How will Intel's new CEO Shift its Manufacturing Strategy?

With global semiconductor competition heating up and AI demand soaring, Intel’s new CEO Lip-Bu Tan is pushing for significant changes to the company’s strategy.

Tan plans to overhaul Intel’s approach to AI while cutting staff to tackle inefficiencies, particularly in middle management, according to Reuters.

One of his key priorities is is transforming Intel’s chip production, which has expanded beyond in-house manufacturing to serve major clients like Nvidia.

News of these plans saw Intel’s shares rise over 7% on the Nasdaq exchange.

At a town hall meeting following his appointment, Tan warned employees that the company would face “tough decisions,” according to sources familiar with the discussion. But what exactly are these decisions and how will they shape Intel’s future?

Intel’s challenges and opportunities

Under former CEO Pat Gelsinger, Intel reported a US$19bn annual loss in 2024 – its first deficit since 1986.

Now, Tan must navigate these financial struggles while identifying new opportunities to revitalise the company’s position in the semiconductor industry.

Having previously led chip design software firm Cadence and worked as a technology investor, Tan served on Intel’s board until his resignation last August.

His return as CEO follows a decade of what some see as strategic missteps by three previous leaders.

During this time, Intel failed to capitalise on the smartphone chip market and underestimated the demand for AI processors, allowing competitors like Arm Holdings and Nvidia to dominate those sectors.

Intel Foundry targets Nvidia and Google as key clients

In the short term, Tan is focused on improving Intel Foundry, the company’s contract manufacturing division, which produces chips for firms like Microsoft and Amazon.

Sources told Reuters that Intel plans to aggressively pursue new customers, including Nvidia and Google, to strengthen its position in the semiconductor industry.

Beyond manufacturing, Intel is looking to revive its AI server chip development and expand into emerging areas such as software, robotics and AI foundation models – large-scale AI systems trained on vast datasets.

Shifting Intel’s manufacturing strategy

Tan’s initial approach builds on his predecessor's strategy, which aimed to transform Intel into a contract chip manufacturer competing with Taiwan Semiconductor Manufacturing (TSMC), which produces chips for companies including Apple, Nvidia and Qualcomm.

Gelsinger invested tens of billions into building factories in the US and Europe to manufacture chips for both Intel and external clients but was forced to scale back as demand for Intel’s core products declined.

For most of its history, Intel has manufactured chips solely for itself. When Gelsinger took over as CEO in 2021, he prioritised contract manufacturing but failed to match TSMC’s level of customer and technical support, leading to delays and failed tests, former executives told Reuters.

Tan’s perspective was shaped by months of assessing Intel’s manufacturing process after being appointed to oversee it in late 2023, according to regulatory filings.

He reportedly expressed frustration with Intel’s culture, believing it had lost the “only the paranoid survive” philosophy established by former CEO Andy Grove. He also saw decision-making as hindered by an overly large workforce.

Tan proposed several changes to Intel’s board last year, but they were rejected. By August, he resigned abruptly due to disagreements with leadership.

Panther lake to drive Intel’s AI ambitions

Intel’s next generation of AI-enabled chips, Panther Lake, will be produced in its in-house factories using a new manufacturing process known as 18A. The company's financial performance this year is reliant on strong sales.

In a memo published on Wednesday (19 March), Tan stated his intention to retain control of the factories, which remain financially and operationally separate from the design business, and to restore Intel’s position as a “world-class foundry” – a term for manufacturers that produce chips designed by other companies.

Intel’s contract manufacturing can succeed if Tan secures at least two major customers to produce a high volume of chips, according to industry analysts and Intel executives.

Attracting major clients will require improving Intel’s chip manufacturing process to make it more accessible for companies like Nvidia and Alphabet’s Google.

Intel has recently demonstrated progress in manufacturing, drawing interest from Nvidia and Broadcom, which have begun early test runs, while AMD is reportedly also evaluating its process.

Tan is expected to focus on improving output or “yield” – the percentage of functional chips produced from each silicon wafer – as Intel moves to volume manufacturing of its first in-house chip using the 18A process this year.

The goal is to establish an annual release schedule of AI chips, in line with competitors. However, it is believed that Intel will not develop a compelling new architecture for its first AI chip until at least 2027, according to Reuters.

“Lip-Bu will be spending a lot of time listening to customers, partners and employees as he comes on board and works closely with our leadership team to position the business for future success,” an Intel spokesman commented.

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