The sudden departure of Pat Gelsinger as CEO of Intel has raised significant questions about the future direction of the company and its role in the US semiconductor industry, the Financial Times reports.
Gelsinger’s exit removes a key figure behind the company’s ambitious strategy to revitalize its chipmaking operations while competing against rivals like Nvidia and AMD. This leadership change could signal a shift in Intel’s plans, potentially scaling back its semiconductor manufacturing business despite significant government incentives under the US Chips Act.
Gelsinger, who returned to Intel in 2021 after spending three decades with the company, was tasked with restoring Intel’s chip manufacturing leadership and addressing the growing dominance of competitors in both PC and data center markets. As part of his strategy, Intel secured nearly $8 billion in funding from the US government through the Chips Act, aimed at reducing America’s dependence on foreign tech suppliers amid rising trade tensions with China. This deal, finalized just last week, had positioned Intel as a key player in the Biden administration’s efforts to bolster domestic semiconductor production.
In the wake of Gelsinger’s departure, interim CEO David Zinsner assured investors that Intel’s current strategy would remain unchanged. However, many industry experts believe Gelsinger’s abrupt exit could pave the way for Intel to rethink its approach to semiconductor manufacturing. There is speculation that Intel may consider moving away from producing its own chips entirely, a move that would undermine the very objectives of the Chips Act and deal a blow to US efforts to rebuild its domestic semiconductor industry.
Intel’s chairman, Frank Yeary, emphasized in the aftermath of Gelsinger’s exit that the company must prioritize its product group, which many analysts interpret as a signal of a potential shift away from manufacturing. Some analysts, including Ben Bajarin of Creative Strategies, suggest that Intel could improve its margins by adopting a “fabless” model, where it would outsource manufacturing to external foundries like Taiwan’s TSMC. Such a move would allow Intel to focus on designing chips while avoiding the heavy capital expenditures and operational risks associated with maintaining its own factories.
Intel’s foundry business has faced significant challenges in recent years, posting a $7 billion operating loss in 2023. Despite efforts to catch up with competitors in mobile computing and artificial intelligence, Intel has struggled to regain its leadership in cutting-edge chip production. As a result, the company has seen its stock price drop by more than 50% in 2023, with its market capitalization now under $100 billion.
Intel’s troubles were exacerbated by missed opportunities in mobile computing and AI, areas where competitors like Nvidia have thrived. Additionally, the company lost its technological edge to TSMC, which now manufactures advanced chips for major companies like Apple and Nvidia. Intel’s decision to cut staff and reduce investment plans earlier this year further intensified concerns about its long-term prospects.
Although Intel’s board initially supported Gelsinger’s ambitious turnaround plan, the mounting financial and technical challenges, along with internal conflicts, raised questions about the viability of his strategy. The company’s decision to delay the construction of new chip plants in Europe and explore making its foundry business an independent subsidiary suggests a potential shift in focus.
Intel faces a difficult path forward. Even if the company decides to scale back its manufacturing business, it will encounter significant obstacles, including the terms of the Chips Act deal. The contract includes provisions that would require Intel to uphold its investment commitments or risk losing government funding. Analysts have raised concerns about who might be willing to purchase Intel’s manufacturing business, given the enormous capital expenditures involved. Potential buyers, such as TSMC or Samsung, would likely face intense regulatory scrutiny, while private equity firms or sovereign wealth funds could also show interest.
As Intel navigates these challenges, it remains under pressure to address the evolving semiconductor landscape. The company’s planned launch of its “18A” manufacturing process in 2025, a bid to compete with TSMC’s leading-edge chips, will be a critical test. Early customers like Microsoft and Amazon have signed on, but Intel’s ability to deliver on this ambitious plan is uncertain.
Intel’s board has moved quickly to fill the leadership void, appointing two new board members, Eric Meurice and Steve Sanghi. However, the lack of a permanent CEO has led to concerns about the company’s long-term strategy. The coming weeks will be crucial for Intel to clarify its direction to investors and stakeholders, as the semiconductor industry continues to evolve amid global challenges.
