Intel CFO: Core business strategy remains ‘intact’ after CEO exit

Dive Brief:

• Semiconductor manufacturer Intel is continuing to zero in on its foundry business following the ousting of its CEO Patrick Gelsinger on Tuesday, CFO David Zinsner said during a Wednesday talk at the UBS Global Technology and AI Conference in Scottsdale, Arizona. Zinsner was named interim co-CEO following Gelsinger’s departure, together with Intel Products CEO Michelle Johnston Holthaus, CFO Dive previously reported.
• “The Board was pretty clear that the core strategy remains intact,” Zinsner said during his talk Wednesday together with Naga Chandrasekaran, EVP and chief global operations officer for Intel. “We still want to be a world-class foundry.”
• The company’s foundry business has continued to be a top priority for the chipmaker despite ballooning costs associated with the segment, which Intel is looking to use to manufacture chips for other companies. As Intel searches for a successor to Gelsinger, it’s likely that the incoming CEO will have a background in foundry, Zinsner supposed during his talk. “Obviously, I’m not in the process, but I’m guessing that the CEO will have both some capability around foundry as well as on the product side,” he said.

Dive Insight:

A long-time veteran of the Santa Clara, Calif.-based chipmaker, Gelsinger’s retirement from Intel followed after the company posted a $16.6 billion loss for its Q3  —  a record quarterly loss for the company. His departure came as the ex-CEO was in the midst of attempting to execute a turnaround plan aimed at cutting costs by $10 billion, a strategy which would include laying off approximately 16,500 employees.

The turnaround effort also included plans to turn its foundry unit into its own independent business, complete with its own board, according to a September report by CNBC citing a company memo to employees. The plan to turn its foundries into a third-party business would open doors to enabling Intel to produce chips for its competitors, as well as allowing it to evaluate more independent sources of funding, according to CNBC.

However, while the proposed move partially helped Intel snag $7.86 billion in direct funding via the U.S. CHIPS and Science Act in November, analysts have remained wary of the plan — with concerns only spiking following Gelsinger’s departure, according to a Wednesday report by Yahoo Finance.  

Intel has funneled nearly $50 billion into its foundries over the past two years — spending $25 billion on “additions to property, plant and equipment” in 2023 and $24.8 billion in the same category in 2022, according to its 2023 full-year earnings report.

However, the business unit has also become one of the chipmaker’s largest cost centers — posting a $7 billion operating loss for 2023, following a $5.2 billion loss in 2022, according to an April filing with the Securities and Exchange Commission.

Reversing that course is going to be a key priority for company leadership, including Zinsner and his fellow interim co-CEO Holthaus, he said Wednesday.

“I’d say the one thing that has definitely come out of the way the board is thinking about this, is they do recognize and have pushed us…[is] ‘hey, we’ve made a lot of investments from a capital perspective in foundry and we need to start seeing some incremental ROIC on those investments,’” he said.

Driving that return on investment is going to be “one of my major focuses definitely while I’m CFO…but of course, in the interim period where I’m CEO, I’ll obviously be focused on that as well,” he said.

Moderator Timothy Arcuri, managing director for UBS, pressed Zinsner Wednesday on whether Intel’s other pick for interim co-CEO — Intel Products CEO Holthaus — indicates the board’s focus may be shifting away slightly from foundry to its product business.

There’s “been a lot of foundry, foundry, foundry,” Arcuri said, and following the executive shakeups, “there’s question of who —  if the product business is what’s important to the board now.”

“I mean, Pat [Gelsinger] knew the products better than anybody,” he said. “So, there is some confusion, I think, among some investors if that’s the emphasis for the board, Pat seems like the perfect guy.”

Zinsner “wouldn’t read into the fact that the board wants to focus, make sure we build out the products business and continue to execute there while standing up a foundry business as something related to Pat and the board deciding that now is the right time” for Gelsinger’s departure, he said in response, noting the ex-CEO’s retirement was “for personal reasons specific to Pat and the board.”

Holthaus’ appointment alongside Zinsner as interim co-CEO is important for several reasons, he noted, one being that the position of a top executive for products is critical. 

“I think that has been one thing that we have noticed, is there are things that transcend all the business units on the product side that probably we’re getting suboptimized,” he said.

Appointing Holthaus as such a leader “allows us to be a little bit more functional about how we drive products,” as well as “be cohesive across the business units in terms of how they go to market.”

“I think that was absolutely important and I think that’s the primary reason why the Board felt MJ [Holthaus] should have that role on a permanent basis,” he said of the appointment.