Intel Unveils Strategic Overhaul with Advisory Support from Morgan Stanley and Goldman Sachs

CEO Pat Gelsinger Proposes Comprehensive Plan to Streamline Operations and Reduce Costs Amidst Intense Market Competition

Intel is embarking on a significant strategic overhaul, aiming to revitalize its operations and address mounting financial pressures. Under the guidance of CEO Pat Gelsinger, the company is set to present a new plan to its board of directors later this month. This plan, which seeks to streamline Intel’s operations and curb capital expenditure, marks a pivotal moment for the once-dominant chipmaker.

According to sources familiar with the matter, the proposed strategy includes a major reduction in overall costs by divesting non-core businesses. One of the key components of this plan is the potential sale of Intel’s programmable chip division, Altera. Facing financial strain, Intel is reportedly unable to sustain these units solely through its diminishing profits. The board is scheduled to discuss these proposals in mid-September, and while Intel has declined to provide specifics, the public disclosure of Gelsinger’s proposal is highly anticipated.

The strategy does not currently include the sale of Intel’s contract manufacturing arm or foundry, though the future of these manufacturing operations remains uncertain and subject to change before the board meeting. Intel has already restructured its operations, separating its foundry business from its design division to prevent any overlap in sensitive information between clients of its design arm and those using its manufacturing services.

Intel is grappling with significant challenges, struggling to keep pace with competitors like Nvidia, which dominates the AI chip market with a valuation exceeding $3 trillion. In contrast, Intel’s market capitalization has dropped below $100 billion following a disappointing second-quarter earnings report in August. Gelsinger’s proposal is expected to include further reductions in capital spending on factory expansion, potentially affecting the $32 billion factory project in Germany, which is currently facing delays. Intel plans to reduce its capital spending to $21.5 billion by 2025, marking a 17% decrease from the current year’s expenditure, and has issued a concerning third-quarter forecast.

In conjunction with these efforts, Intel has enlisted Morgan Stanley and Goldman Sachs to advise the board on which business units could be sold or retained. Although bids for these units have not yet been requested, the board is expected to make key decisions once the strategy is formally endorsed.

The upcoming board meeting is crucial for Intel, following a challenging second-quarter report that led to suspended dividend payments and a 15% workforce reduction aimed at saving $10 billion. The resignation of board member and semiconductor veteran Lip-Bu Tan has left a gap in semiconductor expertise at the highest level.

Last week, Gelsinger reassured investors at a Deutsche Bank conference, acknowledging the recent difficulties and emphasizing the company’s commitment to addressing stakeholder feedback and advancing the second phase of its turnaround plan. Key decisions regarding which business units to retain or divest are anticipated to be made at the forthcoming board meeting.

Among the units under consideration for potential sale is Altera, a programmable chip business Intel acquired for $16.7 billion in 2015. Intel had previously considered spinning off Altera as a separate subsidiary and even explored a partial public offering. However, discussions are now focused on the possibility of a complete sale, with companies such as Marvell potentially expressing interest in acquiring the unit.

As Intel prepares for this critical juncture, the company’s ability to effectively execute its strategic overhaul will be key to navigating its financial challenges and regaining its competitive edge in the rapidly evolving semiconductor industry.