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Intel (NYSE: INTC) CEO Pat Gelsinger, who was leading the company’s turnaround efforts, abruptly retired yesterday. While INTC stock was trading higher in early trade, it pared gains and closed in the red yesterday.
Notably, Gelsinger, who was a former Intel executive, took over as the CEO in early 2021 and embarked on a plan to transform the struggling chipmaker. Under his leadership, Intel laid focus on three key areas.
Gelsinger’s Turnaround Strategy
Firstly, it worked on innovation in the chip designing business to effectively compete with the likes of AMD and Nvidia. The second leg of the turnaround strategy was pivoting the company to the foundry business where it started building chips for other companies. Finally, Intel started unlocking value in its subsidiaries and successfully listed Mobileye.
However, despite Gelsinger’s turnaround efforts Intel stock continued to fall and crashed to multi-year lows earlier this year after dismal Q3 earnings. The company also suspended its dividend and announced that it would cut its workforce by 15%. While Intel shares have rebounded from their 2024 lows they have lost over half of their value this year.
Notably, the company’s foundry business has been burning a lot of cash as Intel expands chip-making facilities in the US and Europe.
Reports suggest that last week Gelsinger met Intel’s board amid the company’s faltering turnaround plan where he was allegedly told to either retire or be fired from the company.
INTC has been losing market share in the core CPU market while its AI efforts have lagged peers, especially Nvidia which has become a $3 trillion behemoth amid the AI pivot.
Intel CEO Pat Gelsinger Retires
Intel has named David Zinsner and Michelle Johnston (MJ) Holthaus as interim co-CEOs and the board has begun the process of finding a permanent replacement.
Intel’s chairman Frank Yeary said, “With Dave and MJ’s leadership, we will continue to act with urgency on our priorities: simplifying and strengthening our product portfolio and advancing our manufacturing and foundry capabilities while optimizing our operating expenses and capital. We are working to create a leaner, simpler, more agile Intel.”
Yeary thanked Gelsinger “for his many years of service and dedication to Intel across a long career in technology leadership.” He however added, “While we have made significant progress in regaining manufacturing competitiveness and building the capabilities to be a world-class foundry, we know that we have much more work to do at the company and are committed to restoring investor confidence.”
INTC Stock Crashed in Gelsinger’s Tenure
While Gelsinger’s departure from Intel might have been abrupt, it wasn’t a surprise given the stock’s price action in his near four-year tenure.
“The stock lost more than 60% under his tenure, so this shouldn’t have come as a very big surprise,” said Ryan Detrick, chief market strategist for investment advisory firm Carson Group.
He added, “New leadership is needed to turn things around and it is safe to say that any of his major strategic decisions are on the chopping board, including the move to focus on being a contract manufacturer.”
According to Rosenblatt analyst Hans Mosesmann, “At the end of the day, you need leading-edge products, innovation, and execution, none of which we saw during Pat Gelsinger’s reign.”
Intel Could Pursue Strategic Alternatives
Meanwhile, after Gelsinger’s departure, Intel might pursue some strategic alternatives that were opposed to “Gelsinger was firmly against breaking up the company, but the prolonged and expensive turnaround has tested shareholder patience, potentially forcing Intel to reconsider,” said Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada.
Here are the three alternatives the analysts believe Intel can pursue according to Bloomberg.
Splitting the foundry and products division
Earlier this year, Intel turned its foundry business into a subsidiary that could also pursue funding from third parties. However, given the massive losses the segment is currently incurring there might not be many suitors for the business on a standalone basis. Also, Intel has to maintain at least a 35% stake in its foundry business as part of its funding agreement under the Chips Act.
The product business has been doing relatively better but even it has been losing share to the likes of AMD. As Bank of America aptly said in its note, “Both businesses are undergoing their own strategic, structural, financial, and competitive issues, with no near-term solution in sight.”
Finding a Buyer
The second alternative that Intel could pursue per Bloomberg is the sale of the business. Notably, in September there were reports of Qualcomm acquiring Intel. However, a possible acquisition of Intel by a rival chipmaker would face regulatory scrutiny.
Previously Chinese regulators blocked Intel’s bid to acquire Tower Semiconductor and Qualcomm’s proposed acquisition of NXP Semiconductor. Other regulators too have been wary of big mergers in the chip space, and in 2018, then-President Donald Trump blocked Broadcom from acquiring Qualcomm over national security concerns. More recently, Nvidia and Arm called off their merger amid regulatory heat in Asia, Europe, and the US. Arm, which is backed by Japan’s SoftBank eventually went for an IPO.
Selling Altera unit
The third alternative that Intel could pursue could be selling the Altera unit that it acquired for a mammoth $17 billion in 2015. Intel has anyways been open to unlocking value and has reportedly been in talks to sell a stake in Altera previously also. The talks might gain traction under the new CEO and the company might even consider selling the unit entirely.
All said, there is no easy fix to Intel’s woes, and while the stock’s valuations have been quite depressed investors have been wary of the once-iconic chipmaker which has missed many a bus this century.
