Intel's Struggles Highlight Semiconductor Sector's Crossroads Amid Trade Wars and TSMC Ties

Intel’s recent weak financial outlook and its CEO’s discussions with Taiwan Semiconductor Manufacturing Company (TSMC) underscore a pivotal moment for the semiconductor giant—and the broader tech industry. Facing plummeting revenues, escalating trade tensions with China, and a technological race against rivals, Intel is at a crossroads. Its ability to adapt could determine whether it remains a leader in the AI-driven era or becomes a footnote in the sector’s evolution.

The Financial Crisis Deepens

Intel’s Q1 2025 forecast paints a grim picture: revenue is expected to drop to $11.7 billion–$12.7 billion, a 19% decline from $15.6 billion in Q1 2024. Net income is projected to turn negative, with a loss per share of $0.27. These figures follow a $126 million net profit in Q4 2024—a stark contrast to its $2.7 billion profit in the same quarter of 02023. Gross margins are also collapsing, falling to 36% from 51% a year earlier, as cost pressures mount.

The Data Center and AI division, once a growth engine, saw revenue decline by 3%, while the Client Computing Group (its largest segment) shrank 9%. Even its foundry division, Intel Foundry Services, is struggling, with revenue down 13%. To stem losses, Intel plans to slash its workforce by an additional 20% in 2025, adding to the 15% cuts already announced in late 2024, and has suspended its dividend—a staple since 1992.

The stock has plummeted 65% since mid-2023, reflecting investor skepticism about its recovery prospects. Analysts now assign an average price target of $20—a fraction of its $62 peak in 2023—while most rate the stock a “Hold” or “Sell.”

Trade Tensions and China’s Crucial Role

The company’s troubles are inextricably tied to Sino-U.S. trade tensions. China, Intel’s largest market, accounts for nearly 30% of its revenue. Yet punitive U.S. tariffs exceeding 85% on semiconductors exported to China are squeezing margins. Compounding this, Beijing is investigating Intel for potential antitrust violations, targeting its dominance in the Chinese processor market.

The U.S. has also imposed export controls on advanced AI chips, such as those used by rivals NVIDIA and AMD, further complicating Intel’s strategy to compete in the AI sector. Meanwhile, China is accelerating its own tech self-reliance, with firms like Huawei reporting a 22% revenue surge in 2024 by relying on domestically sourced components.

The TSMC Factor: Collaboration or Competition?

Intel’s new CEO, Lip-Bu Tan, has sought to reset the company’s trajectory, including discussions with TSMC’s CEO, C.C. Wei, in April 2025. These talks, framed as a “win-win” opportunity, aim to explore collaboration in manufacturing or supply chain optimization. However, TSMC has explicitly denied plans for a joint venture or technology-sharing pact, underscoring the tension between partnership and rivalry.

Intel’s traditional integrated model—designing and producing chips in-house—now faces headwinds as competitors shift to fabless operations, outsourcing production to TSMC and Samsung. This model has allowed rivals like AMD and NVIDIA to outpace Intel in AI chip performance and cost efficiency. Intel’s delayed transition to advanced 5-nanometer technology and its inability to match rivals in AI chips have eroded its market share.

The Bigger Picture: A Sector in Flux

The semiconductor sector is undergoing a seismic shift. China’s push for self-reliance, driven by U.S. sanctions, has spurred breakthroughs in advanced packaging and AI. Its semiconductor sector now holds 25% of the global advanced packaging market, while firms like Baidu and Alibaba are developing AI models that rival Western equivalents at lower costs.

The U.S. semiconductor ecosystem, meanwhile, faces its own vulnerabilities. The CHIPS Act, designed to boost domestic chip production, has yet to deliver results, while export controls risk accelerating China’s innovation.

Conclusion: Can Intel Pivot in Time?

Intel’s path forward hinges on three factors: resolving trade tensions with China, closing its technological gap with TSMC, and executing aggressive cost cuts. While its Q1 2025 results narrowly beat breakeven forecasts ($12.7 billion in revenue, $0.13 non-GAAP EPS), the road ahead is fraught with risks.

The company’s revenue trajectory—from $18.6 billion in Q2 2023 to an expected $12.2 billion in Q2 2025—reveals a 35% decline in just two years. Meanwhile, China’s tech sector is surging: Huawei’s 2024 revenue hit $155 billion, while Baidu’s AI investments have positioned it to challenge U.S. giants.

Investors must weigh Intel’s strategic moves—like its TSMC talks and workforce reductions—against the structural challenges it faces. Without a breakthrough in AI chips or a resolution to trade disputes, Intel’s struggles could persist. For now, the stock’s valuation reflects a market that is betting against a turnaround.

In a sector where speed and adaptability are paramount, Intel’s ability to pivot—or the lack thereof—will define its fate in the AI era. The clock is ticking.