Intel's Internal Struggle Boils Over, Forcing CEO to Step Down

12/06 2024 524

The conflict between Kissinger and Intel reached a climax at the end of November. During a discussion about the company's efforts to regain market share and narrow the gap with companies like NVIDIA, the board gave him a choice: retire or be fired.

The market capitalization of Intel, the American chip giant, is now less than half of what it was in 2021. Since 2024, Intel's share price has fallen by more than 50%, and its market capitalization is now below $100 billion.

Intel's second-quarter financial report released in August this year showed revenue of $12.8 billion, with a gross margin of 35.4%, a decline from 35.8% in the same period last year. The company also announced plans to lay off 15% of its workforce as part of a $10 billion cost-cutting plan.

Following the financial report's release, Intel faced its worst sell-off in 50 years, with its market capitalization plummeting by $31.8 billion overnight.

Subsequently, Intel's third-quarter 2024 financial report, released in November, revealed total revenue of $13.284 billion, a year-on-year decrease of 6%, and a net loss of $16.639 billion. In contrast, the company had a net profit of $297 million in the same period last year. The gross margin of 15.0% was also significantly lower than the 42.5% recorded in the same period last year, with a diluted loss per share of $3.88.

All of this stems from a plan formulated by Intel's new CEO, Pat Gelsinger, in 2021 to transform Intel into a chip giant, known as the IDM2.0 plan.

Gelsinger aimed to compete on equal footing with major chip manufacturers Samsung and TSMC, investing in factories across the US and globally. These actions impacted Intel's cash flow and revenue. Coupled with the global economic downturn and chip restrictions, Intel's performance came under pressure.

Amid this situation, Intel suddenly announced in early December that Gelsinger would officially retire and step down from the board of directors as of December 1, officially ending his career at Intel after more than 40 years. He joined the company around 1979.

In response, Gelsinger said, "Leading Intel has been an honor of a lifetime. This group of people is the best and smartest in the industry. I am honored to call them colleagues. Of course, I have mixed feelings because for most of my career, this company has been my entire life." It has been a challenging year for everyone at Intel, as they have made difficult but necessary decisions to adapt the company to current market dynamics.

Intel's share price rose by more than 5% following the news of Gelsinger's retirement.

It is reported that Gelsinger began his career in Silicon Valley in the 1970s. In the 1980s, he designed the Intel 80486 processor. In the early 21st century, Gelsinger served as Intel's Chief Technology Officer before taking on executive roles at EMC and later returning to Intel from VMware, where he succeeded Bob Swan as CEO in 2021.

Gelsinger, now 63, was once hailed as the "savior" of the chip giant. After expressing his love and loyalty to the company, he was determined to help Intel return to the foundry business and regain its leading position in chip manufacturing.

With his background as a former Intel engineer and the company's first CTO, analysts were hopeful about Gelsinger's return and the revitalization of Intel.

However, Gelsinger faced structural issues upon taking office that were too vast and difficult to resolve in the short term. Therefore, despite strong government support and Gelsinger's ambitious expansion plans, Intel struggled to compete with NVIDIA and AMD.

Gelsinger tried to build relationships with the US government and successfully secured a contract to produce secure chips for the Department of Defense.

However, as Intel's expenses increased, investor enthusiasm waned. The AI revolution fueled the growth of other semiconductor companies, but Intel's efforts to compete for AI market share were unsuccessful. More investors began to question Intel's actions.

According to Bloomberg, Gelsinger was forced to step down after the board lost confidence in his plan to turn around Intel. This led to greater turmoil and confusion within the company. Sources familiar with the situation revealed that the conflict and turmoil reached a climax at the end of November, when Gelsinger discussed the company's progress in regaining market share and narrowing the gap with NVIDIA with the board. The board then gave him a choice: retire or be fired.

Gelsinger chose to announce the end of his career at Intel.

Frank Yeary, the independent chairman of Intel's board of directors, stated that Gelsinger returned to the company at a critical juncture in 2021 and, as a leader, helped initiate and revitalize manufacturing by investing in state-of-the-art semiconductor manufacturing technology. At the same time, Gelsinger spared no effort in promoting innovation throughout the company, and Intel made significant progress in regaining manufacturing competitiveness and becoming a world-class foundry. However, the company still has much work to do and needs to restore investor confidence.

As a board, they understand that their top priority is to place their product divisions at the core of all their efforts. As a newly appointed CEO emerges, Intel will ensure that its product divisions have the resources needed to meet customer demands. Regaining a leading position in advanced process technology is crucial for product leadership.

While improving efficiency and profitability, Intel will continue to focus on its mission of product leadership. Yeary also mentioned that Intel's next steps will involve simplifying and strengthening its product portfolio, enhancing manufacturing and foundry capabilities, and optimizing operating expenses and costs. The hope is for the next Intel to be leaner, simpler, and more agile.

Following Gelsinger's retirement, Intel appointed David Zinsner and Michelle Johnston Holthaus as interim co-CEOs. Meanwhile, the board is searching for a new CEO, with long-time board member Frank Yeary serving as interim executive chairman. David Zinsner, who has over 25 years of financial and operational experience in the semiconductor, manufacturing, and technology industries, joined Intel in January 2021 after resigning from Micron Technology, where he served as executive vice president and chief financial officer. Holthaus is the CEO of Intel's Product Division, which encompasses the company's Client Computing Group, Data Center and AI Group, and Network and Edge Group.

It is worth noting that during Gelsinger's tenure, Intel lost $150 billion in market capitalization. In the view of "Digital Intelligence Research Society," simply calculating the billions of dollars in market capitalization lost during Gelsinger's tenure is not meaningful. Many of the problems Gelsinger faced were leftover issues from Intel's past, such as not obtaining a chip manufacturing license for Apple's mobile devices and deciding against acquiring NVIDIA. However, these decisions dealt a fatal blow to Intel during Gelsinger's tenure.

Regardless of who succeeds Gelsinger as Intel's CEO, they will inherit a company with more problems and a smaller market capitalization.

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