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The chaos at Intel’s corporate headquarters appears to be never-ending, with board members leaving, mass layoffs, a strict policy cash conservation strategy which has now seen dividends cut and winning investments — like those in ARM Holdings — unceremoniously dumped, and a share price that is in freefall. What’s more, even Intel now doesn’t expect any improvement until at least 2027.
For the recently concluded quarter, Intel failed to meet analyst consensus expectations for its revenue and net income metrics in 2nd quarter of 2024and compounded that failure by posting below-expected results for its key DCAI segment, indicating that it is failing to effectively leverage the secular AI-focused tailwind.
To make matters worse, Intel missed its own gross margin guidance for the recently concluded quarter by a wide margin and forecast even greater sequential weakness ahead.
To conserve precious liquidity, Intel recently cut its dividend and announced another massive layoff, worth 15,000 employeeswhich made up 13.6 percent of its workforce of about 110,000 at the start of the year. This follows the 5 percent layoff the company implemented last year.
Semiconductor industry veteran Lip-Bu Tan steps down from Intel board
This brings us to the heart of the matter. Lip-Bu Tan, a high-ranking member of Intel’s board, now resignedaccording to a Reuters report.
Officially, Tan cited his “various commitments” as the impetus behind his departure, saying he remained “supportive” of Intel’s turnaround strategy. Privately, however, Tan reportedly voiced a litany of grievances.
To Tan, Intel looks like a bloated mess, with layers of bureaucracy that induce inertia, including an army of middle managers who stifle innovation in the company’s desktop and server divisions.
To put Intel’s growth into context, some of the teams are currently operating with five times the staffing of the company’s competitors’ teams doing comparable work.
Some former Intel executives, as quoted by Reuters, see their work culture as complacent and uncompetitive, a material departure from the company’s co-founder Andy Grove’s “only the paranoid survive” maxim.
In fact, with Intel employing more people than NVIDIA or TSMC, one former executive believes Intel should have doubled down on its recent layoffs and implemented this reduction years ago.
As for a turnaround, Intel is currently focusing on its Foundry unit to drive margin growth. The company expects continued expansion of the unit to result in cost savings of “more than $8 billion to $10 billion by 2025,” which should enable a non-GAAP gross margin of about 60 percent and non-GAAP operating margins of about 40 percent by 2030.
However, according to sources close to Tan, Intel refused to follow his recommendations on measures to make the contract manufacturing business more customer-centric and remove unnecessary bureaucracy, which left him frustrated.
Intel made its most serious attempt yet to establish a high-end contract manufacturing business last year when it tried to buy Tower Semiconductors for $5.4 billion. That deal, however, was thwarted by China. Without Tower, Intel lacks the expertise to serve third-party customers, as it has historically only manufactured chips for its own use.
While Intel expects its manufacturing business to become profitable by 2027, it has yet to disclose a single major customer.