Gelsinger Forced Out At Intel: Implications

Intel announced the retirement of CEO Pat Gelsinger before the markets opened on Monday. It was clear from the press release that it was not a normal retirement and Bloomberg confirmed a bit later in the day that Intel’s board, frustrated with the Company’s lack of progress, asked Mr. Gelsinger to resign or be fired.

Looking at Intel’s press release, there are several key observations:

- The resignation became effective December 1^st - the day before the press release went out. Gelsinger not only stopped being a CEO but also left/lost his board seat.

- David Zinsner and Michelle Johnston Holthaus were named as interim co-chief executive officers while the board of directors conduct a CEO search.

- Holthaus has been appointed to the newly created position of CEO of Intel Products, a group that encompasses the company’s Client Computing Group (CCG), Data Center and AI Group (DCAI) and Network and Edge Group (NEX)

- Board member Yeary comments were remarkable:

“As a board, we know first and foremost that we must put our product group at the center of all we do.”

“With MJ’s permanent elevation to CEO of Intel Products along with her interim co-CEO role of Intel, we are ensuring the product group will have the resources needed to deliver for our customers”

“Ultimately, returning to process leadership is central to product leadership, and we will remain focused on that mission while driving greater efficiency and improved profitability.”

Overall, we have a picture that is suggestive of a few things:

- There should be little doubt that Pat’s focus on manufacturing has led Intel down its disastrous current strategy. The board, unlike Pat Gelsinger, is indicating that it wants to focus on products first and foremost. In Beyond The Hype’s view, this is the correct focus. There is no path to near-term or even mid-term success on the process front. With anything that can be defined as a win at least past year 2030, it makes little sense to bet a company’s future on a uncertain win in the distant future.

- The board has moved to make Ms. Holthaus CEO of products – hinting not only an elevation of the importance of products but a likely separation of products company in the future. So, investors looking for a spinoff can see it as a positive development.

- It seems likely that Mobileye, Altera, Intel Fab will be primarily under the purview of David Zinsner. There is a charter here for Zinsner to right the financial ship and to capitalize Altera and Mobileye as needed.

- Last but not least, the PR shows a shocking lack of excitement about Intel’s progress on the process front - especially the 18A process. Given Gelsinger ’s “4 years, 5 nodes” high profile strategy and given the single-mindedness with which Pat pursued it, it is very difficult to see the silence as anything but a negative. The language “Ultimately, returning to process leadership is central to product leadership, and we will remain focused on that milestone……” is not reassuring either. For 18A to be in production in 2025, it should be in the final stages now. “Ultimately” is quite the giveaway of bad news in that context.

A key question to ask is why the board moved to remove Mr. Gelsinger so abruptly. Note that Pat Gelsinger has routinely said that Intel has been on or ahead of schedule with its processes and products. We can be certain that Pat would have kept his job had this been the case. Based on the press release, in addition to whatever process problems, it appears that the board did not trust Pat to deliver on the products front.

The timing of the move is also interesting as it came soon after Intel gained nearly $8B of federal subsidies under the Chip Act but decided not to accept $10B in loans as it found the terms onerous.

Based on what Intel has disclosed so far, while Intel got nearly $8B in free taxpayer money, the subsidy and the lack of loans disadvantaged Intel:

- Without the $10B loans, Intel has a big hole in its long-term cash flows. This requires that Intel meaningfully alter its plans – both in terms of fab build out and in terms of what products and programs it can fund.

- Intel’s subsidy money came with several restrictions on if and how Intel can spin off or sell its fabs.

In other words, the subsidy developments called for Intel to walk back some plans which the board likely was not pleased with.

Prognosis

Based on the PR, it seems likely that Intel moved to replace Pat Gelsinger for 3 big reasons:

- The process story, especially 18A, seems challenged.

- The process delays are likely impacting Intel’s product plans in a negative way and the board no longer trusts Pat to be a good steward on the product side as his process focus is materially damaging the product side.

- The lower-than-expected cash from the Chips Act and the restrictions that go with it are adversely impacting Intel’s plans. The lack of cash pares down what Intel can do on the product and process front. The subsidy terms limit Intel’s fab spinoff options.

There could be other reasons, such as Intel losing market share and losing key customers, but any such developments likely played a smaller role in the board decision.