Author: Zhou Yuan / Wall Street See

Three months after the news of spinning off the Intel Foundry (IF) business, on December 2nd post-market trading, Intel issued a notice announcing the retirement of CEO Pat Gelsinger, who also resigned from the board of directors.

This announcement took effect on December 1st, shaking the American technology industry. The news caused Intel's stock price to initially rise (nearly 6%) and then fall (-0.5%).

On August 30th, Wall Street News confirmed from the supply chain that Intel would spin off the IF business; on September 1st, when discussing the impact of spinning off the IF business on Gelsinger and Intel with the industry, Wall Street News wrote, 'This revitalizes Intel under Gelsinger... prospects, casting a shadow. If this really happens, then whether Gelsinger can continue with Intel will also become an unknown.'

Unexpectedly, as predicted, today, three months later, Gelsinger indeed 'was resigned.'

Just after the Intel announcement, there were reports from the media that Pat Gelsinger's retirement was not entirely voluntary, but he was 'forced down from the stage' by the board of directors.

Gelsinger's tenure at Intel was not very long. Starting in February 2021, it ended in early December 2024. During this period, Intel's stock price dropped from $52 to around $24, a decline of 54%, with a market cap evaporating from +$120 billion to $103.21 billion.

As per the tradition at Intel that a CEO should have a technical background, Gelsinger was seen as a 'savior' when he took over at Intel in February 2021. However, during his tenure, despite Gelsinger's strong advocacy for the IDM 2.0 strategy, his underestimation of the challenges in the foundry business resulted in little success for this strategy, despite the massive investment required (of $100 billion).

The cost of Gelsinger's misjudgment of the challenges in the foundry business is that Intel had to pay around $17.5 billion in actual money. Just a month after assuming the role of Intel CEO in February 2021, Gelsinger introduced the IDM 2.0 strategy.

This strategy completely transformed the original IDM strategy, primarily involving Intel optimizing its internal factory network, expanding third-party foundry capacity, and establishing key themes such as Intel Foundry Services (IFS).

On August 29, at a Deutsche Bank conference, Gelsinger stated, "Venturing into contract manufacturing (i.e., foundry) is more challenging than anticipated. I underestimated the heavy workload outside of producing high-quality (silicon) wafers; other chip companies seem willing to continue collaborating with Asian manufacturers rather than sending their products to our factories in the USA. This is surprising and disappointing."

Intel's hope of overcoming its difficulties with a technically proficient CEO seems to have been dashed, and it appears unlikely that Intel's next CEO will emerge from within.

As the Intel board searches for a new CEO, interim co-CEOs David Zinsner and Michelle Johnston Holthaus - Zinsner serving as Executive Vice President and Chief Financial Officer, while Holthaus is the newly appointed CEO of Intel's Product business unit: a department that integrates the company's Client Computing Group (CCG), Datacenter and AI Group (DCAI), and Network and Edge Computing Group (NEX).

Gelsinger's most crucial 'legacy', the Intel Foundry Services division, will remain unchanged in leadership structure until a new CEO is found.

Why is it said that it is difficult for the new CEO to emerge from within Intel?

To comply with the tradition that a CEO must come from a technology background, neither Zinsner nor the current board chairman, who also serves as the interim CEO, Frank Yeary, or Holthaus, have a grasp of technology.

However, in contrast to the past, even someone like Kissinger, who understands technology, has not been able to catch up with the AI giant Nvidia (Nvidia surpassed Intel in 2023), right? Nevertheless, during the current period of the interim leadership's influence, Kissinger's original goals, at least in words, seem to be maintained.

IDM2.0 is the most important "rule" legacy of Kissinger, with the advanced process roadmap involved in the IF business receiving unanimous approval from Intel's senior management.

Although it is not yet known if the IF business will continue as an independent division within Intel, or will be spun off into a separate company - previously Intel announced the spin-off of its chip production foundry business to establish the independent Intel Foundry division, but the 18A process involved in IF has been mentioned by Wall Street analysts as a pivotal move in Intel's revival.

Edward Jones' senior research analyst Logan Purk said, "The core strategy during Kissinger's tenure as CEO was to ensure Intel's leadership in process technology, or at least be on par with the competitors. If they fail to succeed with 18A, then all previous efforts will be in vain."

Although analysts believe that Intel's future lies in the success of the 18A process, the Intel interim leadership group does not share the same view.

In the announcement, Intel emphasized Kissinger's revitalization of Intel's foundry business, but at the same time stressed that Intel's current top priority is to "place the product division at the core of all activities."

This indicates that Intel has downplayed the significance of Kissinger's IDM2.0 strategy, with future focus on enhancing product competitiveness at Intel.

The announcement also specifies Intel's current work tasks - Intel will continue to take urgent actions to complete priority tasks: streamline and strengthen product portfolio, enhance manufacturing and foundry capabilities, while optimizing operating expenses and costs. Striving to create a more streamlined, simpler, and more agile Intel.

This indicates that Intel has already recognized inefficiencies in internal mechanisms, bloated departments, and other management issues. Previously, a technical management professional at Intel told Wall Street News, "Intel's departments are bloated, with a sluggish response to market changes," which is a significant management problem.

However, Intel is not without strengths. At least, Intel still holds the top position in the PC chip market and maintains a leading position in the x86 (a mainstream chip design architecture) data center chip market.

Mercury Research data from November 2024 shows that in the third quarter of 2024, Intel's market share in the x86 server chip market was about 75%.