Can Intel be Saved?

Lip-Bu Tan’s departure from Intel’s board last August sealed the fate of then-CEO Pat Gelsinger.

Tan had only been on the board since September of 2022 and was a refreshing addition to the beleaguered semiconductor company’s board of directors.

In my December 17, 2024, AMA issue of The Bleeding Edge, I made the point that Intel’s board was “mainly comprised of executives without any experience in the semiconductor industry” and that:

The board constitution makes no sense at all for Intel. It’s embarrassing. And it will lead to the further downfall of Intel.

Tan was one of the only members on the board at Intel with relevant executive experience. And he left.

Despite Tan’s efforts as a member of the board to shift Intel’s strategy to focus more on product development related to artificial intelligence (AI) – and stop doing things that weren’t core to Intel’s business – CEO Pat Gelsinger continued to spread Intel too thin and wasn’t willing to make the tough decisions.

So when Tan left the board, it was clear Gelsinger was in trouble. Tan’s departure was an indictment of Gelsinger and his strategy. The activist investors were circling, and Intel’s (INTC) share price was demanding major change.

Intel’s Pickle

Five years ago I predicted that Intel was in a lot of trouble, and I’ve continued to provide my analysis on why the company has been a stock to avoid.

The chart below tells the story. Intel fell by more than 70% from its 2021 highs through Lip-Bu Tan’s departure.

Intel (INTC) 5-Year Share Price

It has been like a slow-motion train wreck, one bad decision after another.

As I wrote in The Bleeding Edge – Farewell, Intel:

Intel is in a pickle.

• It missed the mobile market entirely
• It missed the GPU market entirely
• It missed the AI market entirely – no AI-specific semiconductors to speak of that have any commercial traction
• It is years behind in semiconductor manufacturing technology
• And it is gambling on the 18A manufacturing process, for which it has no confirmed volume customer committed (and Broadcom, probably its best opportunity, is not happy with the progress)

The reality is that Intel no longer has the best semiconductors.

Its products, while they still bring in about 66% of total revenues, are all replaceable with better products offered by competitors. Even Intel’s most advanced semiconductor – Lunar Lake – is currently being manufactured by TSMC.

How ironic is that?

Making Intel’s situation even more dire has been the incredible success that other semiconductor companies like NVIDIA (NVDA), Advanced Micro Devices (AMD), Micron Technology (MU), and ARM Holdings (ARM) had over the last couple of years in data center-related business, and area where Intel used to dominate.

So it came as no surprise to see Gelsinger ousted from Intel at the end of last year. And in turn, Lip-Bu Tan – who had wide support from Intel’s key institutional investors – was named the new CEO last month.

What a turn of events in just seven months.

Tan at the Helm

Tan is an excellent choice to run Intel. He is most well-known for his long stint as the CEO of Cadence Design Systems (CDNS).

Cadence is most well-known for its electronic design automation (EDA) software, which is used to design, validate, and test semiconductors. Tan’s reign at Cadence as CEO ran from 2004 through 2021, and then he continued as Chairman until mid-2023.

As for his success in the semiconductor industry, Cadence’s share price during his tenure is all we need to look at…

Cadence (CDNS) Stock Chart (2004–2023)

With the graph above, it’s easy to understand why Intel investors wanted Tan at the helm. Cadence rose more than 1,300% under Tan’s leadership.

In addition to his leadership street cred at Cadence, Tan also has had a prolific career as a venture capitalist – at his firms Walden Catalyst and Celesta Capital – investing in more than 200 tech startups with a primary focus on semiconductor technology and more recently artificial intelligence.

This Monday, at a corporate event – Intel Vision – he spoke for the first time about his path forward for the troubled chipmaker. Having had the benefit of decades of industry experience and direct experience on Intel’s board, he can hit the ground running, but his lack of specificity left me disappointed, with comments along the lines of:

• Intel needs to make its products more competitive in the artificial intelligence industry
• The need for Intel to build up its foundry business
• The need to listen more closely to its customers
• “Some of the non-core business, we will spin it off”

You’ve got to be kidding me. What a disappointment. Tan is capable of so much better than that.

Tan is a product-focused executive, so I don’t see him breaking up Intel into a product company and a semiconductor foundry business. This has been under discussion with private equity and major industry players like Taiwan Semiconductor Manufacturing (TSM) over the last several months.

The semiconductor industry would benefit greatly from having an independent counterbalance to Taiwan Semiconductor in the foundry business, but Tan will want to keep these two businesses together.

But if he insists on doing so, he will have to get very aggressive with the rest of the business.

Tough Decisions

Specifically, I’d recommend selling off the following:

• Intel’s Programmable Solutions Group – this is the field programmable gate arrays (FPGA) business that came to Intel through its acquisition of Altera in 2015. The acquisition was poorly managed and would do better at another large semiconductor company.
• Intel’s Accelerate Computing Systems and Graphics Group – this is the division that houses Intel’s GPUs. Intel missed the boat completely on GPUs and it is far too behind NVIDIA and AMD to catch up.
• Mobileye – Intel still retains ownership of 88% of Mobileye. Intel acquired Mobileye for $15.3 billion in 2017, and the company is now trading at a valuation of $10.3 billion. It is not core to Intel’s business – it should sell its stake in the company completely and raise capital.
• Intel’s Internet of Things Group should be spun out and sold. It is not strategic and not core to its business.

Intel’s current financial model is costing the company negative $6.8 billion in free cash flow this year and negative $4.1 billion in 2026. Worse, the company is already sitting on more than $50 billion of debt.

Intel needs to cut deep, jettison all non-core businesses, raise capital, and focus all of its efforts on its computing and AI data center-related semiconductor products. That’s it. Intel needs to be maniacal if it wants to rebuild and climb back to a leadership position in semiconductor design and manufacturing.

It’s going to hurt, and it’s going to take some tough decisions.

Tan, at 65, has an opportunity to cap his career with what could be a legendary turnaround. I sincerely hope he succeeds.

Am I suggesting buying Intel now that Tan is in charge?

No way, not after what I heard on Monday.

And if Tan takes the steps that I recommend taking above, it’s going to get worse before it gets better.

But now, at least we know what to look for in Intel. And given the current shift in U.S. government policy towards domestic manufacturing and building more resilient supply chains, Intel has a golden opportunity with government support to restore its reputation as a global leader in semiconductor technology.

Jeff