Intel’s Gelsinger to Divest Altera & Cut Costs
September 2, 2024
Intel CEO Pat Gelsinger is gearing up to present a bold plan to the company's board of directors in mid-September. This plan, developed in close collaboration with key executives, is expected to focus on shedding non-essential business units and significantly cutting costs to help Intel regain their competitive edge in the technology sector.
At the core of Gelsinger's strategy is the proposal to divest certain business segments, including the sale of their programmable chip unit, Altera, which Intel acquired in 2015 for $16.7 billion. This move would allow Intel to focus their resources on more critical areas as they seek to streamline operations and reduce expenses. The plan also includes a potential reduction in capital spending, particularly on factory expansions, with Intel possibly halting or scaling back their $32 billion factory project in Germany.
Intel's struggles in recent years have been significant, marked by a sharp decline in market capitalization, falling below $100 billion after a disappointing second-quarter earnings report in August. The company has faced increasing pressure to catch up with industry leaders like Nvidia, especially in the booming field of AI. Intel's stock has plummeted by 56% year-to-date, reflecting the growing concerns among investors about their future.
Gelsinger's plan does not currently include selling off Intel's contract manufacturing division, also known as the foundry unit. However, Intel has already taken steps to separate its foundry business from its main chip design operations, indicating that such a move could still be on the table in the future. This separation aims to reassure customers of the design division that their proprietary technologies remain secure, an essential factor for maintaining customer trust.
The upcoming board meeting will be a pivotal moment for Intel. The company has been advised by Morgan Stanley and Goldman Sachs to evaluate which businesses to retain and which to divest, but formal bids have not yet been solicited. The outcome of this meeting could shape Intel's strategy for years to come, determining whether the company can successfully navigate its current challenges.
Intel has also experienced internal challenges, including the recent resignation of board member Lip-Bu Tan, a semiconductor industry veteran, who left following disagreements over the company's direction. His departure underscores the uncertainty surrounding Intel's turnaround efforts, as the company faces one of the most challenging periods in its five-decade history.
As Gelsinger prepares to present his plan, Intel's future hangs in the balance. The decisions made in the coming weeks will be critical in determining whether the company can reclaim their position as a dominant force in the semiconductor industry or continue to struggle against their competitors.
Key considerations for intel investors and partners
As Intel prepares for significant strategic changes, it's essential to consider how these developments might impact your interests. With potential asset sales, like the Altera unit, and reductions in capital expenditures on the horizon, there could be major shifts in Intel's operations and market strategy. For investors, this may be a time to closely evaluate your portfolio and consider whether Intel's new direction aligns with your financial goals. Partners and employees should stay informed about potential changes that could affect collaborations, business stability, or career paths. Keeping a close watch on the outcomes of Intel’s mid-September board meeting will be crucial to making informed decisions during this transformative phase for the company.