Intel, once crowned as the king of chipmaking, is now maneuvering through turbulent waters as it prepares to pitch its board on significant restructuring plans. CEO Pat Gelsinger and his top executives are gearing up to present their ideas to the board of directors later this month, ostensibly aiming to revamp the company’s direction amid fierce competition, particularly from Nvidia, which currently commands the AI chip market with a staggering market capitalization of around $3 trillion.
According to sources familiar with the matter, Gelsinger’s forthcoming proposal will encompass strategies to trim costs considerably, likely through the sale of underperforming divisions like the programmable chip unit Altera. This unit, acquired for $16.7 billion back in 2015, seems to no longer fit Intel's financial strategy, prompting discussions about whether to sell it entirely or spin it off as planned. This restructuring initiative is seen as part of a broader attempt to sustain Intel's relevance and financial stability following its dismal second-quarter performance.
Intel's struggle has become particularly pronounced against the backdrop of the rapidly advancing AI sector, where it has struggled to keep pace. The company reported revenues plummeting below $100 billion for the first time—a stark indication of its dwindling influence and capacity to innovate. Gelsinger and his team's plans are pivotal; they aim not only to cut down costs but also to reassess capital expenditures, including potentially halting the much-publicized $32 billion factory project located in Germany, which has already faced delays.
At the heart of these proposed changes is the acknowledgment of Intel's deteriorated position within the semiconductor ecosystem. The company is now considering significant shifts, such as possible divestiture of its manufacturing operations or even splitting its design and manufacturing sectors to facilitate more focused management. The meeting, slated for mid-September, is expected to be decisive. Depending on board guidance, this could lead to Intel soliciting bids for several product units. Yet, as it stands, the discussions remain fluid, with no formal evaluations made public yet.
The urgency for this restructuring effort stems not just from internal weaknesses but also from mounting pressure from investors. Following its hefty losses and failure to meet operational expectations, Intel has made some bold moves, including pausing dividend payments and instituting layoffs of approximately 15% of the workforce to save around $10 billion. This drastic selection was rooted in the need for immediate cost management practices, as the company grapples with shrinking margins and rising operational costs.
Gelsinger conveyed some optimism at the recent Deutsche Bank conference, stating, “It’s been a difficult few weeks. We’ve been working hard to address the issues.” His sentiment reflects the overall approach Intel is taking—addressing both short-term crises and strategizing long-term recovery pathways. The impending discussion at the board meeting may yield endorsement of these substantial adjustments, emphasizing which segments can be profitably retained and identified for divestiture, including its struggling programmable chip business.
With guidance from financial experts like Morgan Stanley and Goldman Sachs to assist with strategic planning, Intel seems to be methodically preparing for this radical transformation. Yet, the fast-paced nature of the tech industry means swift execution is as significant as planning. Investors and analysts alike will be closely watching how Intel navigates these challenging waters—and whether it can reclaim its place at the forefront of semiconductor innovation.
