Pat Gelsinger, the CEO of Intel, was given a clear directive from the company board in early 2021: place more emphasis on the company’s strategy regarding artificial intelligence (AI). This demand, shared by three individuals with knowledge of the situation, came as the board expressed fear about missing out on a burgeoning multibillion-dollar market for developing chips to power generative AI, a trend that began after OpenAI released ChatGPT.
In response, Gelsinger inaugurated an AI Acceleration office, tasked with overseeing the company’s AI agenda across varying business sectors. Srinivas Lingam, formerly based in India as part of the AI product group, was assigned to lead this office in California.
However, in the international data centres’ AI chip selling market, the American chipmaker still lags behind competitors such as Nvidia and AMD. Intel anticipates sales of its Gaudi 3 chips to reach $500 million (€449 million) this year, a relatively small figure when put against Nvidia’s tens of billions of dollars from selling graphics processing units.
To add to the company’s woes, significant executives have quit, vast numbers of employees have been laid off, and the company’s share price has taken a tumble. Nvidia’s market capitalisation has surged by $1.4 trillion over the previous year, reaching $2.6 trillion, whereas Intel has lost approximately $70 billion in value, dropping to a market capitalisation of $83 billion.
Appointed in 2021, Gelsinger is over halfway into his five-year plan to transform Intel into a formidable chip manufacturer, able to compete with Taiwan Semiconductor Manufacturing Company, establish new factories across America and Europe, and align with the most cutting-edge manufacturing procedures. He has already split the chip design division from the production department.
Nonetheless, the limelight remains on Gelsinger and his rapport with the board. A pivotal board member responsible for supervising the essential chip manufacturing strategy resigned in August. Although the AI Acceleration office is still operational, Lingam moved onto another position within Intel earlier this year.
Gelsinger’s acknowledgment at a recent Deutsche Bank conference of the company’s “difficult few weeks” is concerning. He is due to propose another restructuring plan to the board soon, following August’s unveiling of a $10 billion austerity measure that included 15,000 redundancies.
Former employees have expressed concerns about Intel’s execution of Gelsinger’s strategy, citing a cumbersome internal bureaucracy and morale-waning layoffs as major issues. Despite agreeing with Gelsinger’s strategic direction, they believe the company is struggling to implement it effectively.
Furthermore, recent reports suggest that Intel is contemplating several changes, potentially initiated by its consultations with banking advisors. These changes could include the Initial Public Offering (IPO) of its specialist chipmaking segment, Altera, which Intel purchased in 2015 for $16.7 billion. Other considerations include the potential sale of its foundry business, which manufactures chips for external clients, and discontinuing several factory projects, including a politically-sensitive site located in Germany.
Stacy Rasgon, an analyst from Bernstein, compared Intel’s contemplated changes to ‘rearranging the deckchairs on the Titanic.’ Rasgon suggests that if Intel is in dire need of cash, this signifies a more profound problem within the company.
One of the concerns for Intel is its excessive expenditure on establishing new factories, which has weakened its foundry business; in 2023, the business suffered a $7 billion loss. The optimistic sales targets defined in 2022, amid heightened demand for personal computers driven by the Covid-induced boom, have not materialised. These ambitious targets were expected to underpin vast investment schemes.
Gelsinger’s declining credibility, especially amid lay-offs, is also troubling, according to G. Dan Hutcheson from TechInsights. He argues that if these layoffs had occurred at the onset of Gelsinger’s five-year plan, they might have elevated Intel’s share price. However, Hutcheson retains his optimism, suggesting Intel could become highly profitable by 2026 or 2027 if the company successfully implements its new manufacturing process, known as 18A.
On another note, Intel’s board demanded increased oversight concerning Intel’s strategy. Lip-Bu Tan, the previous CEO of Cadence (a chip design software company), was given an expanded role, including extra responsibilities for Intel’s crucial foundry business, after being appointed to the board in 2022. The promotion came bundled with a restricted stock award approximated at $1 million. However, uncertainty arose when Tan left the company in August. Tan failed to respond to attempts to contact him for commentary.
Stuart Pann, an executive with a lengthy history at Intel who came back in 2021 following a break, was named the leader of its foundry division in March 2023. However, he moved to chip start-up Groq in June. Shlomit Weiss, a senior design engineer, and Lisa Spelman, the leader of Intel’s Xeon data centre chip series, also left the company. Spelman took on the role of CEO at hardware producer Cornelis Networks in August. Keyvan Esfarjani, the main global operations officer, disclosed his departure that same month.
In the foundry and AI sectors, it’s been challenging to secure top talent, according to insiders. Major customers for Intel’s 18A manufacture, apart from Microsoft, are still to be revealed.
On the topic of business partners, a reported link-up with SoftBank, the owner of Arm, fell through earlier in the year. Similarly, a prospective $5.4 billion acquisition of Tower Semiconductor collapsed last August due to Chinese regulators not granting approval.
In contrast, the Chips Act has provided optimism, established by the Biden administration to prop up the country’s chip industry. Announced in March was an $8.5 billion grant and $11 billion loan given to Intel to maintain its factories in Arizona, Ohio, New Mexico and Oregon. However, the funds have yet to be received.
The Department of Commerce chose not to provide a specific comment on Intel. It reaffirmed all grants offered under the Chips Act are going through a rigorous continuous due diligence process.
Intel declared it had made notable progress in rebuilding its technology engine and regained its product leadership in crucial areas like the AI PC segment. They added: “Our plan unveiled previous month will increase our market competitiveness, enhance our profit, and fast-track our transformation’s subsequent phase.”