On Wednesday, Intel Corp appointed Lip-Bu Tan, a seasoned figure in the chip industry and former board member, as its new CEO, effective March 18. This decision comes three months after the ouster of former CEO Pat Gelsinger, whose ambitious restructuring plans struggled to gain traction and shook investor confidence.
Taking over as CEO, Tan communicated his strategic vision to employees through a letter prior to meeting with the staff, outlining his commitment to advancing Intel’s efforts as a leading foundry, a segment dedicated to manufacturing chips for external clients. This ambitious strategy has proven expensive for the company and was a significant factor in the departure of former CEO Pat Gelsinger.
Although the announcement of Tan was met with investor approval, sending Intel shares up over 10% in late trading, there’s no indication of a new strategic direction. Speculation had been rife about a potential breakup of Intel’s foundry and chip-design divisions, which fueled last month’s stock rally.
Facing tough competition from Taiwan Semiconductor Manufacturing Co. (TSMC), which has pioneered the market of producing chips for tech giants like Nvidia, Apple, and AMD, Intel will need to demonstrate its ability to deliver superior products.
Historically, Intel manufactured primarily for itself, leveraging its integrated design and production capability. But with rivals like TSMC advancing in technology, the strength of Intel’s once-dominant model is in question.
Analysts remain uncertain about whether Tan might separate the foundry from the chip-design unit, a move seen as contingent on improving Intel’s manufacturing roadmap.
The speculation around a breakup gained traction with suggestions from Trump administration officials about a potential TSMC involvement in spinning off Intel’s factory business. However, TSMC’s recent $100 billion factory investments indicate it may not pursue such a strategy.
Pat Gelsinger was ousted by Intel’s board in February after facing challenges with his ambitious plans to expand the company’s manufacturing capacity, including a large Ohio plant. He secured nearly $8 billion in federal grants via the U.S. Chips and Science Act, contingent on meeting specific targets. However, project delays have pushed the Ohio plant’s opening to the 2030s, with President Donald Trump’s criticism of the Chips Act also adding to the uncertainty.
Intel anticipates a cautious approach to expanding its manufacturing capabilities, according to interim co-CEO and CFO Dave Zinsner. Still, maintaining its current facilities across multiple states and countries remains costly. The company’s financial struggles persist, having incurred a $19.2 billion loss last year, and the losses are expected to continue.
Srini Pajjuri, an analyst at Raymond James, stated that Tan, recognized for his engineering prowess and success in revitalizing Cadence Design Systems Inc., brings optimism for advancing Intel’s technological capabilities, notably in developing its 18A production technique. However, Intel is still lagging behind in the AI chip market for data centers, where Nvidia holds the dominant position.
Without a clear AI strategy, some analysts are reserving judgement on Intel’s future until more clarity is provided on Tan’s plans.
