Will this Dog Ever Hunt Again? - Maybe

Intel, once the undisputed leader in the semiconductor industry, is now facing a highly complex and uncertain future. The company’s struggles in manufacturing process technology, combined with competitive pressures and open issues on its product side, have created too many moving parts for investors and analysts to predict a clear path forward. Our assessment of Intel’s poor factory utilization and low yield rates highlights just one aspect of this broader struggle, but it is an essential piece of the puzzle in understanding Intel’s current challenges.

It's like "trying to teach a cat to swim—it’s messy, confusing, and no one's happy at the end of the day." Intel, once the king of the semiconductor world, is now stumbling through so many issues, "it's like watching a cow try to dance—there’s a lot of movement, but none of it’s graceful, and you're left wondering how it’ll ever get where it needs to go."

These colorful comparisons paint a vivid picture of Intel’s tangled mess of operational and strategic problems. With manufacturing stumbles, competitive pressures, and internal chaos, the company’s journey toward recovery feels like it's lost its way, unsure of how to regain its former glory.

We doubt if this dog'll ever hunt, but here goes...

At the heart of Intel’s woes is its manufacturing process technology. Once a leader in producing cutting-edge chips, Intel has fallen behind competitors like TSMC and Samsung in advanced node production. Our analysis emphasizes that Intel’s poor yields—where too many chips are defective—combined with inefficient factory utilization, are dragging down the company’s ability to compete on cost and performance. Intel’s inability to produce its own advanced 5nm, 4nm, and 3nm chips has forced it to outsource production to TSMC, signaling a lack of confidence in its own manufacturing capabilities. It's hard to overstate the process induced reliability failures in it's 13th and 14th generation processors.

This reliance on TSMC reflects deeper operational and strategic issues. Outsourcing chip production to a key competitor not only exposes Intel to supply chain risks but also undermines its position as a fully integrated device manufacturer (IDM). By handing over the production of its most advanced chips to an external company, Intel loses control over critical parts of its supply chain, making it harder to differentiate its products in a market driven by performance and efficiency. It also highlights Intel’s inability to fix the very processes that once made it dominant. Outsourcing it's most valuable components severely offsets all it's PR efforts to promote IFS as a cost effective and reliable supplier of high density parts.

The foundry business, which Intel has been trying to develop as a new revenue stream, presents another major challenge. Intel’s plan to build processors for third-party customers through Intel Foundry Services (IFS) is an attempt to rival industry giants like TSMC and Samsung. However, the poor yield rates and factory inefficiencies that plague Intel’s own products have raised doubts about its ability to scale this business successfully. Wall Street analysts have questioned the viability of Intel’s foundry ambitions, with some, like Citi Research, suggesting that Intel should exit the foundry business altogether to focus on improving its margins and earnings per share. Yet, Intel continues to push forward, signing deals with major clients like Amazon and Microsoft. These partnerships offer a glimmer of hope, but without substantial improvements in manufacturing reliability, the foundry business will remain a costly and risky venture. We anticipate IFS losses of $15B to $22B through 2026.

Compounding these operational challenges are the open issues on the product side of Intel’s business. Intel is struggling to defend its position in the PC market, which has been its bread and butter for decades. The rise of competitors like Qualcomm, which has entered the Windows PC space with its Snapdragon X Elite and X Plus chips, poses a direct threat to Intel’s dominance. Qualcomm’s chips offer superior performance and power efficiency compared to Intel’s older offerings, positioning the company as a serious contender in a market that Intel has long controlled. Meanwhile, Apple’s M-series chips have set a new standard for performance and efficiency, further eroding Intel’s competitive edge.

The AI space, another critical battleground, presents a similar story. While Nvidia has capitalized on its early investments in AI to dominate the market, Intel is playing catch-up with its Gaudi AI accelerators. Although Intel recently launched its Gaudi 3 AI accelerator and announced a deal with IBM, it remains far behind Nvidia, which controls more than 85% of the AI chip market according to Gartner. The AI market is critical for Intel’s future growth, but catching up to Nvidia, which has been surging thanks to AI-driven demand, is a monumental task.

Amidst these challenges, the notion that Intel could be broken up or sold in parts has gained traction. The interest from companies like Qualcomm and Apollo Global Management underscores the fact that Intel’s value may lie more in its individual components than in its current form. Qualcomm’s reported interest in acquiring parts of Intel, particularly its PC and AI businesses, reflects a growing sense that Intel’s internal struggles have made it vulnerable to takeover attempts. At the same time, Intel’s decision to sell its programmable chip unit Altera shows that it is open to shedding assets in a bid to streamline operations.

However, these potential deals raise further questions about Intel’s strategic direction. Qualcomm’s potential acquisition of parts of Intel would create antitrust concerns, as both companies are among the most important chipmakers in the U.S. Meanwhile, Apollo Global Management’s reported interest in investing billions to support Intel’s turnaround highlights the financial pressures Intel is under. But even with external capital, Intel’s path forward remains unclear, particularly if it continues to juggle so many competing priorities—AI, foundry services, PC chips, and more.

In essence, there are simply too many moving parts for Intel to easily navigate. From the foundry issues and manufacturing struggles to the competitive pressures on the product side, Intel faces a complex set of challenges that demand both technological and cultural transformation. As Morrison points out, Intel’s internal culture, which once thrived under the disciplined leadership of Andy Grove, must evolve if the company is to regain its former strength. Grove’s focus on operational excellence and innovation built Intel into the powerhouse it once was, but today’s Intel must re-embrace those principles if it hopes to survive.

Intel’s future hinges on its ability to streamline operations, improve manufacturing yields, and rebuild confidence in its process technology. At the same time, it must resolve its open product issues and defend its market share from rising competitors like Qualcomm and Nvidia. Without addressing both sides of the business—manufacturing and products—Intel risks being perpetually reactive, rather than a proactive leader in the semiconductor space. To put it simply, Intel’s future will require much more than just fixing one part of the machine—it will require transforming the entire company.

There's a growing consensus:

"For Intel to regain its competitive edge and improve both its financial and technological prospects, a return to the values and principles championed by Gordon Moore is essential. Moore’s ethos, centered around innovation, rigorous execution, and a long-term vision for technological leadership, must guide Intel’s future strategy. Only by re-embracing these foundational values can Intel hope to resolve its operational and competitive issues and secure its place as a leader in the semiconductor industry once again."

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