Intelligence (NASDAQ: INTC), the world’s largest manufacturer of x86 processors for PCs and data centers, was once considered a rock-solid investment.

But over the past three years, Intel’s stock has fallen about 5% while the Philadelphia Semiconductor index has risen nearly 80%. Let’s identify the three key issues that have plagued Intel’s inventory and see if the 52-year-old chipmaker can fix those issues in a timely manner.

1. Solve your manufacturing problems

In 1965, Intel co-founder Gordon Moore predicted that the number of transistors in the same area of ​​silicon would double every two years. This prediction, known as “Moore’s Law,” supported Intel’s two-year “ticking” business model for about half a century.

At each “tick” launch, a smaller architecture (currently measured in nanometers) is introduced. At each “tock” launch, a new microarchitecture is launched, but the size remains the same. But the ticking cycle has gradually lengthened due to the difficulty of making smaller chips, and Moore’s Law has fizzled out in recent years.

Over the past two years, Intel has struggled to develop and manufacture 14nm, 10nm, and 7nm chips simultaneously, resulting in processor shortages and disappointing delays for new chips.

Its main rival in the “process run“to create smaller chips, TSMC (NYSE: TSM), did not suffer from the same problems. As a result, manufacturers of “factory-less” chips like AMD (NASDAQ: AMD) and NVIDIA (NASDAQ: NVDA), which did not manufacture its own chips, made chips smaller than Intel by outsourcing their production to TSMC.

As a result, Intel can shut down its foundry and become factoryless, or it can double its investment in the foundry to catch up with TSMC. Switching to the factory would cut costs and solve its production problems, but could also cripple its ability to outperform AMD in the future. Increasing its investment in the foundry would be costly, but it could help it recover the lead in the process and produce “best-in-class” chips again.

Either of these decisions could be of interest to investors in Intel again. Unfortunately, the company is still considering making its own processors, when only partial outsourcing production of its new discrete GPUs at TSMC.

2. Identify AMD and NVIDIA as long-term threats

Intel’s development and manufacturing challenges helped AMD expand its share of the global processor market from 17.8% to 36.5% between Q4 2016 and 2020, according to PassMark Software. Intel’s share plunged from 82.2% to 63.5% in the same period, with losses in the desktop, laptop and server markets.

Image source: Getty Images.

AMD challenges Intel with smaller, more power-efficient chips in all three markets, and its planned purchase of Xilinx, the first producer of programmable FPGAs (field-programmable gate arrays), will enable it to counter the takeover by Intel of the FPGA manufacturer Altera five years ago.

NVIDIA’s planned purchase of SoftBankAnother red flag is Arm Holdings, which designs processors competing with x86 processors from Intel and AMD. Arm’s chips are primarily used in mobile devices, but are gradually gaining traction in PCs and data centers with high-end designs.

The combination of NVIDIA’s market-leading discrete GPUs and more powerful Arm processors could loosen the grip of the x86 architecture in these markets and erode Intel’s position as the world’s leading processor manufacturer.

AMD and NVIDIA are both gearing up to disrupt Intel’s core business, but Intel management didn’t mention any of the chipmakers in the latest one. conference call. If Intel is to win back the bulls, it must call the two chipmakers as major threats and reveal some plans to counter their aggressive moves.

3. Hire an external CEO with engineering background

CEO Bob Swan, who took over from Brian Krzanich after his abrupt resignation in mid-2018, was Intel’s CFO before taking the helm. Unfortunately, Swan’s background in finance arguably puts him at a disadvantage against Lisa Su of AMD and Jensen Huang of NVIDIA, both electrical engineers.

Swan has been unable to resolve pressing Intel R&D and manufacturing issues for the past two years. It also cut Intel’s capital spending this year while increasing its multi-billion dollar buyouts and divesting its profits. NAND memory chip Business.

These moves all suggest that Swan is more interested in financial engineering than electrical engineering, and that myopia could cause Intel to fall even further behind TSMC and its factory-less customers. If Intel is to get investors excited again, it should reverse its trend of promoting insiders and hire an outside CEO who can bring new ideas to the table.

The main points to remember

Intel’s business is not yet on the brink, but it is falling into the same myopic buyout and divestment traps that have trapped other mature tech companies like IBM. It’s not too late to turn the tide, but Intel is dismal third quarter report indicates that he must take drastic measures soon.