What Happened to Intel?

On Monday, Intel CEO Pat Gelsinger announced his sudden retirement after holding the position for less than four years. This was the official narrative. However, reports from Reuters, Bloomberg, and The New York Times suggest that Gelsinger was actually pushed out by the board of directors.

When Gelsinger took the role nearly four years ago, he laid out an ambitious plan to revitalize the struggling chip manufacturer within that timeframe. Now, he has reportedly been removed from the company just before he could implement his strategies. His departure was so abrupt that Intel does not have a successor lined up, and he will not be available as an advisor.

Intel has faced significant challenges in recent years. The company missed out on the smartphone boom, dealt with numerous quality control issues affecting its chips, lost clients, including Apple, to alternative chipmakers, and now risks falling behind in the evolving AI market.

This isn’t just a corporate issue; it's also a national security concern. Intel was once the leading producer of computer chips in the world and remains one of the few companies in the United States capable of designing and manufacturing its own chips, as opposed to outsourcing production to Asia. The U.S. hopes to reduce its reliance on Taiwan for chip production, especially if tensions with China escalate. However, Intel's management decisions may jeopardize this goal, especially following Gelsinger's firing.

Initial Hopes for Gelsinger

Many people were optimistic when Gelsinger returned to lead Intel in 2021. He was considered a company insider, having started there at the age of 18 and spending 30 years in various roles, culminating as the company's first Chief Technology Officer (CTO). His familiarity with the company and engineering background led many to believe he could address longstanding technology issues ignored by previous leaders.

Gelsinger had been responsible for notable achievements like the 486 processor, which was Intel's first x86 chip featuring over a million transistors. However, prior to his leadership, Intel had made several missteps, including not capitalizing on the mobile revolution and suffering from delayed product launches and quality assurance problems.

Gelsinger’s Strategy to Revitalize Intel

Gelsinger's turnaround plan heavily focused on reversing past mistakes, particularly regarding the company’s investments in advanced technology. Some years ago, Intel invested billions in ASML, a Dutch company essential in chip manufacturing. However, Intel chose not to order the advanced equipment produced by ASML, allowing competitors like TSMC and Samsung to flourish.

Gelsinger labeled this decision a major blunder, stating, "How stupid could we be?" Upon his return, he made the bold move of fully embracing the EUV (Extreme Ultraviolet Lithography) technology. He committed significant financial resources to ensure Intel regained its leadership in chip production and also aimed to build semiconductor factories in the United States.

He introduced the slogan “five nodes in four years,” promising to roll out five new generations of products, each featuring smaller transistors, within the ambitious timeframe. The goal was to bring Intel back to a strong position by 2025.

Status of the Turnaround Efforts

While the company has often claimed it is on track to achieve this ambitious five-node timeline, the process has been costly. Intel has spent tens of billions of dollars, but the company has faced additional setbacks, reflected in a plummeting stock price and declining morale among employees. Layoffs and cuts to staff have reportedly led employees to feel insecure and disengaged.

Moreover, some insiders suggest that cost-cutting has affected product quality, resulting in crucial features being eliminated from products like the Meteor Lake and Arrow Lake CPUs.

Intel continues to struggle in maintaining its competitive edge. With the rise of AI, companies like Nvidia have become the industry leaders, while Intel's ventures into AI, like its Gaudi accelerators, have fallen short of expectations and revenue goals. Meanwhile, Intel has lost ground in areas like graphics processing, vital for data centers, which places additional financial strain on its already costly restructuring efforts.

Past issues, such as the susceptibility of its desktop CPUs to damage and the performance problems of the latest processors, have further tarnished Intel's reputation. Some customers have even chosen alternatives, aligning behavior with Microsoft's decisions to drop Intel chips for its latest product initiatives.

Reasons for Gelsinger’s Exit

The specifics behind Gelsinger's abrupt exit remain unclear, but sources indicate that the board of directors became concerned about the slow progress of his turnaround plan. They felt that his ambitious initiative was not yielding results quickly enough and worried about the quality of products.

Intel's finances have also painted a troubling picture, with increasing losses over the year, including a historic $16.6 billion loss attributed primarily to restructuring. Investor confidence has waned, leading to drastic stock price drops following disappointing financial forecasts and layoffs.

Some analysts believe that Gelsinger's premature call that the company had hit rock bottom, combined with mixed messages, may have eroded the confidence of both shareholders and board members.

There are speculations that the board might consider fully separating Intel’s manufacturing division, which would align its operations more closely with competitors who focus solely on chip design.

The Future of Intel

While an outright spin-off of its foundry operations might be challenging, especially with substantial funding from the U.S. government for semiconductor initiatives, it is a possibility that could redefine Intel's strategy moving forward. Given past experiences in the industry, including AMD's successful spin-off of its manufacturing business, any such move could reshape the competitive landscape of chip production.

Intel, Management, Chips, Gelsinger, Retirement