Are Intel’s problems too big to fix? – haroonabadvital.com
Pat Gelsinger’s mission to save Intel has come to an abrupt end. Whoever runs the famous chip manufacturing company next will still have to do something heroic.
Intel announced Monday that Gelsinger will retire as CEO and step down from the board. The move had the tone of a peaceful transition, but the reality was still clear, with Gelsinger calling the day “bittersweet” and Chairman Frank Yeary noting the goal of “restoring investor confidence” in the press release. Intel stock lost 61% of its value between Gelsinger’s first day on the job in early 2021 and Friday’s close, making it the worst performer on the PHLX Semiconductor Index during that time, according to data from S&P Global Market Intelligence. The S&P 500 rose 53% over the same period.
Naturally, the CEO’s exit after such an uninspiring race raises some hope; Intel shares jumped more than 5% on Monday morning before ending the day with a slight loss. But this move raises more questions about the company’s trajectory, both in the short and long term. Current CFO David Zinsner and Michael Johnston Holthaus, who ran Intel’s PC chip business, will serve as co-CEOs while the board seeks a permanent replacement. That keeps the top job in limbo as Intel is supposedly nearing the end of its ambitious race to catch up in its manufacturing operations with chip-making giant Taiwan Semiconductor Manufacturing Co.
The pinnacle of this race is a production process called Intel 18A. The first chips manufactured with this process are expected to begin shipping in the middle of next year, Intel said in its last earnings call on October 31. Much depends on their success, as 18A is the final stage of Gelsinger’s plan to make Intel compete through five so-called “nodes” in four years (Intel used to spend at least two years on a single node).
A CEO switch so late in that cycle would naturally raise some eyebrows. “As the standard bearer of the company’s ‘five in four years’ guiding mantra, Mr. Gelsinger’s abrupt departure leaves us uncertain about the strategic path ahead for Intel,” TD Coin’s Joshua Buchalter wrote in a note to clients on Monday. In his own report, Bernstein’s Stacey Rasgon said: “We might have expected Pat to make it at least until 18A gets out the door (at which point we’ll see how he stacks up and since he hasn’t, one has to wonder whether his departure heralds any… Negative impacts on the validity of the process roadmap.”
Other major problems Intel faces include selling the chips it makes and finding companies willing to use its factories to manufacture their own chips. Neither effort is going well at the moment. Intel’s foundry business, which manufactures for outside customers, lost more than $11 billion in the first nine months of 2024, nearly double what it lost in the same period last year. While the company’s stock jumped after a third-quarter report showed that data center revenue beat Wall Street expectations after four straight quarters of misses, the unit still generated half the annual revenue it did in 2020, just before Gelsinger took over.
This is due to Intel losing Advanced Micro Devices’ share of server CPU chips and increasing demand for Nvidia’s GPU chips used in AI computing. Intel’s own attempt to create a GPU for the data center was a failure; The company admitted in its latest call that its recently launched Gaudi GPU chip will not meet its goal of $500 million in revenue this year. Nvidia’s current data center GPU family, known as Hopper, is expected to reach nearly $83 billion in revenue for the fiscal year ending in January, according to consensus estimates from Visible Alpha.
Some believe Gelsinger’s exit raises the possibility of some kind of deal — perhaps one that would separate Intel’s product and chip design businesses from its loss-making foundry arm. But this will be very difficult given that the $7.86 billion Intel receives from the US government through the CHIP Act requires the company to retain at least 50% ownership of its factories. Any foreign buyer is unlikely to win regulatory approval, given Intel’s status as the largest chip maker in the United States.
In short, Intel has no easy choices, and a few of them are very difficult. Chip manufacturing is a complex process that requires years of research and development into each process and product. Much of the company’s current predicament stems from strategic mistakes made before Gelsinger returned to the company. “We think the possibility of a new strategy raises some optimism, but Intel is in a tough spot and the road ahead will be difficult regardless of leadership,” Chris Casso of Wolfe Research wrote Monday in a note to clients.
Even with nearly two-thirds of its market value gone under the last CEO, Intel’s new boss will have a very tough act to follow.
Write to Dan Gallagher at dan.gallagher@wsj.com
