Intel Corp. is poised to undertake a significant strategic overhaul aimed at rejuvenating the company's fortunes, as CEO Pat Gelsinger prepares to present a comprehensive cost-cutting and asset-divestment plan to the board of directors later this month. The proposed strategy is expected to address Intel's current financial challenges and enhance its competitive stance in the rapidly evolving semiconductor industry.
Intel's proposed plan, scheduled for discussion at a mid-September board meeting, outlines measures to streamline operations and cut costs by divesting non-core assets, including its programmable chip unit, Altera, according to Reuters. Acquired for $16.7 billion in 2015, Altera represents a substantial investment that Intel now considers unsustainable given its declining profits. Sources familiar with the matter have revealed that the proposal will also consider halting or significantly reducing capital expenditures on major projects, such as the $32 billion factory in Germany, which has faced delays.
Intel has been grappling with one of the most challenging periods in its history, struggling to regain its prominence in the face of fierce competition, particularly from Nvidia, the leading AI chipmaker. Nvidia's market capitalization has surged to $3 trillion, while Intel's valuation has plummeted below $100 billion following a disappointing second-quarter earnings report. "It's been a difficult few weeks," Gelsinger acknowledged at a Deutsche Bank conference, underscoring the urgency of the upcoming strategic adjustments.
The planned restructuring comes on the heels of Intel's recent decision to pause its dividend payments and implement a 15% staff reduction in an effort to save $10 billion. The company reported a significant loss of $1.65 billion for Q2 2024, contrasting sharply with a net income of $1.47 billion in the same quarter the previous year. Revenue for the second quarter also fell slightly, decreasing by 1% to $12.83 billion from $12.95 billion year-over-year.
Intel's strategy involves separating its foundry business from its design operations, a move intended to protect the intellectual property of its design clients. This separation has been in place since the first quarter of 2024, with the company reporting these segments independently. Despite these efforts, the company has faced mounting pressure to further streamline its operations and reassess its financial commitments.
To facilitate the proposed changes, Intel has enlisted the advisory services of Morgan Stanley and Goldman Sachs. These firms will assist the board in evaluating which business units to retain and which to sell. While Intel has yet to solicit formal bids, it is anticipated that the board will decide on potential sales and restructuring plans following their review of the proposal.
One potential divestiture could involve selling Altera outright, rather than spinning it off as initially planned. Infrastructure chipmaker Marvell has been identified as a possible buyer for Altera, though discussions are still preliminary. The board is also expected to consider a potential split between Intel's product design and manufacturing divisions, a strategy that has been previously reported by Bloomberg.
