By Max A. Cherney and Milana Vinn
(Reuters) – Intel CEO Pat Gelsinger and top executives are expected to present a plan to the company's board later this month to shed redundant divisions and increase capital spending in an effort to revive the once-dominant chipmaker, according to a source familiar with the matter.
The plan includes ideas on how to reduce overall costs by selling businesses, including its programmable chip division Altera, which Intel can no longer fund from the once-significant profits it made.
Gelsinger and other senior Intel executives are expected to present the plan at a board meeting in mid-September, the source said.
The details of Gelsinger's proposal are reported here for the first time.
Intel declined to comment.
The proposal does not yet include plans to break up Intel and sell its contract manufacturing operations, or the foundry, to a buyer such as Taiwan Semiconductor Manufacturing Co., according to the source and another person familiar with the matter.
The presentation, including plans for production activities, has not yet been finalized and may change before the meeting.
Intel has already separated its foundry operations from its design activities and has been reporting its financial results separately since the first calendar quarter of this year.
The company has erected a wall between its design and manufacturing departments to ensure that potential customers of the design department do not have access to the technological secrets of customers who use Intel's factories (fabs) to produce their chips.
Intel is going through one of its worst periods as it tries to play catch-up in the AI era against the likes of Nvidia, the dominant AI chipmaker with a market cap of $3 trillion. Intel’s, by contrast, has now fallen below $100 billion after a disastrous second-quarter earnings report in August.
The proposal that Gelsinger and others will present will likely include plans to further reduce the company’s capital spending on factory expansion. The pitch could include plans to pause or stop altogether its $32 billion factory in Germany, a project that has reportedly been shelved, the source said.
In August, Intel said it expects to reduce capital spending to $21.5 billion in 2025, a 17% decline from this year. It also issued a weaker-than-expected third-quarter outlook.
In addition to the CEO and management's plans, Intel has also hired Morgan Stanley and Goldman Sachs to advise the board on which businesses Intel can sell and which it should keep, according to two sources with knowledge of the company's advisory plans.
Intel has not yet solicited bids for the product units, but is likely to do so once its board approves a plan, two sources familiar with the company's advisory plans said.
ALTERA SPIN-OUT
The mid-September board meeting is a crucial one for the former chipmaker. Intel reported a disastrous second quarter in August, which included a pause in the company’s dividend payments and a 15% workforce reduction aimed at saving $10 billion.
A few weeks later, chip industry veteran Lip-Bu Tan stepped down from the board after months of discussions about the company's future, Reuters reported, leaving a vacuum of deep semiconductor industry experience on the board.
Last Thursday, following the Reuters report, Gelsinger attempted to reassure investors about the company's weak financial performance.
“It's been a tough few weeks,” Gelsinger said at a Deutsche Bank conference. “And we've been working hard to address the issues.”
Gelsinger said the company takes investors' comments “seriously” and that Intel is focused on phase two of the company's restructuring plan.
Some of those plans remain unresolved until the mid-September meeting, when the company's executives are likely to make crucial decisions about which businesses Intel will keep and which it will divest.
One potential division the company is looking to spin off is its programmable chip division, Altera, which Intel acquired in 2015 for $16.7 billion. Intel has already taken steps to spin it off as a separate but still wholly owned subsidiary and has said it plans to sell some of its stake in an initial public offering in the future, but no date has been set.
However, Altera could also be sold in its entirety to another chipmaker interested in expanding its portfolio. According to a source familiar with the company’s advisory plans and one of the sources familiar with the plans to shed businesses, the company has quietly begun exploring the possibility of a sale.
Infrastructure chipmaker Marvell is one of the potential buyers for such a transaction, according to one of the sources.
Bloomberg previously reported several options for Intel, including a possible split of Intel's product design and manufacturing divisions. This split is expected to be discussed at the board meeting.
(Reporting by Max A. Cherney in San Francisco and Milana Vinn in New York; Editing by Kenneth Li, Anirban Sen, Paritosh Bansal, Deepa Babington and Mark Porter)
