 billion.
For Intel, this moment represents a crossroads. The company’s future depends on whether it can successfully juggle its dual ambitions: expanding domestic chip manufacturing while simultaneously making strides in the AI market. Gelsinger's leadership will be crucial in steering Intel through these challenges, and the coming years will reveal whether the company can regain its former glory or be forced to consider more drastic measures.
