The unexpected retirement of Intel’s CEO Pat Gelsinger is clearly this week’s major event, and the December 2 announcement spurred a flurry of analysis, comments and backstories. According to Reuters, Gelsinger was forced out after a meeting when the company board told him that he could retire or be removed. Reportedly, the Intel board lost confidence in Gelsinger’s costly and ambitious plan to transform Intel, as the progress of change was not fast enough. In other words, the board holds Gelsinger responsible for Intel’s recent disappointing results: the reduction of its market capitalization (the Intel stock reportedly lost more than 60% under Gelsinger’s tenure), the significant growth of its capital expenditure, and the troubles still affecting its new Foundry business. A summary of the company’s financial performance, with charts, can be found here.
The outcome of Gelsinger’s attempt to transform Intel begs questions about his IDM 2.0 strategy, a plan which could arguably be summarized as follows: in a few years, making Intel able to compete on par with both Nvidia and TSMC. Was this goal too ambitious and unrealistic? Or was the financial market not patient enough to wait for a feasible strategy to be fully implemented? And, assuming Gelsinger’s strategy was theoretically feasible, was its practical implementation hindered by Intel’s limited “ability to execute”, to use a Gartner term? If so, organizational inefficiencies may have played a role in delaying positive results. Former Cadence CEO Lip-Bu Tan quit the Intel board last August criticizing not just Gelsinger’s strategy, but reportedly complaining about Intel’s “bloated workforce”, its “risk-averse and bureaucratic culture”, saying he believed Intel was “overrun by bureaucratic layers of middle managers who impeded progress at Intel’s server and desktop chips divisions.” And Intel candidly admitted other inefficiencies in June 2023 when it adopted the “internal foundry model”: namely, an excessive use of “expedited” wafers that business units decide to move through Intel’s manufacturing process, which are costly and reduce factory efficiency, and Intel’s test times, which ran “double or triple those of competitors”.
The next Intel CEO, whoever he or she will be, will have to decide not just whether to continue or discard Gelsinger’s IDM 2.0 strategy, but also how to deal with Intel’s inefficiencies – part of which arguably still exist, even though Gelsinger has gone. (By the way: searching for a new CEO, Intel has reportedly approached the above mentioned Lip-Bu Tan, among others). And, as for the future of Intel Foundry, he or she will face an additional complication: reportedly, the company has said that its recent deal for $7.86 billion in U.S. government subsidies restricts its ability to sell stakes in its foundry unit if it becomes an independent entity.
