The sudden departure of Pat Gelsinger as the CEO of Intel leaves the struggling U.S. chipmaker adrift, according to analysts who spoke to EE Times.

The company’s plan to ramp production of its 18A chips and regain process technology leadership is unclear. Intel has lost market share in its core CPU business to AMD while failing to gain traction in smartphone and AI chips. Intel’s effort to divest its chipmaking unit, Intel Foundry, as a successful standalone business is likely to take years, and doing so could forfeit its CHIPS Act subsidies. Intel Foundry needs to catch up in quality and cost where larger rival Taiwan Semiconductor Manufacturing Co. (TSMC) is the leader.

The strategy behind Intel’s push into foundry and the necessary multi-billion dollar investments is debatable, according to Stacy Rasgon, a senior analyst at Bernstein who covers the company.

“It is clear that the core business fundamentals that were supposed to underpin that strategy are much more challenged. Hence Intel has ostensibly ‘bet’ the company on 18A for salvation. But we might have expected Pat to at least make it until 18A is out the door (at which point we would see how it stacks up), and as he has not, one has to wonder whether his departure foreshadows any negative implications for the health of the process roadmap.”

The new CEO will likely be tasked with managing a breakup of the company, Jeff Koch, an analyst with SemiAnalysis, told EE Times. Gelsinger’s strategy was IDM 2.0, not a sale of assets, Koch said. IDM 2.0 was Gelsinger’s plan to revive Intel as a vertically integrated company designing and making chips, some carrying the Intel brand.

“It’s clear the board no longer agrees with this strategy now that offers are coming in for various parts of the company,” Koch said. “Gelsinger has explicitly said that he is not the guy to split the company up. Asset sales or spin-offs are likely, starting with Altera and Mobileye.”

Intel Foundry is a capex black hole on the current balance sheet and will remain so for years, Koch said.

CHIPS Act subsidies

The Department of Commerce (DoC), which oversees the $52 billion package of CHIPS Act subsidies aimed at reviving the U.S. semiconductor industry, has cut the nearly $20 billion in loans and subsidies expected for Intel earlier this year. The Intel package is the largest boost so far for a single chipmaker under the CHIPS Act.

Last week, the DoC awarded Intel up to $7.9 billion in direct funding under the CHIPS Act. The award will support Intel’s expected U.S. investment of nearly $90 billion by the end of the decade, which is part of the company’s overall $100+ billion expansion plan, the DoC said in a statement. The DoC added that it will disburse the funds based on Intel’s completion of unspecified project milestones.

“There is some room for relief: to maintain subsidies Intel only has to keep 50.1% ownership in a private sale or limit stakeholders to a maximum 35% stake in a public spin-off,” Koch said. “As the only American company developing leading-edge logic, Intel Foundry has at least one point of leverage to renegotiate these terms.”

Intel has cut jobs and capital expenditures as its business sours. The company is paring 15% of its headcount and slashing 2024 capex for new fab capacity by more than 20% to a range of $25 billion and $27 billion, reflecting expectations for softer second-half demand.

In addition to getting the U.S. back into chipmaking, Intel is critical to the U.S. government’s aim to gain leadership in the supply of leading-edge chips for military use.

Defense contractors Boeing and Northrop Grumman have joined Intel in the Department of Defense’s Rapid Assured Microelectronics Prototypes-Commercial (RAMP-C) program. IBM, Nvidia, Microsoft and Qualcomm are existing RAMP-C partners with Intel Foundry that have been designing test chips using Intel’s 18A process technology to be “manufacturing ready” by the second half of 2024, Gelsinger said in 2023.

Departure

On Dec. 2, Intel said Gelsinger resigned the day before.

The company has named David Zinsner and Michelle Holthaus as interim co-CEOs while the board of directors search for a new CEO. Zinsner is chief financial officer, and Holthaus will take the newly created position of CEO of Intel Products, a group including the Client Computing, Data Center, AI and Network and Edge business units. Frank Yeary, independent chair of Intel’s board will become interim executive chair during the transition period. Intel Foundry leadership remains unchanged.

“While we have made significant progress in regaining manufacturing competitiveness and building the capabilities to be a world-class foundry, we know that we have much more work to do,” Yeary said in a statement. “As a board, we know first and foremost that we must put our product group at the center of all we do. Our customers demand this from us, and we will deliver for them. With Michelle’s permanent elevation to CEO of Intel Products along with her interim co-CEO role of Intel, we are ensuring the product group will have the resources needed to deliver for our customers. Ultimately, returning to process leadership is central to product leadership, and we will remain focused on that mission while driving greater efficiency and improved profitability.”

Zinsner has already been leading a substantial cost exercise at the company, Rasgon said.

“With his elevation to (at least sharing) the top spot for now we wonder if there might be more to come on the financial activities front now that Pat (and his unbridled optimism) is out. With Michelle’s evolution to Product CEO, and an acknowledgement in the press release that the product group must be put ‘at the center’ of what they do, we wonder if the heavy emphasis on manufacturing and pushing the process roadmap might start to wane somewhat.”

Gelsinger, who began his career at Intel in 1979, called his departure ‘bittersweet’.

“I can look back with pride at all that we have accomplished together,” Gelsinger said in a statement. “It has been a challenging year for all of us as we have made tough but necessary decisions to position Intel for the current market dynamics.”

A few years ago, Gelsinger announced plans to invest in new Intel fabs in Europe and the U.S. Now, Intel has slowed the expansion and furloughed workers. Gelsinger’s aim to regain dominance in process technology over the likes of TSMC looks unlikely. “This is going to be a tough job for anyone (internal or external) to step into (it was a tough situation when Pat showed up, and things look much worse now),” Rasgon said. “The choice for any new CEO would seem to center on what to do with the fabs. But while keeping them feels like dead weight and a continuation of the strategy that got Pat out, scrapping them would also be fraught with difficulties around the product roadmap, outsourcing strategy, CHIPS Act and political navigation etc. There don’t seem to be any easy answers here.”