Intel Drops CEO Pat Gelsinger: Should Investors Consider Purchasing the Troubled Chip Company's Shares?
When Pat Gelsinger assumed leadership at Intel in 2021, optimism swelled that he'd orchestrate the tech giant's (INTC -0.53%) long-awaited recovery. However, his tenure ended in failure, joining the league of Intel CEOs who failed to revive the company and underperformed the stock market.
Intel announced Gelsinger's retirement on Monday, effective December 1. He seemingly bid farewell from the company without any ceremonial handover, forsaking both his CEO role and board membership. The company named CFO David Zinsner and CEO of Intel Products Michele (MJ) Johnston Holthaus as interim co-CEOs as they hunt for a permanent successor.
The reasons behind Gelsinger's departure
Gelsinger's career spanned decades at Intel, culminating in his ascension to chief technology officer before he ventured to run VMWare in 2012 and later reclaimed the CEO role in 2021. He was widely admired by financial analysts and industry experts, yet under his watch, Intel lagged behind the market, losing ground in the AI race to Nvidia.
Investors showed skepticism towards Gelsinger's central strategy – enhancing Intel's in-house chip manufacturing infrastructure to consolidate its position as a third-party foundry for external clients. The strategy resulted in substantial quarterly losses in the restructured foundry business, with Intel's stock plummeting by 62% during Gelsinger's reign, which encompassed a comprehensive restructuring and the elimination of the company's dividend in August.
After his departure was announced, Intel's stock initially soared, but by Monday afternoon, it had sinked into negative territory, suggesting investors struggled to predict the impact of Gelsinger's exit on the company.
Impact on Intel
Despite Intel's lackluster performance under Gelsinger, his abrupt departure caught the company off guard, as it was in the middle of multi-year initiatives such as establishing new manufacturing plants and the assembly-line restructuring announced in August that involved downsizing the workforce by roughly 15%.
The news left Intel without a clear vision or guidance, as the board's decision to appoint two interim co-CEOs signaled the company's strategic stagnation until its next leader charts its new course.
Frank Yeary, Intel's independent board chair, stated in the retirement announcement, "Though we've made significant strides in restoring manufacturing competitiveness and crafting the capabilities to be a world-class foundry, we recognize we have much more ground to cover at the company and are committed to restoring investor confidence."
Yeary hinted at the product group, or chip design, remaining at the core of its strategy. This could potentially signal a shift in Intel's foundry strategy.
The company might spin off the foundry business, as Gelsinger had proposed turning it into an independent subsidiary in September. Some investors had advocated for a full spin-off, while selling it outright is also an option. However, TSMC, the world's leading contract chip manufacturer, expressed no interest in purchasing it. Gelsinger's departure may also pave the way for Intel to merge with another company like Qualcomm, which had expressed interest in acquiring it.
Finding Gelsinger's replacement may not be straightforward given the company's challenges and the board's apparent desire for a new strategic direction. Moreover, Intel's CHIPS Act funding, previously set at $8.5 billion, was recently reduced to $7.86 billion due to Intel also securing a $3 billion contract for U.S. military chip production. The CHIPS Act funding remains uncertain as Intel's construction timeline could be delayed even further without a permanent CEO.
Is Intel worth investing in currently?
The market's initial response to Gelsinger's sudden departure appears misplaced. Forcing a CEO out can invigorate a company when the head honcho has made misguided decisions, but Intel's challenges predated Gelsinger's tenure, making him just a symptom, not the cause, of the company's plight.
Furthermore, the board's announcement of Gelsinger's departure before securing a replacement casts doubt on investor confidence, as it appears to be a haste move that may worsen the company's instability. It's now anyone's guess who could capably navigate the choppy waters of a company like Intel, making it a turbulent time for the tech sector. A new leader might offer a breath of fresh air, but Intel still appears to be far from realizing a potential turnaround, with or without Gelsinger. Thus, it may be advisable to steer clear of the stock.
Following Gelsinger's departure, investors and analysts are questioning Intel's strategy towards its foundry business, with some suggesting a potential spin-off or outright sale of the division. (finance, investing, money)
The market's reaction to Gelsinger's departure highlights the uncertainty surrounding Intel's future leadership and its ability to turn around its fortunes, causing some investors to reconsider their investment strategies in the tech giant. (finance, investing, money)
