Updated: Intel CEO Resigns In Management ShakeupUpdated: Intel CEO Resigns In Management Shakeup

A seemingly never-ending string of poor quarterly performance and criticism regarding recent strategic decisions have come to an apparent head as Intel CEO Pat Gelsinger has stepped down as head of the troubled semiconductor supplier.

The resignation of Gelsinger, though sudden, was not entirely unexpected as rumors about the future of the troubled semiconductor supplier have swirled for months as Intel’s sales and earnings have never regained any sustained momentum following the pandemic. While Intel has most recently responded by cutting 15% of its workforce and trying to build up its foundry business, the company’s board of directors questioned whether Gelsinger’s actions are too little and too late.

Questionable “retirement”

The press release on Intel’s website stated Gelsinger retired from Intel as of December 1^st. But online reports suggest that Gelsinger’s retirement was forced largely to Intel’s board of Directors losing confidence in the company’s turnaround plan. Reports said that Intel’s Board of Directors was apparently frustrated with the slow pace of the company’s turnaround, which has been evident in a spate of unprofitable quarters.

A big part of that turnaround was supposed to involve Intel growing its foundry business. In February, the company announced it would launch a systems foundry business, trying to leverage its growing strength in manufacturing.  That move was motivated in large part of the company’s intentions to go after the growing market for AI and machine learning, where archrival Nvidia is the dominant player.

Related:Intel Seeks to Grab More of Semi Foundry Business

The problem with a foundry business, however, is that the returns are anything but immediate, often taking years and requiring substantial capital investment. With help from the CHIPS Act, Intel has announced the building of several new or expanded US plants. However, those facilities will not be operational until later this decade and thus will not positively impact the company’s bottom line for the foreseeable future.

Strategic blunders

Dissatisfaction with Intel’s performance can be traced in part to the company’s delayed reaction to changes in the electronics market over the past two decades. When the market shifted to mobile computing, Intel did respond with developing processors for laptops, but continued to focus on its core processors for the server and desktop market instead of trying to serve the exploding smartphone market. While Intel did get a boost during the COVID-19 pandemic as remote work caused processor sales to boom, the pandemic’s ending doomed Intel’s sales and earnings as the processor market tanked.

Related:Has Intel Turned It Around?

Intel’s recent foray into developing chips for artificial intelligence and machine learning is also a case of too little and too late. While Intel has over the past few years unleashed a steady stream of chips for AI and machine learning, it has so far failed to put a sizable dent in the market-leading position of rival electronics company Nvidia, which moved early to develop GPUs for accelerators and servers used in AI. In addition, Intel’s longtime rival in processors, AMD, has also shifted its product development efforts to serve this rapidly growing sector.

Problems go beyond Gelsinger

The company’s strategic miscalculations cannot be solely laid on the feet of Gelsinger, who originally joined Intel in 1979 but left in 2009, only to rejoin Intel as CEO in 2021. His predecessors also had a role in Intel’s long-term downfall.

In an article on the analyst site Seeking Alpha, Truist analyst William Stein was quoted as saying, “Intel's challenges go back decades and while the company has kept up its strength in manufacturing, that dominance led to a "culture of entitlement" that led to it missing out on seismic shifts in technology, including mobile and AI-centric compute.”

Related:Is Intel’s Turnaround Strategy Hampering Its Recovery?

Stein added in his note, "In retrospect, it all feels like Gelsinger tried to do too many things without clearly addressing the toughest thing: culture. This may have been a huge focus, but it certainly wasn't clear to us. Another CEO who tries to improve execution of Gelsinger's strategy seems unlikely, and we recall the challenges INTC had finding a CEO in each of the last two searches. We think INTC needs a more radical change."

In the same article, Mizuho analyst Vijay Rakesh was quoted as stating, “Intel's problems are not going to be fixed anytime soon. It is a ‘distant third’ to Nvidia and AMD in AI server adoption; the server CPU market is slowing and Intel is losing share to AMD; it has a nascent foundry business; and there are continued problems with AI ramps.”

Tough task for interim management

The two executives named to lead Intel in the interim have been an integral part of Intel management. But they have a difficult task ahead trying to steer Intel back on track. Zinsner is executive vice president and chief financial officer, and Holthaus has been appointed to the newly created position of CEO of Intel Products, a group that encompasses the company’s Client Computing Group (CCG), Data Center and AI Group (DCAI) and Network and Edge Group (NEX). 

In a related move, Frank Yeary, independent chair of the board of Intel, will become interim executive chair during the transition period.