What needs to go right for Intel, and what happens if it doesn't

• Lawmakers and Wall Street analysts are worried about the future of the chip giant Intel.
• Intel is set to receive federal aid under the CHIPS Act to boost US semiconductor production.

US policymakers are still betting that Intel is the nation's best shot at manufacturing chips.

It's a long shot. The S&P Dow Jones Indices said on November 1 that Intel is losing its 25-year spot to Nvidia in the Dow Jones Industrial Average. Intel's stock has dropped nearly 50% so far this year, and the company has faced billions in losses. It's also had sweeping layoffs, buyouts, and other setbacks.

The many moving parts of Intel's strategy could still help it recover from its recent setbacks if they're executed well. Business Insider spoke with industry analysts to ask what should go right for Intel to get back on track.

Intel has specifically lagged in the age of generative AI compared to competitors like Nvidia, Qualcomm, and AMD, which have their chips produced by Taiwan-based chip giant TSMC.

BI's Alistair Barr previously wrote that since Intel is the only company manufacturing high-powered chips on American soil at scale, rather than outsourcing the job to Taiwan, the company is a key part of the bedrock of the country's technology ecosystem.

"Chips power the modern economy," he wrote. "If you have to get these components overseas, you're vulnerable."

Given lawmakers' keen geopolitical and economic interests in maintaining the US's technological advantage, that means weighing all possible outcomes for Intel's future as the company struggles to gain its footing in the AI race.

"What's going on in Intel is not good, and being removed from the Dow is just sort of the cherry on the sundae," said Stacy Rasgon, a senior analyst at Bernstein Research.

What needs to go right: 18A

Intel's 18A process technology is key to its strategy and its next shot at a new process node after struggling with previous node upgrades. If the technology succeeds, Intel can win over customers and turn itself around.

Intel has executed five improved chip nodes in the last four years, resulting in smaller and more powerful transistors, "which is a feat in itself," said Patrick Moorhead, CEO and chief analyst of Moor Insights and Strategy. Still, in recent years, Intel has failed to keep up with TSMC in the latest chip nodes.

Moorhead added that Intel is investing to "catch up" to its competitors.

"Its 18A node appears to be healthy and competitive, which is the key to its turnaround and the ability to recruit more foundry customers," Moorhead said.

Intel has announced Amazon as an 18A customer so far.

"You have to trust Intel to manufacture your chips on advanced processes, which they've just started adopting, efficiently and on time which they haven't done yet," said Logan Purk, a senior analyst at Edward Jones.

Intel needs to balance the books

Intel plans to spin out its semiconductor manufacturing business into an independent subsidiary called Intel Foundry, separating the manufacturing process from its chip-design business. For this to work, the foundry business will need other major companies, including its rivals, to use Intel to manufacture their chip designs in large volumes. This hasn't happened yet.

Other chip companies that have separated their manufacturing and designing have succeeded, said Dan Morgan, a senior trust portfolio manager at Synovus. He pointed to AMD spinning off its manufacturing arm GlobalFoundries as an example, and he estimated that Intel's foundry business alone could be valued as high as $80 billion. Highlighting Intel's challenge here, GlobalFoundries only has a market cap of just $24 billion as of publication time.

Intel CEO Pat Gelsinger has also said that Intel is making progress in cutting costs in their recent staff reductions and real estate sales.

"Balance sheet is an area of focus for investors given the company's aggressive capex plan and ongoing losses in the foundry business," Morgan said.

Rasgon said Intel is facing a "dire emergency" but likely isn't so desperate as to declare bankruptcy or sell off portions of its business at a fire sale price. Moreover, Intel still holds over 75% of the market share of data center chips and PCs.

"It's not like the company's just bleeding out," Daniel Newman, CEO of the technology research and advisory firm Futurum Group, told BI.

A rescue plan from Washington, DC

Washington's concerns about Intel have become a sharper focus as the company has continued to slip from its spot as a top chipmaker.

Intel is set to receive billions from the federal government under the CHIPS and Science Act to boost American semiconductor manufacturing — though the company hasn't received any funds yet.

If Intel can contain costs and efficiently apply its grant funding, Newman said, "there is a possibility that it could get back to a level of profitability that would make it sustainable."

The government has taken other steps to boost Intel. Gina Raimondo, the US secretary of commerce, took multiple private meetings and calls to urge chief executives from Google, Microsoft, Apple, Nvidia, and other firms to buy chips from Intel to shore up the company's manufacturing wing and solidify its role in US-based chip production," The New York Times reported last month.

Under Donald Trump's presidential administration, Intel could receive support for domestic manufacturing while facing higher tariffs and pushback on the CHIPS Act.

"Under the incoming administration, which arguably has an even greater nationalist tone, homegrown companies actually stand to benefit," said Purk.

Not everyone is convinced that government intervention will help Intel get back on track in chip manufacturing.

"It's all fine and dandy for the government to say, 'Yeah, we want you to use Intel,'" Rasgon said. "Like, that's great, but it's not going to happen unless Intel can deliver."

Intel could face a breakup or a merger if things go wrong

Intel's foundry business has been slow to take off, and the potential for it to reinvigorate the American chipmaking landscape hasn't stopped rumblings about a possible breakup — with competitors like Qualcomm reportedly interested in buying parts of Intel — or policymakers in Washington discussing potential contingency plans.

Officials from the Commerce Department and Sen. Mark Warner, who championed the CHIPS Act, met for precautionary strategy talks to discuss how the government should support Intel if it needs more help, Semafor reported. The report said they also discussed a potential merger between the company's chip design business and a competitor like AMD or Marvell.

"If, for some reason, this foundry thing continues to take longer, the losses continue to mount, the technological progress does not take hold, sales falter, or the company's ability to stay together does, I do believe that they are setting it up in that direction to be able to have options — whether they spin it off and take it public separately, or bring private equity into it, or they're able to bring a buyer to the table," Newman said.

Intel, the Commerce Department, and a representative for Warner did not respond to requests for comment from BI.