What Lies Ahead for Intel — Revival or Complete Collapse?

Intel’s current market capitalization has fallen below the $100 billion threshold, now hovering around $96–97 billion. Notably, in the first half of 2024, the company was among the ten worst performers in the S&P 500. Even then, its market cap stood at $136.6 billion.

The price of a company’s shares affects its weighting in the Dow Jones Industrial Average, which is calculated based on the average stock price of its components (unlike the S&P 500, which is weighted by a company’s market capitalization). However, inclusion in the Dow is determined by the index committee based on various factors, including the company's reputation, growth prospects, and industry representation. Currently, the highest-priced stock, UnitedHealth Group, is about 29 times more expensive than Intel’s stock.

It’s worth noting that in 1999, during the dot-com boom, Intel and Microsoft became the first tech companies to be included in the Dow Jones index.  

If Intel is removed from the index, it could be replaced by one of its key competitors, such as NVIDIA. This would further damage Intel’s already struggling reputation.

Intel’s crisis didn’t start in 2024. The company’s once-renowned ability to stay ahead of technological trends began to weaken a decade ago.

The company’s semiconductor production extends to Ireland and Israel, while its assembly and testing sites outside the U.S. are in China, Costa Rica, Vietnam, and soon-to-launch operations in Malaysia.

In theory, this infrastructure should have laid a solid foundation for growth or at least helped Intel hold its ground. However, back in the late 2000s, Intel missed a crucial opportunity by failing to secure a deal to produce chips for Apple’s mobile devices. Instead, the contracts went to TSMC for manufacturing and Qualcomm for development. 

By the mid-2010s, Intel’s leadership failed to foresee key technological shifts, causing the company to fall behind during the AI boom.

Intel missed out on investing in OpenAI and was slow to develop its own GPU, a critical component in AI applications. As a result, Intel’s projected revenue from its Gaudi 3 processor in 2024 is only $500 million.

In comparison, AMD’s GPU revenue is expected to reach $3.5 billion, while Nvidia’s AI chips generated $57 billion in the first half of this year alone.

Instead, Intel focused its investments on autonomous vehicle technologies and 5G networks, which developed more slowly than anticipated. The company spent around $15 billion acquiring Mobileye Global Inc. and $16.7 billion acquiring Altera Corp.

In early 2021, Pat Gelsinger was appointed CEO of Intel with the challenging task of pulling the company out of its prolonged crisis. He admitted that it would take years of investment to restore Intel’s capacity to produce cutting-edge semiconductors and that this recovery process would be painful.

Over the next three years, the company reported billions in losses, and in August 2024, Intel announced plans to lay off 15,000 employees. For the first time since 1992, the company also suspended its dividend payments—a major setback for shareholders.

Furthermore, projects to build new factories in Germany and Poland were put on hold for two years, and the opening of a new assembly facility in Malaysia was delayed.

There have been discussions about splitting Intel's design and manufacturing divisions into separate companies and selling off Mobileye Global Inc. and Altera Corp. However, both companies have seen a significant drop in market value, meaning that selling them now would result in further losses for Intel.

A key issue for Intel is the lack of external customers for its foundry business—Intel's semiconductor plants primarily serve the company’s own needs. Gelsinger has stated that there are already “engagements” with clients worth $15 billion, spread over several years.

For comparison, TSMC, Intel's main competitor, is expected to generate $88 billion from its foundry business this year alone.

Intel’s financial instability has naturally attracted the attention of its competitors. According to Bloomberg, following rumors of a potential business split, Intel has started receiving offers for some of its divisions.

In particular, in September, there were reports of a friendly acquisition proposal from Qualcomm, discussing the possibility of acquiring a portion of Intel’s business, which would effectively represent a merger on a national scale.

Around the same time, it was also reported that Arm Holdings Plc. showed interest in purchasing one of Intel’s divisions.

So far, neither company has confirmed or denied these reports.

Pat Gelsinger did confirm that Intel is working on restructuring its chip manufacturing unit, Intel Foundry, into an independent subsidiary. He also mentioned that the company is open to exploring any offers.  

However, there are currently no plans to sell.

Pat noted that Intel’s recovery plan is beginning to show positive results.

The situation surrounding Intel is significantly shaped by political factors, as the company has become a central part of the U.S. government's initiative to bring semiconductor manufacturing back to American soil.

At the heart of this effort is the CHIPS and Science Act, signed into law by President Joe Biden on August 9, 2022. CHIPS stands for "Creating Helpful Incentives to Produce Semiconductors."

The act garnered bipartisan support, and regardless of the outcome of the U.S. presidential election in November, its implementation will continue.

Essentially, the CHIPS and Science Act is a collection of three separate laws aimed at stimulating various sectors—from scientific research and workforce development to the localization of semiconductor manufacturing. The act was spurred by the intensifying "war" between the U.S. and China in the field of artificial intelligence. 

Among its key provisions, the act sets aside $39 billion in government subsidies to support chip production in the U.S. and offers 25% tax credits for expenses on production equipment (likely referring to extreme ultraviolet lithography (EUV) machines).

In total, including incentives to bring manufacturing back from Asia, $53 billion will be allocated over five years for building new production facilities.

In the spring of 2024, the Biden administration officially announced a direct government investment of $8.5 billion in Intel. By the end of September, according to the Financial Times, the U.S. government and Intel were finalizing negotiations on this deal, with the funds expected to be disbursed by the end of the year.

