NVIDIA's $500M Investment in Intel Sparks Debate on Structural Change

NVIDIA's 500 million dollar investment in Intel has sparked debate over whether it can turn around the fortunes of the once-dominant chipmaker. While the investment provides Intel with much-needed cash flow and positions it closer to the core of the AI boom, some analysts argue that these are merely tactical victories. Intel's real need, they say, is for structural change.

In the competitive landscape of advanced chip manufacturing, Intel has fallen behind Taiwan Semiconductor Manufacturing Company (TSMC). TSMC, by focusing on contract manufacturing for other companies, has become the world's largest and most advanced chip manufacturer. In contrast, Intel has chosen to integrate chip design and manufacturing, a strategy that goes against the industry trend towards specialized division of labor.

Intel's foundry business is facing significant challenges. Since the former CEO initiated the foundry business in 2021, it has struggled to attract external customers. The latest financial report shows that Intel's foundry business generated 440 million dollars in revenue for the quarter, but this was primarily from internal sources, and it incurred an operating loss of approximately 320 million dollars. This performance highlights Intel's disadvantage in competing with specialized foundries like TSMC and Samsung.

During a conference call with reporters, NVIDIA's CEO acknowledged that the company has been evaluating Intel's foundry services. However, when asked if new PC and data center chips would help establish this business, the CEO avoided the question. While praising Intel's advanced chip packaging technology, which may be used in new chips, the CEO's comments suggest that this would have limited impact on Intel's overall foundry business.

Some analysts argue that the evasive stance of both NVIDIA and Intel on manufacturing issues further confirms that splitting Intel into separate design and manufacturing entities is the best option. This structure would allow Intel's various divisions to collaborate more effectively with companies like NVIDIA. If Intel were to split, NVIDIA could work with Intel's design team to develop CPUs for data centers and personal computers, and then manufacture them at TSMC, Samsung, or Intel's own foundries post-split, without worrying about Intel's manufacturing interests. Additionally, other chip design companies like Qualcomm and AMD would be more willing to outsource chip production to Intel, knowing that the split manufacturing division would not compete with them.

Splitting Intel would also allow investors, including the U.S. government which recently acquired nearly 10% of Intel's shares, to choose between investing in Intel's chip manufacturing or design business, rather than bearing the risks of both. While splitting Intel's foundries presents numerous challenges, including financial losses and complex financing transactions, it is seen as a necessary step. Only through fundamental business restructuring can Intel regain its leadership position in the chip industry, rather than relying on short-term boosts from external investments.

One optimistic scenario is that NVIDIA's investment could attract further investment from other potential customers of Intel's foundry business. This could provide the necessary funds for Intel to build expensive advanced chip factories and put the split foundry business in a better financial position—exactly what Intel needs right now. In summary, this is the type of investment that Intel urgently needs. Only through fundamental business restructuring can Intel truly regain its leadership in the chip industry, rather than relying on short-term boosts from external investments.