Intel mulling options including splitting design and foundry to stem losses | Technology News

The various options are expected to be presented at a board meeting in September, the people said.

Intel shares rose as much as 6.5% in after-hours trading 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.

There is no major move imminent and talks are still 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 spinoff or sale of Intel’s foundry division, which is aimed at making chips for outside customers, would be a game-changer for Chief Executive Officer Pat Gelsinger, who viewed the business as key to restoring Intel’s position among chipmakers and hoped it would eventually compete with companies such as Taiwan Semiconductor Manufacturing Co., which pioneered the foundry industry.

But Intel is more likely to take a less drastic step before reaching that point, such as delaying some of its expansion plans, the people said. The company has already closed project financing deals with Brookfield Infrastructure Partners and Apollo Global Management.

Intel’s Gelsinger is running out of time to make a much-needed turnaround. He has been trying to expand the chipmaker’s network of factories while sales are declining, a money-losing proposition. The company posted a net loss of $1.61 billion last quarter, and analysts are predicting more red ink next year.

“Intel is expected to cut back significantly on capital spending over the next 12 months,” said Amir Anvarzadeh, a market strategist at Asynchronous Advisors. “Intel’s model is all but broken. It’s fighting fires on too many fronts.”

Gelsinger, an Intel veteran who left the company more than a decade ago, took the helm in 2021 and vowed to restore the company’s technological edge. Under previous CEOs, the chip pioneer had lost market share and its vaunted reputation for innovation.

But its comeback plan proved too ambitious, and the company had to downsize. When it reported earnings earlier this month, Intel announced plans to cut about 15,000 jobs and slash 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 lay out a “clear vision” for its next steps during its earnings report, he said. “Obviously, the market didn’t respond positively. We understand that.”

Adding insult to injury, director Lip-Bu Tan abruptly resigned from his board seat last week. The semiconductor veteran, who was hired two years ago to help with the turnaround effort, cited scheduling commitments, but his departure removed one of the few directors with industry knowledge and experience.

Gelsinger’s plan for his return to the company was to reorganize Intel into two groups: one that designs chips and another that makes them. The manufacturing arm would then be free to pursue business with other companies.

But the biggest customer for Intel’s network of factories remains Intel. Until the foundry business has more outside customers, it will struggle financially. It reported an operating loss of $2.8 billion in its most recent quarter and is now on track for a worse-than-expected year.

With a market value of $86 billion, Intel has fallen out of the top 10 chipmakers in the world by that measure. It is the second-worst performing chipmaker on the Philadelphia index this year and suffers in comparison to the stratospheric earnings of Nvidia Corp., a company on track to double Intel’s revenue by 2024.

In 2021 alone, Intel was three times the size of Nvidia in revenue.

First published: August 30, 2024 | 11:02 PM IS