Can NVIDIA save Intel?

NVIDIA's $5 billion investment, can it turn around the fate of the former chip giant Intel?

“Probably not.”

On September 18, The Wall Street Journal published a commentary stating that NVIDIA's $5 billion investment in Intel and the chip development agreement has brought much-needed cash flow to Intel and brought it closer to the core of the AI boom. However, these are merely "tactical victories," and what Intel truly needs is "structural reform."

Intel needs to split itself up.

The article pointed out that in the competition for advanced chip manufacturing, Intel has long fallen behind TSMC. TSMC has become the world's largest and most advanced chip manufacturer by focusing on contract manufacturing semiconductors for other companies. In contrast, Intel has chosen the opposite path, insisting on integrating chip design and manufacturing, even as the industry trend has clearly shifted towards specialization.

The Dilemma of Contract Manufacturing

Intel's contract manufacturing business is facing severe challenges. According to reports, since former CEO Pat Gelsinger launched the contract manufacturing business in 2021, this division, which encompasses all of Intel's manufacturing operations, has struggled to attract external customers.

Financial data shows that Intel's contract manufacturing business generated $4.4 billion in revenue in the latest quarter, but primarily from internal Intel sources, and recorded an operating loss of about $3.2 billion. This performance highlights Intel's disadvantages in competing with specialized foundries like TSMC and Samsung.

In a press call on Thursday, NVIDIA CEO Jensen Huang stated that the company has been evaluating Intel's contract services, but when asked whether new PC and data center chips would help establish that business, he chose to evade the question. Jensen Huang praised Intel's advanced chip packaging technology, suggesting that new chips might utilize this technology, but the article commented that this would have limited impact on the overall push for Intel's contract manufacturing business.

Splitting Up May Be the Only Way Out

The article further emphasized that NVIDIA and Intel's avoidance of the manufacturing business issue further confirms that splitting up is Intel's best option and suggests that Intel be divided into two independent entities: a chip design company and a manufacturing company.

The commentary noted that this structure would allow Intel's various parts to collaborate better with companies like NVIDIA, making cooperation more rational. If Intel were to split, NVIDIA could collaborate with Intel's chip design team to develop CPUs for data centers and personal computers, which could then be manufactured at TSMC, Samsung, or the split-off Intel factories, without concerns about Intel's own manufacturing interests.

Moreover, NVIDIA and other chip design companies, such as Qualcomm and AMD, would be more willing to outsource chip production to Intel, knowing that the split-off Intel manufacturing division would not compete with them. The article even speculated that NVIDIA's willingness to collaborate closely with Intel now may be because Intel has lost its competitive edge in the lucrative AI chip sector dominated by NVIDIA The spin-off will also allow investors—including the U.S. government, which recently purchased nearly 10% of Intel's shares—to choose to invest in Intel's chip manufacturing or chip design business, rather than bearing the risks of both simultaneously.

Spin-off Prospects: Challenges and Opportunities

Despite the numerous difficulties faced by the spin-off of Intel's factories, including financial losses and the complexity of related financing transactions, the article argues that this is a necessary step. It emphasizes that Intel's factories must be forced to operate independently in order to compete with TSMC and regain their status as a significant chip manufacturing force—something that may require support from NVIDIA, other customers, and the government.

One optimistic possibility is that NVIDIA's investment could trigger further investments from other potential clients of Intel's foundry business, providing the necessary funds for Intel to build expensive advanced chip factories and placing the spun-off foundry business in a better financial position. This is precisely the type of investment that Intel urgently needs.

The commentary concludes that this is exactly the type of investment Intel desperately requires. Only through fundamental business restructuring can Intel truly regain its leadership position in the chip industry, rather than relying solely on short-term boosts from external investments