Pat Gelsinger inherited major problems at Intel. The next CEO may have to navigate worse.

• Pat Gelsinger’s successor has major problems to tackle.

• Intel’s outgoing CEO has struggled with a turnaround and left the company behind in AI.

• Intel also faces an uphill battle in its bid to surpass rival TSMC.

Intel’s shocking announcement that Pat Gelsinger is retiring has thrown the future of the legendary chip company into great uncertainty. The interim leaders and the next CEO must now pick up the pieces of a turnaround plan designed to turn around a company in turmoil, catch up in a lucrative AI race and set the stage for its second term from Donald Trump.

The mission given to Pat Gelsinger when he took over Intel as CEO in 2021 was to make the then 52-year-old company relevant again. The chip design and manufacturing company – once an industry leader – was struggling. The company faced Big Tech customers making progress on their own designs and production setbacks due to production issues.

Now the challenges are even greater. It has failed to capitalize on the generative AI boom that has enriched rivals like Nvidia and TSMC. It is also struggling to assert itself as a “national champion” of U.S. industry at a time when chip manufacturing is becoming increasingly important to the country’s future prosperity.

In October, Intel reported a net loss of $16.6 billion in third-quarter earnings. That contributed to the second-quarter loss when the company suspended its dividend and announced a 15% workforce reduction. The market has not reacted kindly. Since the start of the year, the chip giant has lost half its value, dropping to a market capitalization of $103 billion.

Following Gelsinger’s departure on Monday, which according to Bloomberg followed a clash with the board, it will be up to Intel’s interim co-CEOs (company leaders David Zinsner and Michelle Johnston) and its future leader to overcome these problems.

Closing the AI ​​gap

In 2006, then Intel CEO Paul Ottelini turned down an offer from Steve Jobs to make chips for the iPhone. Intel’s move to avoid the smartphone market at the time is being repeated in the AI ​​boom. “It hung on to PCs for too long and ignored what Nvidia was doing,” says Peter Cohan, associate professor of management practice at Babson College. “By the time Intel started working on AI chips, it was too late and the company essentially had no market share.”

While Intel has tried to catch up, it has struggled to make it happen. Analysts and researchers point to a few reasons.

Hamish Low, a research analyst at Enders Analysis, told Business Insider that during Gelsinger’s tenure, Intel has had difficulty preparing its operations for the AI ​​boom while simultaneously dealing with the internal challenges of separating its foundry division of the design activities.

“This long, drawn-out business process of trying to get your own house in order, when that’s your focus, clearly generative AI has just been skipped,” Low told BI.

He added that Intel had long been known as “the x86 CPU company,” referring to its architecture for more general purpose computer chips. The AI ​​world runs on chips known as GPUs that are loaded into servers, so shifting focus while restructuring the company proved tricky.

“When it suddenly becomes about GPUs and accelerated computing, it’s always going to be a tough challenge to start making these kinds of server GPU chips,” he said.

Intel has felt the pain of this pivot. The line of AI chips known as Gaudi pales in comparison to offerings from competitors like Nvidia. In an October earnings call, Gelsinger shared that the company “will not achieve our goal of $500 million in revenues for Gaudi in 2024.”

“They’re in this awkward position where their server-side chips are just too small to ever really gain meaningful market share,” Low said. “It’s hard to see who the real customers would be for that.”

Daniel Newman, the CEO of research firm The Futurum Group, said Intel has struggled because it “didn’t count on the democratization of silicon.” Companies like Microsoft and Google have designed their own chips, which has further limited Intel’s market.

“They all went down the path of making their own investments and bets on silicon, so what was left was this second-tier enterprise market,” Newman told BI. “If you look at the enterprise market, they’re not buying a lot of AI silicon yet.”

Make your case as a national champion

The other major challenge facing Intel’s next leaders is proving the company’s ability to be a “national champion” of U.S. chipmaking. That won’t be easy.

To do this it will be necessary to strengthen manufacturing operations, which is no easy feat, according to The Futurum Group’s Newman. “Creating a successful business does not happen overnight. This is a multi-year process,” he said.

A big part of the challenge, he said, was that success would require “quite a bit of customer acquisition” from potential customers who seemed reluctant to shift high-volume production to Intel. As things stand, Intel is its own largest customer in chip manufacturing.

That’s because everyone else is largely turning to Taiwanese giant TSMC, which has grown more than 83% this year to a market cap of just over $1 trillion. Newman acknowledges that there is an open question as to whether this is because TSMC has technological superiority. However, he sees a new Intel process called 18A as competitive after news in September that AWS would use it for a particular chip.

What was more likely, he said, was that TSMC’s customers probably have the mentality of “TSMC isn’t broken, why fix it?” If Intel wants to get serious about building a leading manufacturing company, it will have to find a way to acquire TSMC.

Trump, who committed to “strengthening American leadership” in AI during his first term in the White House – issuing an executive order in 2019 outlining key priorities – could be a can lend a helping hand.

Over the years, the president-elect has emphasized protectionist policies that put American companies first. Given the crucial importance of chip production to American industry and national security, he could support Intel.

How that can happen is uncertain. Trump has previously criticized the CHIPS Act, which will give Intel $7.9 billion in subsidies to boost its domestic manufacturing capabilities. Instead, Trump has said he would favor tariffs as a tool to boost chip production on U.S. soil.

In September, Intel announced plans to spin off its manufacturing unit into its own subsidiary. However, not everyone is convinced that these steps will be enough.

Babson College’s Cohan told BI that he thinks “it is highly unlikely that Intel can be more successful than TSMC in making chips” without significant support from the US government.

“That company doesn’t have the capital to do that on its own, and its knowledge of making Nvidia chips is far behind that of TSMC,” he said. “Why would Nvidia even choose to abandon its relationship with TSMC for a less successful rival?”

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