Intel CEO Gelsinger Leaves as Chipmaker’s Turnaround Stalls

(Bloomberg) — Intel Corp. Chief Executive Officer Pat Gelsinger, who was hired in 2021 to lead an ambitious turnaround of the iconic chipmaker, will leave the job after the comeback sputtered and the company fell further behind rivals.

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Intel Chief Financial Officer David Zinsner and Michelle Johnston Holthaus are serving as interim co-CEOs while the board searches for Gelsinger’s replacement, the company said in a statement. Frank Yeary, independent chair of the board of Intel, will serve as interim executive chair.

Gelsinger, 63, was hailed as a savior of the chip pioneer, professing love for the company and his determination to restore it to preeminence in the semiconductor industry it defined. The executive began working at Intel when he was a teenager but left in 2009 and became CEO of VMware Inc. Upon returning to Intel, he promised to regain the chipmaker’s lead in manufacturing — something it had lost to rivals like Taiwan Semiconductor Manufacturing Co.

Intel’s shares rose more than 3% in early trading in New York Monday, following the announcement. They’re still down more than 50% this year.

Gelsinger set out to take Intel beyond its traditional strength in personal computer and server processors by expanding into making chips for other companies — something it had never done before and putting it into direct competition with TSMC and Samsung Electronics Co. As part of his revival strategy, Gelsinger laid out a costly plan to expand Intel’s factory network. That included building a massive new complex in Ohio, a project for which the company received federal aid from the Chips and Science Act.

The executive said last month he had a “lot of energy and passion,” still had the support of the board and was making progress. He expressed determination to keep the company together in the face of reports that it was the subject of takeover bids and said he was making progress on his plans. Intel’s board held a meeting last week.

“Today is, of course, bittersweet as this company has been my life for the bulk of my working career,” Gelsinger said in the 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.”

One of the biggest challenges Intel faced was the shake up of the industry in the form of artificial intelligence computing. Nvidia Corp., which turned its graphics chips into a key component for data centers, dominates that area and has taken tens of billions of dollars that once would have gone to Intel’s data center division. The one-time niche rival that struggled in Intel’s shadow made itself the world’s most valuable publicly-traded company, and Intel’s attempts to break into that market with new products have yet to take off.

“We know that we have much more work to do at the company and are committed to restoring investor confidence,” Yeary said in the company’s 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.”

The departure of Gelsinger could lead to more dramatic strategic shifts.

“This move opens the door for a new strategy, which we’ve been advocating for some time,” said Chris Caso of Wolfe Research. “While Gelsinger was generally successful in advancing Intel’s process roadmap, we don’t beleive that Intel has the scale to pursue leading edge manufacturing on its own given Intel’s absence from AI.”

Intel’s turmoil also represents a setback for the Biden administration’s ambitions to rebuild the US semiconductor industry. Intel’s outgoing CEO was the biggest supporter of the Chips Act and he pledged to build factories in the US to help support the goal of bringing back manufacturing of the critical component to the US. In the end, the government signed a final agreement to give Intel almost $7.9 billion in federal grants, the largest direct subsidy from a program to boost domestic semiconductor manufacturing. The deal was smaller than an earlier proposal but meant Intel could begin receiving funds as it hits negotiated benchmarks on projects in four US states.

President-elect Donald Trump has criticized the 2022 Chips and Science Act, which set aside $39 billion in grants, $75 billion in loans and loan guarantees, and 25% tax credits to revitalize American chipmaking. He called chips program “so bad,” and Republican colleagues have threatened to revise — or even repeal — the legislation.

Intel’s challenges came into sharp focus during a disastrous earnings report on Aug. 1, when the company delivered a surprise loss and dire sales forecast. Intel also suspended its dividend, which it had paid out since 1992. To get costs under control, Intel said it’s cutting more than 15% of its workforce, which numbers around 110,000.

Holthaus, the interim co-CEO, will also take on a new role as CEO of the company’s product group, where she will oversee the company’s client computing, data center and AI and network groups. Holthaus began her career with Intel nearly three decades ago and had previously served as executive vice president and general manager of client computing.

–With assistance from Molly Schuetz and Robin Ajello.

(Updates with share price move in fourth paragraph, details throughout.)