Intel CEO Forced Out by Board Frustrated With Slow Progress

(Bloomberg) — Intel Corp. Chief Executive Officer Pat Gelsinger was forced out after the board lost confidence in his plans to turn around the iconic chipmaker, adding to turmoil at one of the pioneers of the technology industry.

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The clash came to a head last week when Gelsinger met with the board about the company’s progress on winning back market share and narrowing the gap with Nvidia Corp., according to people familiar with the matter. He was given the option to retire or be removed, and chose to announce the end of his career at Intel, said the people, who asked not to be identified because the proceedings weren’t made public.

Intel Chief Financial Officer David Zinsner and Executive Vice President 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 once hailed as a savior of the chip giant. After taking the reins three years ago, he professed his love for the company and said he was determined to restore it to preeminence in the semiconductor industry. The executive first began working at Intel when he was a teenager but left in 2009 and became CEO of VMware Inc. Upon returning in 2021, he promised to regain the chipmaker’s lead in manufacturing — something it had lost to rivals like Taiwan Semiconductor Manufacturing Co.

Gelsinger couldn’t immediately be reached for comment.

Intel investors, eager to see changes at the company, applauded the CEO’s departure. The shares gained as much as 6% in New York on Monday, though they remain down about 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.

Whoever replaces Gelsinger will face the same set of problems he was brought in to fix, including the fallout from poor decisions made by his predecessors. What would have once been the most desirable job in the $500 billion chip industry has become a nearly untenable position. The next CEO has to take on competitors with greater resources and catch up in AI computing, all while showing that Intel can be the groundbreaking company it once was.

Finding someone to take that hot seat may not be easy. Before Gelsinger was appointed to replace CEO Bob Swan, there was speculation that a number of prominent executives were possible candidates. Many on Wall Street proposed approaching Advanced Micro Devices Inc.’s Lisa Su for the job.

Intel board member Stacy Smith, a former CFO at the company, also was a past candidate for the CEO role. He currently serves as executive chairman of Kioxia Corp.

Within Intel, there’s no bench of potential candidates, Hans Mosesmann, an analyst at Rosenblatt Securities, said in a note. “A new outside CEO coming to Intel is a multiyear gig that is a tall order in a cycle of innovation that is more intense than ever,” he said.

Gelsinger 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.

At last week’s meeting, he faced concerns focused on the lack of products capable of winning in the market — something the board felt had been neglected in the push toward turning Intel into a made-to-order chip manufacturer. He was asked to stay on to help with his replacement but showed little interest in that, the people said. That prompted the decision to end his tenure over the weekend, they said.

“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 Intel’s biggest challenges: the shake-up of the industry spurred by artificial intelligence computing. Nvidia, 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. The onetime niche rival that struggled in Intel’s shadow has now become the world’s most valuable publicly traded company. And Intel’s attempts to break into that market with new products have yet to gain traction.

“We know that we have much more work to do at the company and are committed to restoring investor confidence,” Yeary said in Intel’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 road map, we don’t believe 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 domestic semiconductor industry. Intel’s outgoing CEO was the biggest supporter of the Chips Act and he pledged to build massive new factories in 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. 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 the 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 would cut more than 15% of its workforce, which had numbered around 110,000.

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

Zinsner joined Intel in 2022 from Micron Technology Inc., the largest US memory-chip maker. He’s had a variety of leadership roles in the past, mainly in finance. His experience in the tough memory market was seen as a plus in steering Intel through what’s an unprecedented period in its history.

Intel had spent most of the past 30 years awash with cash and able to outspend competitors on new technology and products — the cornerstone of its success. The company now has more than $50 billion of debt and is reliant on securing outside investments to fulfill its plans.

Given the long odds, the stock gain that Intel enjoyed on Monday was probably only a “short-term bump,” Mosesmann said.

–With assistance from Molly Schuetz and Robin Ajello.

(Updates with share price move in fifth paragraph and more details of departure.)