Intel, once a Silicon Valley star, has been floundering. Now it's mounting a turnaround.

• Intel was once a giant of Silicon Valley. It's now in the midst of a crisis.
• The chip giant has seen its value drop sharply this year due to several challenges.

As Intel's leader in the culminating decades of the 20th century, Andrew Grove had a slogan he'd routinely fall back on: "Only the paranoid survive."

During his tenure as CEO, Grove transformed the chip company into a giant of Silicon Valley that, during the 1990s, was as important to the PC market as Microsoft. Intel reached such dizzying heights only after Grove — who joined Intel as its third employee in 1968 —showed a willingness to make changes in the face of fierce new rivals from Japan.

It's a mantra that Intel appears ready to revive after sliding into crisis.

Pat Gelsinger, who has led Intel as CEO since 2021, has enacted a sweeping set of new initiatives to turn the chip company around. Several challenges around production and strategy have left it far short of its historic heights — and those reached by rivals.

While Nvidia has added around $1.6 trillion to its value since January, and TSMC, another rival, has risen almost 60% this year, Intel has gone the other way. It was worth over $210 billion at the start of the year but has now fallen to less than $90 billion.

As quarterly financial earnings this year have shown, it has struggled to capitalize on the generative AI boom. Its Gaudi 3 AI chip, unveiled as a rival to offerings from Nvidia and AMD, is expected to generate just $500 million in sales this year. Revenue last quarter was down from the same period the previous year.

Last month, the company announced more bad news: It would lay off 15,000 people from its workforce, suspend its dividend from the fourth quarter, and cut its capital spending. The changes led to the company's shares falling by over 25%.

It's a low point for a company whose cofounder, Gordon Moore, revolutionized the computing field through industry-defining observations, now formulated in Moore's Law.

However, Gelsinger seems ready to ensure the 56-year-old company can revive its fortunes.

Intel prepares to mount a comeback

After months of seeing Intel's shares tumble, Gelsinger on Monday addressed the elephant in the room by announcing the "next phase of Intel's transformation."

"There has been no shortage of rumors and speculation about the company, including last week's board of directors meeting, so I'm writing today to provide some updates and outline what comes next," Gelsinger wrote in a letter to employees.

One of the headline updates he shared was that Intel is expanding its collaboration with Amazon Web Services through a "multi-year, multibillion-dollar framework" that would see the two companies work together on custom chip designs.

Specifically, Intel Foundry, the division responsible for manufacturing chips instead of designing them, would produce the chip through a new process called Intel 18A that the company has been preparing to roll out in 2025.

For Patrick Moorhead, founder and chief analyst at advisory firm Moor Insights & Strategy, the development is a step in the right direction. Moorhead wrote on X that the Amazon news "can only be looked at as a positive," as it gives Intel "a strategic deal it didn't have before."

Meanwhile, Alvin Nguyen, senior analyst at Forrester, told Business Insider that this is a big public win for Intel. "Producing chips for a hyperscaler utilising their top processes provides publicity, a revenue stream, and validation of their foundry business," he said.

Gelsinger's second headline announcement was that the company is establishing Intel Foundry as a separate subsidiary within Intel, with its own new operating board and independent directors. It's a move that aims to bring about a key financial benefit.

"Importantly, it also gives us future flexibility to evaluate independent sources of funding and optimize the capital structure of each business to maximize growth and shareholder value creation," he said.

The final headline announcement was that the company was set to "pause" on projects to build new plants in Poland and Germany for around two years in a bid to become more capital-efficient.

Critically, Gelsinger told employees that "there are no changes" to Intel's other manufacturing locations as it remains committed to manufacturing investments across locations in the US, such as Arizona, Oregon, New Mexico, and Ohio.

For now, investors seem to have taken the shake-up positively. Intel's share price was up over 6% in pre-market trading on Tuesday.

Forrester's Nguyen said the announcements go "a long way to improving their outlook.".

However, he added that challenges remain, "especially with their workforce reduction and concerns about the AI market."

One of the company's biggest problems has been its struggle to capitalize on the generative AI boom. According to a Reuters report last month, the company passed over an opportunity to invest in ChatGPT maker OpenAI seven years ago. That set it well behind rivals once large language models finally arrived in a big way just a few years later.

Analysts have also noted positive aspects of Gelsinger's turnaround plan. A research note from Bernstein, published on Tuesday, said, "the moves suggest Intel is not as desperate for cash as some have feared."

However, the research firm's note added that "nothing announced was really incremental, or changes the current situation."

Perhaps Gelsinger isn't being paranoid enough.