Intel CEO Pat Gelsinger and senior executives are expected to present a plan to the company’s board later this month to cut non-essential businesses and reorganize capital spending, according to a source familiar with the matter. This initiative aims to rejuvenate the chipmaker’s past dominance.
The plan is expected to outline strategies for reducing overall costs by selling off units, including the programmable chip division Altera, which Intel can no longer sustain with its diminished profits.
Gelsinger and other senior leaders will present the proposal at a board meeting scheduled for mid-September, the source indicated. This is the first time details of Gelsinger’s proposal have been reported.
Intel declined to comment.
According to the source and another person familiar with the situation, the proposal does not currently contain plans to separate Intel and sell off its contract manufacturing unit, or foundry, to a buyer such as Taiwan Semiconductor Manufacturing Co.
The presentation is not yet finalized and may change before the conference, including the plans for its production activities.
Since the first calendar quarter of this year, Intel has already separated its foundry business from its design company and has been disclosing its financial results separately.
The company has built a wall between its design and manufacturing divisions to ensure that prospective clients of the design division won’t have access to the technology trade secrets of clients that use Intel’s fabs, or factories, to produce their chips.
When it comes to trying to catch up with companies like Nvidia, the market-capitalized $3 trillion AI chipmaker, Intel is going through one of its worst phases. On the other hand, following a dismal second-quarter earnings announcement in August, Intel’s has already dropped to less than $100 billion.
The proposal that Gelsinger and other executives will present is expected to include plans to further reduce capital spending on factory expansions. The pitch may suggest pausing or even halting the $32 billion factory project in Germany, which has reportedly faced delays, according to the source.
In August, Intel announced plans to cut its capital spending to $21.5 billion by 2025, a 17% reduction from this year, and provided a weaker-than-expected forecast for the third quarter.
In addition to Gelsinger’s proposal, Intel has enlisted Morgan Stanley and Goldman Sachs to advise the board on which businesses to sell and which to retain, according to two sources familiar with the company’s advisory plans.
Intel has not yet solicited bids for the product units but is expected to do so once the board approves the plan, according to the two sources familiar with the company’s advisory plans.
Altera spins out
For the one-time chipmaking king, the mid-September board meeting is crucial. In August, Intel revealed the results of a terrible second quarter, which included a 15% personnel cut intended to save $10 billion and a halt on the company’s dividend payments.
A few weeks later, after months of disagreement over the company’s future, chip industry veteran Lip-Bu Tan resigned from the board, leaving a void in the board’s substantial experience with the semiconductor sector, according to Reuters.
Following the Reuters article on Thursday, Gelsinger attempted to allay investor concerns about the company’s dismal financial results.
“These have been challenging weeks,” Gelsinger remarked at a conference hosted by Deutsche Bank. We have been exerting a lot of effort to resolve the problems.
Gelsinger stated that Intel is concentrating on phase two of the company’s turnaround strategy and that the business is “taking seriously” what investors have said.
Until the meeting in mid-September, some of those plans will be unsettled. It is then likely that important decisions regarding which businesses Intel will retain and which it will divest will be made by the company’s directors.
Altera, the corporation’s programmable chip division, which Intel purchased in 2015 for $16.7 billion, is one possible asset the company might try to sell. Intel has already taken action to spin it out as a distinct but fully owned company. It has also stated that it intends to sell a portion of its ownership in an IPO at some point in the future, but no specific date has been specified.
However, another chipmaker interested in expanding its portfolio might purchase Altera as a whole, and the company has discreetly started investigating the possibility of a sale, according to two persons familiar with the company’s advisory plans and business-cutting plans.
One of the individuals said that Marvell, a maker of infrastructure chips, might be a buyer in such a deal.
A potential split of Intel’s manufacturing and product design operations is one of the ideas that Bloomberg previously reported, and it is anticipated that this will be considered during the board meeting.
