Why all eyes are on America's fallen tech giant Intel, which is losing its spot in the Dow Jones Industrial Average

• Intel, once a chip-design leader, struggled over missed AI opportunities and manufacturing delays.
• Nvidia will be replacing Intel in the Dow Jones Industrial Average.
• Qualcomm had earlier reportedly approached Intel for a takeover, causing a stir in tech.

Once a Silicon Valley leader, Intel has been a staple of the computer-chip-making business for decades. In the past several years, it has fallen from grace, failing to jump on the AI train in time.

The S&P Dow Jones Indices said Friday that Nvidia will replace Intel on the Dow Jones Industrial Average, a blue-chip index intended to project the most relevant picture of the US economy. The change raises more questions about Intel's role in the future of computing and AI.

For decades, Intel led in chip design and manufacturing. A series of missed opportunities over the years has contributed to its current financial challenges.

Intel has been trying to correct its course for years. In 2021, it brought back Pat Gelsinger, a former VMware CEO and longtime Intel executive who now serves as its chief executive, to revive its leadership status in the chips industry. The company has recently benefited from CHIPS and Science Act funding to create more microchip-manufacturing capabilities in Arizona. And it made a series of acquisitions to catch up on developing more advanced architectures and profit from the artificial-intelligence boom.

Intel's American manufacturing efforts are a big gamble for the company's future. Each new semiconductor fabrication plant can take billions of dollars and three to four years to complete, time that Intel may not have.

While Intel has built Ohio factories, major chip designers have not publicly signed up.

"They just dropped the ball there, and until now, they're trying to build the foundry business. But they haven't even proven that they can make stuff for themselves yet," Stacy Rasgon, a senior analyst at Bernstein Research, said.

A series of unfortunate events

Intel was instrumental to the personal-computer boom in the 1990s, designing and manufacturing cutting-edge microprocessors. With its x86 central processing units, Intel drove rivals such as AMD out of the market.

Because of its focus on PCs, Intel chose not to capitalize on mobile-chip growth in the 2000s — a big mistake because of the iPhone boom.

In a 2013 interview with The Atlantic, Paul Otellini, then Intel's departing CEO, expressed regret over passing up a deal with Apple to design and manufacture chips for the iPhone before the smartphone was introduced. The two companies could not reach an agreement because Intel's forecasts said that volume would not make up for the cost.

"We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we'd done it," Otellini told The Atlantic. "And in hindsight, the forecasted cost was wrong, and the volume was 100x what anyone thought."

Another opportunity came along when OpenAI approached Intel for an investment. OpenAI wanted to reduce its reliance on Nvidia's chips for its AI and build its own infrastructure. The deal fell through, and Reuters said Intel's leadership didn't think generative-AI models would make it to the market soon. That bet would later come back to bite Intel, and now OpenAI has billions in backing from Microsoft.

Intel bought the deep-learning startup Nervana Systems in 2016 to invest in AI. The chipmaker later ceased operations at Nervana and placed its bets on the Israeli startup Habana Labs, which it acquired for $2 billion in 2019. Habana helped launch Intel's next-generation Gaudi AI chip for businesses this year.

Intel's lack of GPUs

While Intel focused on CPUs, competitors like the chip designers AMD and Nvidia hedged their bets with graphics processing units, which could assist with accelerated computing, a critical need for training AI.

"They didn't really have a GPU product road map," Rasgon said.

Intel once had a stand-alone graphics chip called Larrabee in beta development. However, the project was canceled in 2009 and converted to a software-development platform after failing to hit performance targets.

"Nvidia's dominance didn't come from luck. It came from vision and execution. Which Intel lacked," said an X post from Bryan Catanzaro, the vice president of applied deep-learning research at Nvidia, who previously worked at Intel as an intern on the Larrabee project.

The CPUs that made Intel big now have presented what Logan Purk, a senior analyst at Edward Jones, called "the inventor's dilemma," when newer technology replaces incumbents.

"I think management just rested on their laurels, so to speak, and there wasn't a strong competitor nipping at their heels to force them to continue to push that innovation," Purk said.

Manufacturing delays

Intel's customers and rivals took their silicon business overseas to cut costs. Companies like AMD and Nvidia decided to leapfrog on chip designs while outsourcing manufacturing.

Intel's manufacturing capabilities fell behind its customer demands. It ran into delays for its chips while TSMC was shipping chips for Apple, AMD, and Qualcomm. In 2020, Intel announced a delay to its 7-nanometer chips due to a "defect mode" that would have been key for its next generation of chips. Samsung and TSMC soon announced more advanced manufacturing capabilities, fitting more transistors in a processor and leaving Intel behind once again.

After using Intel's chips for 15 years on its MacBooks, Apple debuted its in-house chip design with the M1 in 2020 and contracted out manufacturing to TSMC.

Intel is now placing its bets on the 18A chip and its Xeon-data-center chips. Gelsinger's latest announcements point to the creation of an independent subsidiary for Intel's foundries, which would allow for more independence to obtain and borrow capital.

A potential Qualcomm merger

When The Wall Street Journal reported on September 20 that Qualcomm had approached Intel for a takeover, tech forums were abuzz — and for good reason.

The mobile-chip maker Qualcomm approached Intel to acquire its chip-designing business and, later, for a merger deal, Reuters and the Journal reported, respectively. Apollo Global Management has also offered an "equity-like" investment of up to $5 billion, Bloomberg reported.

A rescue for Intel is bound up with debates about the US's shifting role in the world's chip industry and the battle for dominance in the era of accelerated computing.

"If Intel was to be acquired by like a Qualcomm or a Broadcom, or any of these other big chip companies, that would be one of the biggest deals that has ever occurred in the chip space, like monumental," Dan Morgan, a senior trust portfolio manager at Synovus, said.

A merger could reinvigorate the Biden administration's efforts to position the US as a global chip-manufacturing hub and create a competitor capable of challenging Nvidia's monopoly in the AI-chip market, Morgan said.

Even if Qualcomm acquired Intel, it's unclear what it would do with Intel's manufacturing operations. Though it would help Qualcomm diversify its products, a takeover would be a difficult bridge between the two companies and wouldn't patch up Intel's weaknesses, analysts have said.

"Now, you're buying their PCs and servers at present, but you're buying all the issues in their foundry business," Morgan said. "Why would you want to get involved in that? That is a huge undertaking."