Can Nvidia save Intel?

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Can Nvidia's $5 billion investment reverse the fate of former chip giant Intel?

“Probably not.”

On September 18, The Wall Street Journal published a commentary stating that news of Nvidia’s $5 billion injection into Intel and their chip development agreement, though it brings Intel much-needed cash flow and brings it closer to the core of the AI boom, these are merely “tactical victories.” What Intel really needs is a “structural transformation.”

Intel needs to break itself up.

The article points out that in the competition for advanced chip manufacturing, Intel has long fallen behind TSMC. By focusing on contract manufacturing semiconductors for other companies, TSMC has become the world’s largest and most advanced chip manufacturer. In contrast, Intel chose the opposite path and insisted on integrating chip design and manufacturing, even though the industry trend has obviously shifted toward specialized division of labor.

The Dilemma of the Foundry Business Becomes Apparent

Intel’s foundry business is facing severe challenges. According to reports, since former CEO Pat Gelsinger launched the foundry business in 2021, the division—which covers all of Intel’s manufacturing—has struggled to attract external customers.

Financial data shows that Intel’s foundry business achieved revenue of $4.4 billion in the most recent quarter, but this mainly came from within Intel itself, and incurred about $3.2 billion in operating losses. This performance highlights Intel’s disadvantages when competing with specialized foundries like TSMC and Samsung.

At a press call on Thursday, Nvidia CEO Jensen Huang said the company continually evaluates Intel’s foundry services, but when asked whether new PC and data center chips would help establish the business, he avoided the question. Huang praised Intel’s advanced chip packaging technology and implied that new chips might leverage this technology, but the article comments that this would have limited impact on Intel's overall foundry business.

A Breakup May Be the Only Way Out

The article further emphasizes that the evasive attitude of Nvidia and Intel regarding manufacturing business issues further confirms that breaking up Intel is the best option, and suggests dividing Intel into two independent entities: a chip design company and a manufacturing company.

The commentary notes that such a structure would allow Intel’s separate divisions to cooperate better with companies like Nvidia, making partnerships more reasonable. If Intel were split, Nvidia could work with Intel’s chip design team to develop CPUs for data centers and PCs, which could then be manufactured by TSMC, Samsung, or a spun-off Intel fab, without concerns over Intel's own manufacturing interests.

Moreover, Nvidia and other chip designers like Qualcomm and AMD would be more willing to contract Intel to manufacture chips, knowing that Intel’s manufacturing arm, once separated, wouldn’t be competing with them. The article even speculates that the reason Nvidia is willing to partner so closely with Intel now is likely because Intel has lost competitiveness in the Nvidia-dominated, highly profitable AI chip market.

A breakup would also let investors—including the US government, which recently bought nearly 10% of Intel’s shares—choose to invest in either Intel’s chip manufacturing or design business, instead of bearing the risk of both.

Prospects for a Breakup: Both Challenges and Opportunities

Despite the many difficulties in spinning off Intel’s fabs, including factory financial losses and the complexity of related financing transactions, the article argues that this is necessary, and stresses that Intel’s factories must be forced to operate independently to compete with TSMC and become a major chip manufacturing force once again—a process that may require support from Nvidia, other clients, and the government.

An optimistic scenario is that Nvidia’s investment could bring further investments from other potential customers of Intel’s foundry business, giving Intel the funds needed to build expensive advanced chip plants and putting the spun-off foundry business in a better financial position. This is precisely the investment Intel urgently needs right now.

The commentary concludes that this is exactly the kind of investment Intel urgently needs. Only through fundamental reorganization of its business can Intel truly regain a leadership position in the chip industry, rather than merely relying on the short-term boost of outside investment.

Risk Warning and DisclaimerThe market carries risks; investments must be made with caution. This article does not constitute personal investment advice, nor does it take into account the individual investment objectives, financial circumstances, or needs of any particular user. Users should consider whether any opinions, viewpoints, or conclusions herein fit their specific situation. Investing accordingly is at one's own risk. ```