"Running Intel was always a dream job for Pat Gelsinger. More than three years into his tenure as chief executive, prospects for the success of his turnaround look increasingly nightmarish.
Intel's share price plunged 26% during Friday trading, a day after it reported financial results and an outlook that disappointed Wall Street with lower-than-expected revenue and profit-margin forecasts. The stock fall knocked more than $30 billion off Intel's market value, bringing it to a level last seen 15 years ago.
Some investors and analysts questioned whether it was now possible to pull off the costly reconfiguring of Intel's business that Gelsinger launched when he took over in early 2021, pledging to bring glory back to a company that was already stumbling.
"Turnarounds in tech are not very easy," said Ivana Delevska, chief investment officer of Spear, an asset manager that owns chip stocks. "You really need to have a lot of things going for you, and it needs to come from the technology side. Leadership changes can only do so much."
Intel also on Thursday said it would lay off around 15,000 employees, target $10 billion in cost cuts next year and suspend dividend payments in the fourth quarter. It will be the first time in more than three decades the company doesn't pay a dividend.
Gelsinger said in a letter to employees that the decision to pare back and cut costs was the hardest thing he has done in his career, but he maintained his resolve in an interview after the measures were announced.
"There's clearly a lot of work in front of us, but this rebuilding of the iconic Intel is huge, and now we're moving into the next phase" of fitting the transformation into a sustainable economic model, Gelsinger said.
Revitalizing the company back has been as much a personal quest for Gelsinger as a business case study.
He grew up at Intel, having joined fresh out of a vocational school in Allentown, Pa. Over 30 years, he helped develop some of Intel's most successful personal-computer chips in the 1980s and 1990s, and became a disciple of legendary Intel CEO Andy Grove.
Gelsinger rose to become the company's first chief technology officer in the early 2000s, but was forced out in 2009 amid the failure of a graphics-chip effort he oversaw.
Afterward, Intel thrived for a number of years before slipping around a decade ago in the high-stakes race to make chips with the tiniest, fastest-calculating transistors possible. Eventually, Taiwan Semiconductor Manufacturing, or TSMC, and South Korea's Samsung Electronics took the crown for chip-making technology.
When Gelsinger returned as CEO in 2021, he said it was "the greatest honor of my career." He outlined a sweeping turnaround plan. Intel, he said, would make five major advancements in its chip-making technology in four years to regain its lead.
As it did so, Intel would double down on its chip-manufacturing footprint, building new factories in Arizona, Oregon and Ohio as well as in Europe -- projects that cost tens of billions of dollars each. At the same time, Intel would start a business making chips on contract for outside circuit designers.
At first, Gelsinger's plan was buoyed by a chip shortage and a surge in buying of computers during the pandemic. In his first quarter as CEO, the company reported about $19.7 billion in revenue -- about $7 billion more than in its most recent quarter.
Cracks soon appeared. As a postpandemic world returned to old work habits, sales sagged for PCs and for the chips used in data centers. By mid-2022, Gelsinger was lamenting a "rapid decline in economic activity" and promising investors that "we must and will do better."
Meanwhile, a generative AI boom was starting to take shape that would make things worse for Intel. The investment surge in computing infrastructure for artificial intelligence following OpenAI's release of ChatGPT in late 2022 went largely to rival Nvidia. That crimped customer budgets for Intel's chips. As Nvidia rose to a valuation at one point above $3 trillion, Intel's stock fell, shedding more than 42% of its value this year even before Friday's plunge.
Gelsinger continued to plow resources into the turnaround, hoping for large financial efficiencies from the revamp. To offset a factory expansion that could cost more than $100 billion in the coming years, he made partnerships with investment firms and applied successfully for up to $8.5 billion in government money through the Chips Act, passed in 2022.
He also slowed the company's expansion to control expenses, extending an initial timetable for a factory in Ohio. Last February, the company cut its dividend by 66% and announced an initial round of cost cuts.
In an email to employees after Thursday's earnings report, Gelsinger called the decision to further cut costs and begin another large round of layoffs a difficult but necessary step toward righting the company.
Those moves -- and the tumble in the company's stock price -- are testing the patience of investors who bought into Gelsinger's turnaround plan.
Ariel Investments, a New York-based firm with about $14 billion under management, built a position in Intel's stock late last year believing that Gelsinger could orchestrate a resurgence and make Intel once again the leader in chip-making technology.
Ariel portfolio manager Micky Jagirdar said Gelsinger's technology strategy was still on track, and the support the company is getting from the U.S. government through the Chips Act gave it an added margin of safety. Still, he said Ariel would reassess Intel's prospects before buying more of the stock after its slide on Friday." [1]
Nvidia's chips are done in Taiwan. Technology is tough nut to crack.
1. Intel CEO's Dream Job Became a Nightmare. Fitch, Asa. Wall Street Journal, Eastern edition; New York, N.Y.. 03 Aug 2024: A.1.
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