Read more: The U.S. Invests $8.5 Billion in Intel

The progress in the fall negotiations, which had been ongoing for six months, is significant. For Joe Biden, securing this funding for one of America’s largest semiconductor manufacturers would be a strong conclusion to his term. For Intel, gaining high-level political support would act as a crucial vote of confidence, essential for maintaining market stability and driving future growth.

Pat Gelsinger is now faced with a tough decision, with no easy solutions left. 

Attracting external investments or pursuing mergers and acquisitions (M&A) may seem like a quick way to stabilize Intel’s situation, but it would come at the cost of losing control over parts of the business. Additionally, these steps could complicate the implementation of the agreements already made with the government.

On the other hand, to secure government funding, Intel will need to take significant measures to reduce expenses. 

The U.S. government, however, finds itself in a challenging situation. The irony (or tragedy) is that, despite having many options, the Biden administration has no real alternative to Intel. Intel is the only major U.S. tech company that has retained a complete semiconductor production cycle—from chip design and research to manufacturing and packaging the final products.

Most of the major American semiconductor companies are either entirely or largely fabless.

For instance, AMD offloaded its semiconductor manufacturing business in 2009, selling it to the UAE investment group Mubadala. This led to the creation of GlobalFoundries, which manufactures chips in Singapore, Germany, and, to a lesser extent, the U.S. Since then, AMD has outsourced its chip production to GlobalFoundries and, since 2018, to TSMC in Taiwan. 

Apple’s manufacturing is based in China, India, and Vietnam. Nvidia’s famous graphics cards are produced in China, and its chips are made by Samsung and TSMC. However, rumors suggest that by 2025, Nvidia’s new processor will be designed and manufactured by Intel, using Arm cores (ARM, based in the UK, is also fabless).  

The list goes on, but the reality is that, apart from Intel, the only remaining U.S. semiconductor manufacturers are smaller, second-tier companies. Critics of the CHIPS and Science Act argue that its main beneficiaries will likely be these mid-sized firms, which are not known for high manufacturing efficiency.

How did the U.S., once the pioneer and leader in the semiconductor industry, end up with almost no domestic chip manufacturing?

In the second half of the 20th century, American electronics companies began outsourcing the production of certain components and, eventually, the entire manufacturing process of finished products. A key reason for this shift was the environmental impact of semiconductor manufacturing, which required additional expenses for environmental protection.

As a result, nearly the entire U.S. electronics manufacturing industry was either moved overseas or sold off, while American companies focused on technology development.

Today, the global semiconductor supply chain starts with chip design in the U.S., with components manufactured in Taiwan, Japan, Vietnam, and South Korea. The assembly, testing, and packaging of the final products are largely handled by Chinese firms.

According to SEMI (the industry association for companies involved in the electronics supply chain and design), South Korea now leads global semiconductor production with 25% of the market, followed by Taiwan and China at 22% each, and Japan at 13%.

The U.S.'s share of global semiconductor production is now just 8%.

While the U.S. retains significant influence as a leader in technology development, there are important nuances to consider.

For instance, China is now pouring substantial resources into its own semiconductor development. The need for domestic manufacturing became clear during the COVID-19 pandemic when global supply chain disruptions led to a significant chip shortage.

Now, the U.S. faces the challenge of bringing back an industry it once willingly outsourced. This is a difficult task, especially considering the massive increase in capital investments required for semiconductor production.

Ironically, it was Intel co-founder Gordon Moore who predicted that the low-margin semiconductor industry would eventually become a profitable and strategic sector. By the time this realization hit, however, much of the semiconductor manufacturing had already moved out of the U.S. 

Notably, the European Union (EU), which faced a similar scenario, has also recognized the need to strengthen its own semiconductor production. In 2023, the EU passed the Chips Act, designed to bolster Europe’s semiconductor ecosystem. The legislation includes €43 billion in investments to boost European production and prepare the continent for any future supply chain crises.

Currently, the U.S. and the EU are working on aligning their incentives to avoid a potentially harmful subsidy race and the introduction of protectionist measures.

However, the situation is more complicated than it may appear.

In 2020, China launched its "Made in China 2025" strategy, aimed at securing technological dominance. Although China’s leading tech company, Huawei, still lags behind its Western counterparts in innovation, Beijing has committed $143 billion in direct subsidies and tax incentives—more than the combined investments from the U.S. and the EU.

Moreover, U.S. sanctions and technology export bans aimed at Chinese companies as part of the “war” for AI leadership could have unintended consequences for the U.S. itself.

China remains the most efficient location for chip manufacturing and assembly. In the U.S., production takes 25% longer and costs 50% more than in Asia. It’s clear that U.S. tech companies, which have long relied on Asian manufacturing, are not pleased with the potential repercussions of the new policy.

After such a pessimistic analysis, it may seem like Intel has no future. However, it’s important not to jump to conclusions.

Intel’s long-standing strategy of keeping most of its semiconductor production in the U.S. could prove to be a significant advantage.  

Government investments are expected to go towards building and upgrading Intel’s facilities in Arizona, New Mexico, Ohio, and Oregon.   

These efforts are projected to create more than 10,000 jobs, which could help repair Intel’s public image after the layoffs in the fall of 2024. 

Overall, Intel plans to invest over $100 billion in its U.S. operations over the next five years as part of its business development strategy. 

The two companies announced joint investments in next-generation chips that will enable AWS to handle virtually any workload and boost the performance of artificial intelligence applications.

These chips will be designed and manufactured at Intel’s U.S.-based Foundry facilities.

Another vote of confidence in Gelsinger’s recovery plan came from a recent $5 billion investment offer from Apollo Global Management Inc. This could attract interest from other investment firms and help Intel weather this challenging period without losing control of its key businesses.