Gelsinger's Surprise Intel Exit: What's it Mean?

Pat Gelsinger has left the building. In an announcement this morning, Intel Corp. (INTC) announced that the CEO has retired from his post and from the board, effective December 1. Intel’s stock price rose over 4% in morning trading.

The question is, Will Gelsinger’s departure really help fix Intel’s problems?

The short answer appears to be: It's questionable. Gelsinger’s career at Intel, which included nearly a decade as its CTO, was distinguished until he took the CEO helm in 2021. At that time, he under pressure to get the struggling chipmaker back on course in the midst of threats from NVIDIA and AMD, as well as from offshore chipmaking companies such as TSMC and Samsung. In response, Gelsinger adopted an approach favoring the buildout of domestic and European manufacturing facilities and a foundry business, all based in part on government funding.

Pat Gelsinger. Source: Intel

Manufacturing Disappointments

The strategy, though publicly endorsed by Intel customers Amazon, Cisco, Ericsson, Google, IBM, Microsoft, and Qualcomm, seemed doomed from the start. An initial $20-billion committed to the buildout of domestic plants in Arizona, New Mexico, Ohio, and Oregon didn’t help Intel’s results. Obtaining money from the U.S. CHIPS and Science Act proved a lengthy business, finally resulting in an award of $7.86 billion last month, an amount shaved down by more than $600,000 from the initially stated funding and one not likely to cut a dent in the $100 billion Intel has pledged to invest in the U.S.

Things didn’t go well in Europe either. The multibillion-dollar investments Intel planned to sink into a series of chip manufacturing facilities in Europe, including at least two in Magdeburg, Germany, now seem likely to get cut.

Reducing or cutting these flailing projects will certainly be crucial to saving the company, regardless of who is in charge. Clearly, Intel must find a means of managing the costs and risks associated with its manufacturing projects, even if abandoning or selling them off is best.

Foundry Floundered

Perhaps the saddest failure of Gelsinger’s plan for Intel’s turnaround has been the foundry business. Planned as a new, “world-class” Intel Foundry Services business focused on supplying requirements in the U.S. and Europe, the project has failed to get solid customers and has seen a revolving door at the top.

Worst of all were rumors that Intel’s foundry processes weren’t up to the production standards expected by would-be customer Broadcom. Though Intel claimed to have quickly corrected any failings, the damage to the foundry business seemed significant.

Despite the logic of selling it, Intel is tied to the foundry business. Its CHIPs award is contingent, among other conditions, on the company retaining 50.1% ownership of the division and allowing no third party to acquire more than a 35% stake in the business.

Double Vision

By focusing so heavily on improving Intel’s manufacturing profile, Gelsinger has been criticized for taking focus off component design. In reality, he stressed all the hot buttons from start of his tenure as CEO. “Technology has never been more important for humanity,” said Gelsinger in a presentation then. “The entire world is becoming digital, driven by four superpowers—the cloud, connectivity, artificial intelligence, and the intelligent edge.” A technologist at heart, Gelsinger clearly had a sense of the market.

Still, Intel’s AI offerings fell behind those of its rivals AMD and NVIDIA. As the market for AI processing took off, NVIDIA lagged behind, losing over 40% of its worth over the past year. Faced with heavy investments in manufacturing projects, the company in a disastrous August earnings report withdrew its dividend and pledged to cut $10 billion in costs, including a 15% layoff of roughly 15,000 workers.

Gelsinger’s Departure Will Work No Magic

All of this has put Intel in a desperate position. For now, David Zinsner, formerly CFO, and Michelle Johnston Holthaus, the former EVP of Intel’s Client Computing Group, have taken on the roles of dual CEOs while the board, now chaired by Frank Yeary, looks for Gelsinger’s successor.

The question remains as to how well Gelsinger’s departure will serve Intel in its planned rebound. The optics are in favor, since Gelsinger’s plans seemed to be disastrous for the company. Still, he didn’t operate in a vacuum. Intel has long suffered from rumors of cultural malaise resulting in a bloated and complacent workforce. While policies may have been misguided from the top, Intel's remaining management must take some responsibility for the company's woes.

That management must now do some extensive soul-searching to get to the root of the company’s problems. No doubt changes will have to be made in the manufacturing plans. Perhaps more layoffs will help. Certainly some divisions of the company must be sold off or discontinued.

Whatever the course, it’s time for Intel’s remaining leaders to take decisive action before activist investors start jostling for power.

Futuriom Take: Despite his best efforts, Pat Gelsinger failed to turn Intel around, and the company remains mired in costly manufacturing projects, along with disappointing chip sales. Intel must now fix these issues and, just as importantly, address their underlying causes.