Chip Giant Intel’s 2024 Struggles: Pat Gelsinger’s Huge Gamble on Foundry Spin-Off and Layoffs to Save the Company

Intel CEO Pat Gelsinger recently acknowledged the semiconductor giant’s financial difficulties, stating that the company is actively addressing investor concerns amidst speculation about a possible spin-off of its foundry business and potential delays to the expansion of its fabrication plants.

Intel’s Financial Struggles and Layoffs

Santa Clara-based Intel has faced significant challenges this year.

The company reported losses in both its Q1 and Q2 earnings, encountered technical issues with its Raptor Lake processors, and faced legal action from investors.

Moreover, the US chip giant plans to lay off over 16,000 employees, accounting for approximately 15% of its workforce.

These challenges have contributed to a 59% drop in the company’s stock price.

Gelsinger’s Strategic Focus

During the Deutsche Bank 2024 Technology Conference in California, Gelsinger highlighted Intel’s ongoing efforts to tackle its financial woes.

He emphasized the need for efficient operations, stating, “We realize we have to operate efficiently with nimbleness, with urgency. This is a competitive business and market, and that’s part of the reason we took the actions that we did as we build it.”

The chip giant is now entering phase two of its turnaround strategy, following efforts to regain process and product leadership and implement its IDM 2.0 strategy.

Gelsinger compared this transition to the company’s shift from memory to microprocessors decades ago, calling it “the most significant rebuilding of the company.”

Phase two involves becoming more efficient and implementing cost-cutting measures, but Gelsinger noted that these actions had to be carefully timed to avoid disrupting technology development and product leadership efforts.

Potential Foundry Spin-Off and Expansion Delays

Gelsinger hinted that Intel may consider drastic measures, such as spinning off its foundry business and delaying new fabrication plant expansions.

Reports suggest that the company is working with investment bankers to explore options for addressing its financial troubles, including splitting off the foundry operation that manufactures chips.

Although Intel has already separated its foundry division from product design teams as part of its IDM 2.0 strategy, Gelsinger’s goal has been to turn the foundry into a contract manufacturing unit for other chipmakers to generate additional revenue.

Gartner Vice President Analyst Alan Priestley commented on the possibility of a spin-off, stating, “One could speculate that the end goal of Intel’s IDM 2.0 strategy was to create two separate companies – product & foundry – and it does report this way now in its financials, albeit still under the umbrella of Intel Corp.”

Priestley added that separating manufacturing capabilities into a distinct entity would be a long-term endeavor, given its current integration with Intel’s design groups.

In addition to a potential foundry spin-off, Bloomberg reports that Intel may scrap or delay some of its planned fabrication plant expansions.

The company has already postponed work on a facility in Israel and pushed back the completion date for its Ohio manufacturing site to late 2026.

Delays are also rumored for Intel’s planned Euro fab in Magdeburg, Germany.

Intel is also exploring financing deals as an alternative, similar to agreements made earlier this year with Apollo Global Management for its Leixlip plant in Ireland and with Brookfield Asset Management for its Arizona fabs.

Boardroom Tensions

These strategic discussions come in the wake of a high-profile board member’s resignation.

Lip-Bu Tan, a semiconductor industry veteran and former CEO of Cadence Design, resigned from Intel’s board citing differences with Gelsinger and other directors over the company’s direction.

According to reports, Tan expressed frustration with Intel’s risk-averse culture and the perceived bloated workforce, consisting of too many middle managers and not enough engineers.

The company is expected to present these options during a board meeting in September, which may determine Intel’s path forward amidst its ongoing financial struggles.

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