On September 19, Nvidia announced a $5 billion investment in Intel on Thursday. The Wall Street Journal issued an article stating that if Intel wants to regain its former glory, the US$5 billion investment and chip development cooperation provided by Nvidia alone is not enough, and it needs to spin off its own business.


NVIDIA invests in Intel

This cooperation is undoubtedly good news for Intel. It brought much-needed capital to Intel, and the chip collaboration brought Intel closer to the heart of the current AI boom. Previously. In the field of AI chips, Nvidia is almost a one-man show. Stimulated by this news, Intel's stock price rose by 23%.

Intel has long lost its edge in the chip field to TSMC, which has become the world's largest and most advanced chip manufacturer by focusing on manufacturing chips for others. Intel has taken the opposite route, choosing to bundle its chip design business and factories together, running counter to the entire industry.

Since 2021, Intel has been trying to catch up. That year, then Intel CEO Pat Gelsinger launched the foundry business. The business, which now encompasses all of Intel's manufacturing operations, has had trouble attracting outside customers. According to Intel's latest quarterly financial report, the revenue of this business was US$4.4 billion, but it mainly came from Intel itself. At the same time, the business recorded an operating loss of approximately US$3.2 billion.


Intel shares soared 23%

In a conference call with reporters on Thursday, Nvidia CEO Jensen Huang said the company has been evaluating Intel's foundry business, but avoided the question when asked whether the new PC and data center chips produced by the two companies would boost the business. Huang praised Intel's advanced chip packaging technology, a process that combines different chip designs, and suggested that new chips may use this packaging technology, but the impact on Intel's entire foundry business may not be huge.

Spin-off is the only way out

Nvidia and Intel's avoidance of manufacturing-related issues in the new partnership is further evidence that the most effective, and perhaps even the only, way forward for Intel is to split the company into one company responsible for chip design and one responsible for chip manufacturing.

Such a structure can allow Intel's various business units to better benefit from cooperation with companies such as Nvidia, and also make these cooperation more reasonable.

If Intel were broken up, Nvidia could work directly with Intel's chip design team to develop CPUs for data centers and PCs, and then have them manufactured by TSMC, Samsung or Intel, without regard to Intel's own manufacturing interests.

Nvidia and other chip design companies like Qualcomm and AMD would be more likely to hire Intel to make their own chips if they knew Intel wouldn't compete with them. The reason why Nvidia is currently willing to cooperate so closely with Intel is probably because Intel has lost its competitiveness in the high-profit AI chip field dominated by Nvidia.

A spin-off of Intel would also have the side benefit of allowing investors, including the U.S. government, which recently bought nearly 10% of its shares, to invest in Intel's chip manufacturing or chip design operations separately without taking on the risk of both. This approach may be more in line with U.S. national security interests, given that the U.S.'s focus on domestic chip manufacturing capabilities (rather than PC CPU design) has driven government support for the industry in recent years.

Of course, spinning off Intel's manufacturing plants won't be easy for a number of reasons, including the financial losses of those plants and the complexity of financing deals associated with them.

But if Intel's factories want to compete with TSMC and become a truly serious chipmaking force again, they will have to force their factories to become self-reliant, perhaps with the support of Nvidia and other customers, as well as the government.

One optimistic prospect is that Nvidia's investment will attract other potential customers to further invest in Intel's foundry business, which can provide Intel with the funds needed to build expensive, state-of-the-art chip factories and put the spin-off foundry business on a more solid financial footing.

This is exactly the kind of investment Intel desperately needs.