Intel's new CEO might have the last best chance to turn around the company

Investors are betting on new Intel (INTC) CEO Lip-Bu Tan to turn around the troubled chipmaker.

While it’s unclear whether Intel’s financial problems can be fixed quickly, Wall Street analysts — and current and former employees — generally agree on what steps Tan needs to take, short of a breakup. Those steps include everything from cutting jobs to turbocharging Intel’s young foundry business.

A semiconductor industry veteran, Tan was appointed to his new role on March 12. Investors applauded the news: Intel stock rose more than 15% the next day. Analysts liked Tan’s experience as former CEO of Cadence Design Systems, a semiconductor design software company, and his experience on boards of some 14 semiconductor companies, including Intel.

Now the hard part.

Tan is inheriting a company whose financial losses have made it a takeover target in recent months. Many Wall Street analysts and investors believe Intel — which is the only American leading-edge chip manufacturer — would be better off splitting up and selling its struggling manufacturing business. Case in point: The stock has risen on various reports in recent months of potential deals, some of which were allegedly being worked on with the support of the Trump administration.

Reuters reported last week that Tan plans to keep Intel’s manufacturing business running for now and is looking to bolster Intel’s faltering AI chip efforts to catch up to Nvidia (NVDA). He said as much in a letter to employees on March 12: “Together, we will work hard to restore Intel’s position as a world-class products company, establish ourselves as a world-class foundry and delight our customers like never before.”

Read more about Intel’s stock moves and today’s market action.

Yahoo Finance interviewed four Wall Street analysts and nine current and former Intel employees — including high-level executives. The employees were granted anonymity due to nondisclosure agreements and fear of jeopardizing future employment opportunities. Some of those sources said Intel should be left in one piece, at least for now. That’s because, if split up, Intel’s foundry would immediately go bankrupt, Bernstein analyst Stacy Rasgon told Yahoo Finance.

And Intel’s product business, which designs the chips, can’t outsource to rival manufacturers so easily — Intel semiconductors are specifically made in accordance with its own internal manufacturing processes. Not to mention, Intel’s billions in CHIPS Act funding requires it to retain majority ownership of its foundry.

Intel declined to make Lip-Bu Tan available for an interview but told Yahoo Finance: “Lip-Bu is spending a lot of time listening to customers and employees as he comes on board and works closely with our leadership team to position the business for future success.”

Here’s what company sources and Wall Street analysts said he has to do to to avoid a break up.

Intel is one of the few remaining chipmakers that both designs and makes its own chips.

On the design side, Intel has fallen behind rivals such as AMD (AMD) and, of course, Nvidia in an increasingly AI-dominated industry. On the manufacturing side, Intel has repeatedly faced delays.

Former CEO Pat Gelsinger attempted to grow Intel’s revenue by opening its in-house manufacturing business — a “foundry” — to outside customers on a large scale. Foundries such as Taiwan’s TSMC (TSM) produce chips for other companies. Intel historically produced chips for its internal product business before Gelsinger launched Intel Foundry Services (IFS) in 2021.

The foundry strategy had mixed results. Intel is set to achieve a big feat by launching a new advanced chip manufacturing process called 18A this year, and IFS has deals with Amazon (AMZN) and Microsoft (MSFT). But analysts debate whether Intel can sustain the foundry, which lost $13.4 billion on $17.5 billion in revenue in 2024.

Bottom line: Intel needs to attract more big outside customers. Analysts and former executives said Tan’s industry connections should help, but his credibility alone won’t guarantee success.

In order for Intel’s manufacturing business to survive, the company must succeed in launching 18A. While Intel manufacturing employees had previously suggested that the new technology was having trouble, those same employees said this week that 18A is progressing — and Intel manufacturing staff is feeling “positive” about its success.

As Moor Insights & Strategy analyst Anshel Sag said: “[I]f the results are good and companies are happy, they’ll increase their capacity at” the foundry.

Per Reuters, Tan is looking to boost Intel’s AI chip efforts to rival Nvidia and others.

Intel fumbled multiple attempts to enter what would become the AI chip market. In 2009, Intel scrapped a multiyear project, Larrabee, to develop a standalone GPU like Nvidia’s. In 2017, Intel hired AMD’s graphics chip engineer, Raja Koduri, to lead a second effort toward a homegrown GPU, which ultimately failed. And in January Intel effectively killed its most recent effort, a high-end AI GPU called Falcon Shores.

Intel CEO Lip-Bu Tan is inheriting a company whose financial losses have made it a takeover target in recent months. (Intel) · Intel

“Intel has a very good finance organization, but the company does sometimes make these decisions that are overly led by the early years’ financial outcome,” said a former high-level executive. “You only learn from deploying. If you intend to be in that market long term, you might as well have access to the market, even if it costs you through the first generation.”

Former and current Intel employees describe the company, whose staffers refer to themselves as “Team Blue,” as slow and bureaucratic. Past high-level executives said the chipmaker’s new CEO will need to shake up company culture and cut middle management.

It’s a tough balancing act. The two current employees said any layoffs could depress morale and risk slowing the progress of 18A. Tan already has said Intel has “hard decisions” ahead. One of the employees said their colleagues are bracing for a potentially “huge amount” of layoffs in the second or third quarter.

They said their teams are already understaffed, and cuts to middle management would result in those teams being moved around, creating chaos.

One of the high-level former executives said, “The depth of talent at Intel is immense, and the loyalty that people have is astounding,” later adding, “The answer lies in inspiring the people you have.”