When Pat Gelsinger came back to Intel, hopes ran high that he would restore one of Silicon Valley’s most famous brands to its former glory. Only two and a half years later, Gelsinger is gone, and the storied chipmaker is hemorrhaging cash and facing an uncertain future.
Intel’s shares rose 5% Monday after the company announced the 63-year-old Gelsinger, who began his career at the chipmaker in 1979, had retired from the position of chief executive and also stepped down from the board of directors. The move amounted to a vote of no-confidence from investors who had initially cheered Gelsinger’s turnaround plan, which included clawing back market share from chip design companies like Nvidia and semiconductor manufacturers like TSMC.
Intel failed to make headway on either front, missing out on the AI boom, and watching its shares plunge more than 60% during Gelsinger’s tenure.
“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 at the company and are committed to restoring investor confidence,” Frank Yeary, the independent chair of Intel’s board, said in a statement Monday.
Once the biggest chipmaker in the world, Intel has fallen out of the industry’s top 10 companies by market capitalization, a list now led by Nvidia and TSMC. Competitor AMD, which has taken considerable market share from Intel’s core business of making central processing units, or CPUs, comes in at sixth with a valuation of roughly $220 billion. This fall, Intel’s market cap fell below the $100 billion threshold for the first time since 2012.
That happened after a disastrous earnings report in August sent the stock falling more than 25%, its worst day since 1974. After badly missing profit and revenue targets for Q2, the company announced it would suspend the dividend it had paid to shareholders for over three decades.
In response, the company also said it would cut its workforce by 15%, translating to roughly 15,000 jobs, as part of $10 billion in cost saving measures. Later, Intel also revealed its foundry business, which competes with TSMC in manufacturing semiconductors, would become an independent subsidiary.
As Gelsinger was forced to downsize his ambitions, however, Nvidia plowed ahead and replaced Intel in the Dow Jones industrial average. Nvidia’s graphics processing units, or GPUs, were originally developed for video games but have since been at the heart of the AI boom. CEO Jensen Huang has indicated demand for the company’s next-generation Blackwell offering dramatically exceeds supply.
Meanwhile, the success of another longtime Silicon Valley stalwart, Oracle, underscores just how far Intel has fallen. The software giant, which was founded in 1977, has kept investors excited in recent years with the incredible growth of its cloud business, which has powered shares to their best year on record besides 1999, when they roughly quadrupled in price. The company has reemerged as a market darling as investors look for secondary beneficiaries of the market’s AI rally.
Can CHIPS Act funding help spur a turnaround?
Intel, meanwhile, has fallen victim to the classic innovator’s dilemma not once but twice, as Fortune’s Jeremy Kahn recently explained, missing the boat on AI after remaining complacent during the smartphone revolution.
Gelsinger believed there was time to catch up, especially with the U.S. investing heavily to bring chip and semiconductor production back to American shores. The company has a deal with Amazon to make a new advanced AI chip and finalized a $7.9 billion grant last week as part of the Biden administration’s CHIPS and Science Act.
Still, there are worries that Intel won’t find the cash it needs to power this transformation. Fellow chipmaker Qualcomm has reportedly approached Intel about a potential takeover, but interest is said to have cooled as Qualcomm becomes less enamored with the idea of assuming more than $50 billion in debt.
Chief financial officer David Zinsner and Michelle Johnston Holthaus, a longtime Intel executive taking a new role as CEO of the company’s product group, will serve as co-CEOs as the board looks for a permanent replacement. It’s a prestigious position, but Gelsinger’s successor will need to be ready for the long, difficult road ahead.
