'The situation here seems likely to keep getting worse before it gets better, and the ultimate fate of the company seems even more uncertain,' analyst says
Intel’s Pat Gelsinger made a big bet on the company’s ability to become a foundry business.
Intel Corp. is making a change at the top with Chief Executive Pat Gelsinger out after less than four years, offering investors hope that the company could seek more focus going forward, potentially by de-emphasizing its loss-making manufacturing business.
But the stock ended Monday's session down 0.5%, despite being up as much as 5.9% earlier in the trading day. That reversal suggests an awareness on Wall Street that there are no quick fixes for Intel, even with new leadership.
The company announced Monday morning that Gelsinger has retired from Intel and stepped down from its board of directors, effective immediately. As Intel's board looks for a replacement, Chief Financial Officer David Zinsner will become co-CEO, along with Michelle Johnston Holthaus, a product veteran who is also becoming the CEO of Intel's products unit, a newly created role.
"While one could argue that the new (albeit perhaps temporary) leadership team has more leeway to make some necessary decisions for now, the situation here seems likely to keep getting worse before it gets better, and the ultimate fate of the company seems even more uncertain," Bernstein analyst Stacy Rasgon wrote. "We don't think we would be diving in."
Rasgon has a market-perform rating on the stock.
Gelsinger's exit from Intel caps a turbulent final stint at the chip company. He previously served as Intel's chief technology officer and returned to the company in 2021 with a vow to bring it back to a position of manufacturing leadership. One of the cornerstones of his strategy was an expensive and controversial bet that Intel could again become a foundry business and make chips for other companies.
But Intel's independent board chair, Frank Yeary, said in Monday's release that the company "must put our product group at the center of all we do." While he also mentioned manufacturing, the product-first message hints that Intel could de-emphasize manufacturing in its new era. But how the company would pull that off remains unclear.
"The choice for any new CEO would seem to center on what to do with the fabs," Rasgon wrote, referring to manufacturing facilities. "But while keeping them feels like deadweight (and a continuation of the strategy that got Pat out), scrapping them would also be fraught with difficulties."
For instance, the company would need to devise an outsourcing strategy and deal with the political fallout of ending its manufacturing efforts at a time when the U.S. is trying to bolster domestic semiconductor competitiveness.
Cantor Fitzgerald's C.J. Muse noted that "if there was a simple fix it would be done already, so [the] focus will be on who will be the next CEO."
Intel's interim co-CEOs are not divided along the lines of the company's two big business units, Muse highlighted: Rather than putting a manufacturing executive alongside a product executive, Intel is going with its CFO and a product executive.
That points to "a likely vision for more cuts to come as well as a clear focus on the remaining gem of Intel's portfolio - client computing," Muse wrote.
Intel's move "will drive clear debate whether Intel will split its two assets - Intel Products from Intel Foundry," he continued. But Intel needs to maintain control of its foundry business in order to haul in the funding it has been allocated through the U.S. government's Chips Act.
"The next direction is likely some separation of the assets," Muse wrote. He maintained a neutral rating on the stock.
"Our suggested path forward for Intel has been for Intel to seek a manufacturing partnership with [Taiwan Semiconductor Manufacturing Co.] to eventually enable TSMC wafers to move through Intel fabs to drive utilization and to make those fabs profitable," Wolfe Research analyst Chris Caso said. "There are numerous challenges in doing so, but we have felt that the current path of Intel building their own foundry will take too long and will carry too much risk."
TSMC's stock rose more than 5% Monday.
Caso wrote that "the potential for a new strategy raises some optimism - but Intel is in a difficult position and the path forward will be difficult no matter the leadership." Caso has a peer-perform rating on the stock.
Intel continues to rack up significant losses in its foundry business, with some on Wall Street doubtful that the foray makes sense for the company. At the same time, Intel largely has missed out thus far on the artificial-intelligence trend. The company acknowledged earlier this year, while announcing sizable layoffs, that it wasn't benefiting fully from the AI boom, and more recently the company conceded that it wouldn't meet its mild AI revenue target for the year.
"While we have made significant progress in regaining manufacturing competitiveness and building the capabilities to be a world-class foundry, we know that we have much more work to do at the company and are committed to restoring investor confidence," Yeary said in Monday's release.
Shares of Intel lost 61% during Gelsinger's tenure. The stock was booted from the Dow Jones Industrial Average DJIA last month. Nvidia Corp., which replaced Intel in the Dow, has seen its stock run up 824% since Gelsinger took over as Intel's CEO.
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