Pat Gelsinger, CEO, Intel
By Dinesh Nair, Ian King and Ryan Gould
Intel Corp. is working with investment bankers to help it through the toughest period in the company’s 56-year history, according to insiders.
The company is discussing several scenarios, including a split of its product design and manufacturing divisions, and which factory projects could be scrapped, said the sources, who asked not to be identified because the deliberations are confidential.
Morgan Stanley and Goldman Sachs Group Inc., Intel’s longtime bankers, have been advising on the options, including possible mergers and acquisitions, the sources said. The discussions have only grown more urgent since the Santa Clara, California-based company released a dismal earnings report this month, sending its shares to their lowest level since 2013.
According to the sources, the various options are expected to be presented at a board meeting in September.
Intel shares rose as much as 6.5% after trading opened in New York. They have fallen 60% this year, compared with a 20% gain for the Philadelphia Stock Exchange Semiconductor Index, a benchmark for the chip industry.
No major move is imminent and talks are in the early stages, the people cautioned. An Intel representative declined to comment, while Morgan Stanley and Goldman Sachs did not immediately respond to requests for comment.
A potential separation or sale of Intel’s foundry division, which focuses on making chips for outside customers, would be a turnaround for Chief Executive Officer Pat Gelsinger. Gelsinger saw the business as key to restoring Intel’s position among chipmakers and had hoped it would eventually compete with companies like Taiwan Semiconductor Manufacturing Co., which pioneered the foundry business.
But it’s more likely that Intel will take a less dramatic step before it gets to that point, such as delaying some of its expansion plans, the sources said. The company has already struck project financing deals with Brookfield Infrastructure Partners and Apollo Global Management.
Intel’s Gelsinger is running out of time to engineer a much-needed turnaround. He’s trying to expand the chipmaker’s factory network amid shrinking sales — a money-losing proposition. The company posted a net loss of $1.61 billion last quarter, and analysts are predicting more red numbers in the year ahead.
“Expect big capex cuts from Intel in the next 12 months,” said Amir Anvarzadeh, chief market strategist at Asymmetric Advisors. “Intel’s model is effectively broken. It’s putting out fires on too many fronts.”
Gelsinger, an Intel veteran who left the company more than a decade ago, took over in 2021, promising to restore the company’s technological edge. Under previous CEOs, the chip pioneer had lost market share and its long-vaunted reputation for innovation.
But its comeback plan proved too ambitious, and the company had to scale back. When it reported earnings earlier this month, Intel announced plans to cut about 15,000 jobs and cut capital spending. The company even suspended its long-cherished dividend.
“It’s been a tough few weeks,” Gelsinger told investors at the Deutsche Bank Technology Conference on Thursday. The company tried to give a “clear picture” of its next steps during its earnings report, he said. “The market clearly didn’t react positively. We understand that.”
To add to the commotion, CEO Lip-Bu Tan abruptly resigned from the board last week. The semiconductor veteran, who was brought in two years ago to help with the comeback attempt, cited commitments in the planning. But his departure also meant the disappearance of one of the few directors with knowledge and experience in the sector.
Gelsinger’s comeback plan involved reorganizing Intel into two groups: one that designs chips and one that manufactures them. The manufacturing arm would then be free to do business with other companies.
But the largest customer on Intel’s factory network is still Intel. Until the foundry can find more outside customers, it will be financially challenged. It reported operating losses of $2.8 billion in its most recent quarter and is now on track to have a worse year than projected.
With a market value of $86 billion, Intel has fallen out of the world’s top 10 chipmakers, as ranked by that metric. It’s the second-worst performer on the Philadelphia Chip Index this year, dwarfed by the stratospheric gains of Nvidia Corp., a company on track to double Intel’s revenue by 2024.
As recently as 2021, Intel’s revenue was three times that of Nvidia.
First publication: Aug 30, 2024 | 11:02 PM IST