Intel’s shares have dropped about 50 per cent in recent months, its CEO Pat Gelsinger has been ousted, and, after a 25-year run, the chip-maker was replaced by Nvidia on the Dow Jones Industrial Average Index in November 2024. To compound woes, shareholders have repeatedly sued the company over various issues. 

Despite being a pioneer in the semiconductor industry, Intel has struggled in recent times to sense and seize emerging opportunities, unlike competitors like Nvidia, AMD, and ARM.

Founded in 1968 by Robert Noyce and Gordon Moore, Intel has powered the personal computer revolution with its microprocessors, cementing its dominance in the central processing unit (CPU) market. The company’s CPUs, often referred to as the “brain” of the computer, were integral to the first IBM PCs. Moore’s Law, named after the Intel co-founder, predicted the doubling of transistors on a microchip approximately every two years, driving exponential growth in computing power and guiding Intel’s innovation trajectory. Who can forget the wildly popular advertising campaign and ubiquitous sticker on most computers: ‘Intel Inside’? Prof Clayton Christensen’s visit to Intel to present his theory of disruptive innovation, at the urging of the famed Intel leader Andy Grove, is said to have catalysed Intel’s dominance in CPUs. Yet, in recent times, one wonders if Intel has forgotten Christensen’s ideas.

The legendary Harvard Business School professor propounded that for long-term success any organisation must balance three types of innovation: sustaining innovation (making incremental improvements to existing products, targeting the most profitable customers); efficiency innovation (doing things more efficiently, reducing costs, and improving processes); and disruptive innovation (targeting underserved or niche markets with simpler, more affordable products that eventually disrupt established players). Intel’s innovations have focused on the sustaining and efficiency dimensions, while neglecting disruption.

Missing the bus

Intel excelled in sustaining innovation by continuously enhancing its CPUs, delivering better performance and features to its existing customer base. Intel’s in-house manufacturing capabilities were a significant advantage. It improved processes, reduced costs, and ensured high integration between its manufacturing and design teams.

Intel missed capitalising on the rise of edge computing and the AI revolution. ARM catered to this growing demand for low-power processors in smartphones and edge devices, becoming the standard for mobile computing

AMD, Intel’s long-time rival, also capitalised on Intel’s strategic gaps. By targeting the low-cost CPU segment, AMD attracted customers who found Intel’s products too expensive. Not surprising that Lisa Su, AMD’s charismatic leader, was named Time CEO of the year in December 2024.

Nvidia identified a niche market of computer video games, producing GPUs that enabled parallel processing for faster video rendering. Nvidia pivoted the GPUs to AI by creating the CUDA platform for AI research and development. Intel underestimated the disruptive potential of GPUs and missed the opportunity to lead in AI hardware. 

Interestingly, around 2005, well before the AI boom, Intel’s then CEO Paul Otellini seems to have proposed (to the board) acquiring Nvidia, for around $20 billion. Some Intel leaders saw potential in Nvidia’s technology for future data centre applications, but without board support, Intel passed on the opportunity. Nvidia today captures most of the market with a $3.5 trillion valuation.

Again, around 2017, OpenAI approached Intel with a proposal to provide discounted hardware in exchange for a stake in the company, aiming to avoid reliance solely on Nvidia. After several months of discussions, Intel’s leadership dismissed the deal, partly because they did not believe generative AI models would reach the market soon enough to justify the investment. Consequently, OpenAI turned to Microsoft for support.

The rise of Taiwan Semiconductor Manufacturing Company (TSMC) further complicated Intel’s position. TSMC’s focus on manufacturing and economies of scale enabled it to produce high-yield, advanced chips for companies like Nvidia and AMD. While Intel struggled with production delays and supply chain issues, TSMC’s efficient processes allowed its clients to meet market demands. Nvidia, which has never engaged in manufacturing, and AMD, which gave up its in-house manufacturing to focus on design, both leveraged TSMC’s capabilities to stay focused on design and stay competitive.

Future direction

Intel’s recent efforts to catch up with its rivals and remain relevant within this rapidly changing semiconductor industry include the development of the Gaudi series of GPUs, a flexible manufacturing model that includes outsourcing some parts to TSMC, and the introduction of OpenAPI as an alternative to Nvidia’s CUDA.The US CHIPS Act of 2022, aimed at boosting domestic semiconductor manufacturing, provides Intel with an opportunity to revamp its manufacturing capabilities and regain its competitive edge. To rebuild its dominant leadership position in the hardware chip business, Intel needs to think and act like a startup and make bolder strategic investments in potentially disruptive opportunities. Intel’s new CEO (the search is on) has a tough assignment.

(Shankar is an associate professor at Great Lakes Institute of Management, Chennai, and Kuchi and Singh are assistant professors at the Gurgaon campus)