Intel’s new CEO Pat Gelsinger laid out an ambitious and expensive agenda on Tuesday to get the chipmaker back on track after years of stumbles.
In his first strategic address since taking the top job at Intel last month, Gelsinger said the company would spend tens of billions of dollars on new manufacturing plants and double down on developing cutting-edge chip technologies.
“Innovation is alive and well, and we’re far, far from done,” Gelsinger told Fortune in an interview before his address. Noting some of the current shortages for semiconductors in key industries, Gelsinger said Intel’s core business developing of processor chips “underlines every aspect of technology, which is becoming more pervasive in every aspect of human existence.”
Wall Street has been hungry to hear from Gelsinger, a 30-year Intel veteran who left the company in 2009 and became CEO of software developer VMware a few years later. Intel’s board, which passed him over for the top job in 2005, this year decided to welcome back the prodigal son following a rocky period under prior CEO Bob Swan. Intel’s share price, which fell 17% last year, has jumped 19% since Gelsinger was named CEO in mid-January.
As part of Tuesday’s announcements, Gelsinger said Intel would immediately move to build two new chip manufacturing plants in Arizona costing $20 billion, with plans for building additional plants in the U.S. and Europe over the next year.
And in a major departure from Intel’s history, Gelsinger said Intel would build substantial extra capacity so it could become a major manufacturer of chips for other companies. That’s the game plan rivals Taiwan Semiconductor Manufacturing Company and Samsung used to build their businesses and leapfrog Intel as suppliers to major chip designing companies like Apple, Samsung, and Nvidia.
Gelsinger also said Intel had “fully resolved” problems that delayed a major manufacturing improvement under prior CEO Swan. New processors for PCs using the technology, known as 7-nanometer, will be available for testing in the second quarter, he said. Still, given some of the mistakes and delays Intel made in the past, Gelsinger said Intel would need to outsource manufacturing of some of its upcoming products to rivals like TSMC, a stopgap strategy that prior CEO Swan had set in motion.
The bold strategy to regain technological superiority seized by competitors like Taiwan Semiconductor and Samsung shouldn’t come as a surprise from Gelsinger, who spent much of his career at Intel under its fiery and legendary CEO Andy Grove.
“Things are moving rapidly as we restore execution, rebuild the Grovian culture, and I’ll say the new Intel starts today,” Gelsinger said with obvious enthusiasm. Declaring several times during his interview that “the geek is back,” Gelsinger also said that Intel will resume holding annual industry conferences, starting in October with an event in San Francisco dubbed Intel On to showcase the company’s upcoming tech improvements and work with partners.
Another part of Gelsinger’s plan announced on Tuesday is to work more closely with IBM to develop the “foundational technologies” needed to make faster, more efficient chips.
The cost of spending more on new plants and accelerated research could sap funds Intel has typically used to buy back its shares over the past several years, a move that increases earnings per share but does little to improve the company’s chips.
“I’m very confident that my board is 101% behind this,” Gelsinger said when asked how Wall Street may react to his new plan. Investing in R&D, adding manufacturing capacity, and acquiring smaller companies “are the areas that will be the priorities for our capital investments,” he added. “As the industry analysts and investors come to understand that and start to see the proof points behind that, it will be well supported in the markets as well.”
Gelsinger said his overall strategy was guided not only by his prior 30-year history with the company but also by his subsequent 10-year tenure as CEO of software provider VMware.
“Every experience of my entire career is being used every single day,” he said. “If there was an MRI taken on my brain, every neural pattern would be lit up in this experience.”
