Zhitong Finance APP has learned that in recent years, $Intel (INTC.US)$ due to a series of missteps and avoidable mistakes, it has been viewed as a 'sacrificial piece' by many investors. However, this pessimistic sentiment may actually create an asymmetrical investment opportunity for investors.

With the appointment of the experienced new CEO Chen Liwu, Intel is in a favorable position to execute a focused transformation strategy. More importantly, Intel has also received strong support from the US government, which is eager to support domestic semiconductor manufacturing. The new leadership, along with the government's strong support, provides Intel with a solid foundation to achieve transformation.

The new leadership drives execution and strategic focus.

The appointment of Chen Liwu as CEO may become a turning point for Intel. Chen Liwu is one of the three giants in EDA.$Cadence Design Systems (CDNS.US)$The former CEO, with over 20 years of experience in the Semiconductors field, brings much-needed execution power and industry credibility to Intel. Chen Liwu has a deep network in the chip industry and even has the ability to attract much-needed foundry customers to Intel.

It is noteworthy that Chen Liwu resigned from the Board of Directors in 2024 due to dissatisfaction with Intel's slow execution and bureaucratic culture, and his current appointment as CEO strongly indicates Intel's desire for change.

During his time at Cadence Design Systems, Chen Liwu led the company to achieve a decade of strong growth, known for his precision and efficient execution. As mentioned, he even had conflicts with Intel's management regarding the slow pace of transformation. Chen Liwu is committed to establishing a culture of accountability within Intel and adheres to the motto of "staying humble, working hard, and pleasing our customers." His pragmatic style contrasts sharply with the "cultural decay" and excessive emphasis on MBA rather than engineers criticized by the renowned semiconductor Analyst Dylan Patel at Intel. In short, during this AI-driven semiconductor boom, Intel has finally welcomed a leader who can guide the transformation at a critical moment.

An aggressive strategy to reclaim technological leadership.

Under Chen Liwu's leadership, Intel's strategy focuses on a clear goal: regaining technological leadership. After falling behind$Taiwan Semiconductor (TSM.US)$competitors such as NVIDIA, Intel is doubling its efforts to advance its ambitious technology roadmap and accelerating execution with a more relentless focus. The company plans to deliver a 5-nanometer node within four years and even aims to launch the 18A process by 2025.

Despite the extreme difficulty in regaining leadership under the shadow of Taiwan Semiconductor, recent progress has shown the realization of multiple milestones. For example, Intel's first emission-level process, using the groundbreaking RibbonFET transistors and PowerVia power delivery technology, is under development, and its 18A has already entered the testing chip process ahead of schedule.

Equally important, Intel is focusing on core products and key markets while divesting distracting businesses. The company has streamlined its product portfolio to concentrate on strengths such as PC and Datacenter CPUs. This renewed focus strategy is already showing results.

For example, the company has launched the 14th generation Meteor Lake PC chip on its new Intel 4 node. Additionally, the company is preparing Arrow Lake and Lunar Lake chips based on Intel 20A/18A. This will enable Intel to reclaim performance leadership in client CPUs before 2025. In the Datacenter sector, Intel's Granite Rapids Server CPU is also advancing rapidly.

Financial strength and government support.

Despite Intel's progress in reclaiming technological leadership, the gap between it and industry-leading competitors remains vast, and relying solely on internal efforts is clearly insufficient. Fortunately, Intel possesses strong financial strength to support its transformation, and more importantly, the company has the backing of one of the world's most powerful and dynamic governments. The USA government has clearly stated that it will do everything possible to help Intel regain competitiveness on the global stage.

Unlike many companies that attempt to make a comeback but run out of funds, Intel's financial situation is relatively stable. In 2024, the company generated $8.3 billion in cash flow from operations, with year-end cash and short-term investments totaling over $28 billion. Intel has also undertaken painful cost-cutting measures to continue making aggressive investments in R&D and wafer fabrication expansion. These cost-cutting measures have been successful, with operating expenses in the fourth quarter of 2024 declining by about 9% year-on-year.

However, more importantly, Intel has garnered unprecedented support from the government and even partners to help offset its massive capital expenditure. The USA has provided Intel with up to $7.86 billion in direct funding through the CHIPS Act to construct new fabs in Arizona, Ohio, and New Mexico.

Even European companies in Germany have agreed to provide approximately $11 billion in subsidies for Intel's planned fab in Magdeburg. These subsidies significantly reduce the risk of Intel's foundry expansion, which is crucial for Intel's competitiveness on the Global stage. $Brookfield Asset Management (BAM.US)$ A collaborative investment agreement was reached, such as the $30 billion investment in a semiconductor joint venture project in Arizona.

With the help of the government and partners, Intel is able to invest about 25 billion USD in capital expenditures each year, which is a huge competitive advantage that other Semiconductors companies cannot match. In short, Intel has the resources and external support to transform and compete with giants like Taiwan Semiconductor for many years to come.

Contract Manufacturing: The most promising growth engine for Intel.

Intel plans to become the second largest contract chip manufacturer after Taiwan Semiconductor, a goal often overlooked by the market. However, this opportunity represents a growth potential that the market has not fully recognized. For the first time, Intel is opening up its advanced wafer fabs to external customers through its foundry division - Intel Foundry Services (IFS). This strategy directly targets the growing global demand for diversified and geographically secure chip manufacturing. As a foundry located in the USA and Europe, Intel provides cutting-edge process technologies and advanced packaging, giving it a unique competitive advantage.

Including$NVIDIA (NVDA.US)$Many companies within have expressed concern about their excessive reliance on Asian companies like Taiwan Semiconductor. Intel serves as an attractive second source for chip manufacturing.$Amazon (AMZN.US)$The reason why the company has reached an agreement with Intel to produce customized chips. Recently, Intel has also won a $3 billion contract with the US Department of Defense to manufacture secure chips, further validating the feasibility of its foundry model.

However, Intel still needs to prove that it can meet acceptable quality and reliability standards. Moreover, given that Intel also designs chips, many chip design companies remain cautious about using Intel as a foundry. However, the leadership of Chen Liwu helps to mitigate this challenge, as he is seen as a more 'Neutral' figure capable of persuading peers to believe that Intel will treat customers' intellectual property fairly. His relationships in the Semiconductors industry have also opened doors for Intel that previous management could not access.

Significant risks still remain.

Simply stating that competition in the semiconductor industry is fierce is actually a conservative statement. From chip design to manufacturing, the semiconductor industry may be the most intensely competitive industry in history. More importantly, the boom in AI has further amplified the intense competition in this industry, with companies investing more money to push the limits of modern technology, design more complex chips, and advance smaller node processes. $Taiwan Semiconductor (TSM.US)$ and $Advanced Micro Devices (AMD.US)$ Given that Intel has already fallen behind competitors, its goal of regaining its former dominance remains a long way off. Intel's transformation strategy depends on whether its ambitious technology roadmap can deliver on time. If the record of mistakes and delays over the past decade is any indication, the company's prospects do not appear very optimistic.

Conclusion

Intel's recent performance and actions indicate that the company has finally embarked on a genuine transformation path. Admittedly, challenges remain, and execution risks are still high. At the current valuation of $104 billion, Intel's risk-reward ratio leans towards the upside, with its Market Cap being about one-tenth of Taiwan Semiconductor. Given the support from the USA government in the AI arms race and the company's own renewed focus on technology and culture, Intel has greater growth potential.

Editor/rice