The exit of Intel CEO Pat Gelsinger is the latest in a string of blows for the struggling American chipmaker. Sources close to the decision told Bloomberg the 63-year-old industry veteran was ‘forced out’ amid frustration with the firm’s failure to catch up with industry leader Nvidia. Gelsinger reportedly opted to ‘retire’, rather than be removed and was immediately replaced in the interim by Intel’s CFO and CEO. Issuing a statement Gelsinger described the decision to step down as ‘bittersweet’ and that it came after a ‘challenging year’ in which Intel stock fell more than 50 per cent.

But Intel’s problems won’t be easily fixed by new leadership. Intel has fallen behind competitors like AMD, NVIDIA, and TSMC due to several missteps in innovation, manufacturing, and strategic decision-making. Once the leader in semiconductor technology, Intel’s struggles stem from delays in advancing its manufacturing process. It has failed to compete in the mobile computing market and took its eye off the ball on AI. In other words, it would appear to have failed or fallen behind on every front.

The complexities involved in the chipmaking industry, including the enormous cost in time and money to establish new manufacturing plants and the huge amount of investment in research and development needed to formulate market-leading products, mean the road to recovery for Intel could be a long one.

Is Intel too big to fail?

Gelsinger’s exit as CEO has sparked speculation that the company may abandon its chip manufacturing to pursue artificial intelligence and other emerging technologies above all else. Intel had been set to accept an $8 billion subsidy from the US government to support its chipmaking activities – a strategic objective for the US – but industry insiders believe the deal could go up in smoke. This would mean a significant hit to US ambitions to onshore the production of semiconductors. As the Financial Times reported:

“[I]ndustry insiders believe Gelsinger’s hasty exit could be a prelude to Intel doing what was once unthinkable: moving away from manufacturing its own chips altogether, potentially dealing a serious blow to US attempts to rebuild its domestic semiconductor manufacturing sector…

“The company is due to cash its first cheque from the US government within weeks. However, doing so would make it harder to get out of the chip manufacturing business due to provisions in its Chips Act contracts.”

However, the manufacturing of semiconductors, which have invaluable military and civilian applications, could be something Washington is unwilling to let slip away. In a November report by the Centre for Strategic and International Studies it was pointed out that China is making huge gains in the field, while America is falling behind, with ramifications for the defence sector. They said it was “vital” for strategic US interests that Intel remains viable and carries out its commitments to expand its chip-making business:

“While recent accounts of Intel’s difficulties have mostly been confined to the business pages, the company’s future has broad national and global significance far beyond its employees and shareholders. Intel is a critical player in the U.S. government’s efforts to reduce dependency on chips manufactured abroad—notably the significant concentration of production in Taiwan—and regain leadership in semiconductor manufacturing technology.

“Both capability and capacity are needed to provide an alternative source for the most advanced chips and a more resilient supply chain for foundational chips essential to the automotive, telecommunications, and medical sectors. If Intel’s restructuring efforts fail, larger U.S. efforts are unlikely to achieve their objectives, with significant ramifications for U.S. national security and economic future.”

That means the incoming Trump administration may simply not allow Intel to abandon its chipmaking business. The 47th President’s ‘America First’ posture, and his ill ease with foreign conflicts, potential and actual, means his administration may look to unentangle the US from its reliance on semiconductors made in Taiwan.

While it remains unclear how Trump will intervene, if he does so at all, his plans to impose tariffs on imports and to cut corporation tax for US-based firms would at the least create strong incentives for Intel to continue the production of semiconductors. Given that Intel stock rose by 7 per cent on Trump’s election, it would appear investors are betting that the incoming president will be good news for Intel.

Where did Intel go wrong?

Intel’s troubles could be dated as far back as 2007 when the firm failed to come up with its own answer to Apple’s revolutionary iPhone. But all of its subsequent failures are of a similar kind – an inability to innovate. Intel was already in a mess when its recently departed CEO took the reins in 2021 – and his turnaround plan seems to have done little to arrest the haemorrhaging of cash nor develop market-leading products.

This is despite an enormous $20 billion investment in chipmaking factories under Gelsinger’s leadership and massively expanding Intel’s workforce. However, these investments appear to remain lossmaking, with reports that despite orders from tech giants including Amazon and Microsoft, Intel’s factories continue to lose money.

Observers say at the heart of Intel’s woes is its failure to develop new and exciting products which pose any kind of threat to its competitors. Speaking to Reuters, Rosenblatt analyst Hans Mosemann said:

“At the end of the day, you need leading-edge products, innovation, and execution, none of which we saw during Pat Gelsinger’s reign.”

A similar criticism was levelled at Intel in the wake of Gelsinger’s exit, with the CEO of the Taiwan-based chipmaker TSMC accusing the American rival firm of having ‘no strategy and no CEO.’

In August, after Intel announced 15,000 redundancies, the CEO of the Futurum Group told Vox that Intel “had no competitive product to really bring to market.”

Over the past decade, Intel stock has averaged -16 per cent, while its chief rival Nvidia has gained 28,000 per cent. Intel’s woes now run so deep its market cap has now shrunk below that of a small and obscure California-based chipmaker, Marvell Technology, whose stock has grown 2000 per cent since 2016.

Where will Intel go next?

Intel’s decline from an industry leader to a second-rate player is a result of more than a decade of missteps. Intel has ultimately suffered from a lack of strategic foresight, and failed to innovate, despite enormous investment and workforce expansion. Although shareholders will be hoping the exit of CEO Pat Gelsinger can mark a turnaround – Intel’s problems go beyond its leadership. To thrive it will need to deliver on cutting-edge products and new technologies, which is easier said than done.

The company’s inability to keep pace with competitors like Nvidia, AMD, and TSMC highlights its struggle to adapt to shifting market dynamics. From missing the mobile revolution to falling behind in artificial intelligence and advanced chip manufacturing, Intel’s missteps have left it vulnerable. These failures are compounded by the increasing complexity and cost of semiconductor manufacturing, making recovery a daunting challenge.

However, Intel could find refuge in the fact its ability to manufacture semiconductors is vital to US strategic interest – if not profitable in the free market. As the U.S. government pushes for onshore semiconductor production for national security reasons, Intel’s role could be critical. However, Intel’s path forward remains uncertain. Speculation over its commitment to chipmaking, and how a new US administration would respond to any such plans is not obvious. The stakes are high—not just for Intel’s shareholders and employees but for U.S. strategic interests. And it could the Intel’s unique position that saves it from itself. And if not, Intel risks becoming a cautionary tale in an industry defined by rapid advancement and relentless competition.