Source: Wall Street See

$Intel (INTC.US)$ CEO Pat Gelsinger suddenly announced his retirement, ending nearly four years of leadership at this semiconductor giant. During his tenure, intel's stock price plummeted over 60%, and its market share significantly shrank.

After the news was announced on Monday, intel's stock rose briefly in pre-market trading. According to Bank of America, Gelsinger's retirement indicates that the troubled intel may undergo a split next.

Bank of America analysts wrote in their research reports on Monday that intel is more likely to split its internal chip manufacturing business from its external foundry business, as the soon-to-depart Gelsinger advocated for merging them and actively developing intel's foundry business (Intel Foundry).

Meanwhile, intel's archrival $Taiwan Semiconductor (TSM.US)$ The US stock market surged more than 5% that day, continuing to rise in pre-market trading on Tuesday. It is widely believed that Gelsinger's departure signifies the failure of intel's global strategy.

The rising star taiwan semiconductor has become the leader, and intel's former glory is no more.

Intel's biggest problem is that it has lost its position as the "dominant" player in chip manufacturing, having been replaced by taiwan semiconductor back in 2018. Under the dual pressure from taiwan semiconductor and samsung, intel's situation has worsened.

Gelsinger, who came from an engineering background, began serving as the chief executive officer of intel on February 15, 2021. During his nearly four-year tenure, intel formulated ambitious plans to regain its leading position.

Just over a month after taking office, Gelsinger announced plans to open the company's wafer fabs, launched intel's foundry business, and invested more than 20 billion dollars in two factories in Arizona.

Until then, intel was still one of the few companies capable of both designing and manufacturing chips, like $Advanced Micro Devices (AMD.US)$And$NVIDIA (NVDA.US)$Such companies can only design chips but outsource production to taiwan semiconductor, samsung, and other companies.

During his tenure, he announced investment plans exceeding 100 billion dollars to significantly expand intel's manufacturing scale in the usa, europe, and the middle east. Meanwhile, intel is working on developing the next generation manufacturing processes—20A and 18A, which are expected to narrow the gap with taiwan semiconductor and samsung's 2-nanometer technology.

Unfortunately, so far, these plans have not made much progress. In order to maintain its market share in semiconductors, intel has been forced to turn to taiwan semiconductor to manufacture some of its chips, marking intel's first reliance on external suppliers.

Spin off the foundry business and fully embrace taiwan semiconductor.

The board of directors is searching for Gelsinger's successor, with chief financial officer David Zinsner and head of the product division Michelle Johnson Holthaus appointed as interim co-CEOs. However, regardless of who is chosen as the formal CEO, they will face challenges as significant as those encountered by Gelsinger.

Some believe that the most favorable option for the next CEO is to spin off the foundry business and fully embrace taiwan semiconductor, just like its competitor advanced micro devices. In fact, intel has already outsourced production for many of its current products.

However, spinning off or even selling the foundry division is more difficult than many people imagine.

Intel Foundry is currently facing tremendous financial pressure, with losses exceeding 5 billion dollars each quarter; its fate is predictable if it is spun off. Although intel itself is the largest customer of its foundry business, this is still not enough to achieve profitability.

Therefore, Intel Foundry will not be able to secure enough orders to become profitable at least until 18A technology achieves mass production. It is reported that the 18A technology may not reach the stage of mass production until late 2026.

It is noteworthy that intel products are the only major customer for Intel Foundry, with very few external customers.

This is because Intel Foundry lacks sufficient tools to help third parties design chips suitable for intel's old technology, or these tools are only applicable to intel's older and less advanced manufacturing technologies. Therefore, for external customers, intel is not a particularly attractive choice.

In addition, the spin-off will also face policy obstacles, such as the additional conditions of nearly 8 billion dollars in federal CHIPS Act funding announced last week. Bank of America analysts stated that the financing agreement requires intel to retain at least 35% of its foundry business.

Bank of America wrote in a report: "Both companies face their own strategic, structural, financial, and competitive issues, and no solutions are visible in the short term." The institution maintains a "underperforming" rating for intel with a target stock price of 21 dollars.

Regarding the future of intel, Wall Street remains mostly cautious.

Analyst Logan Purk from Edward Jones wrote to clients on Monday: "While investors may think this (Gelsinger's departure) is good news, we still see evidence that intel is unable to overcome obstacles, whether self-inflicted or caused by other reasons. While the new CEO may bring new optimism, the new leader may face a series of issues to resolve before being able to adjust the scale of intel."

Editor / jayden