Tan has an engineering background and is credited with turning around Cadence Design Systems Inc, a maker of computer-aided chip design software. — Intel
Incoming Intel Corp chief executive officer Lip-Bu Tan is signaling that he’ll stick with his predecessor’s plan to make chips for other companies, even as he vows to learn from past mistakes.
Tan, who was named to the CEO job on Wednesday, sent a letter to employees before meeting with staff in the afternoon, offering a rough sketch of his plans for the embattled chipmaker. Part of the message: He will keep working to make Intel a top foundry – a business that produces chips for outside clients. That endeavour has been costly for Intel so far, and contributed to the ouster of prior CEO Pat Gelsinger.
"We will work hard to restore Intel’s position as a world-class products company, establish ourselves as a world-class foundry and delight our customers like never before,” he said in the letter, which was published on Intel’s website. "That’s what this moment demands of us as we remake Intel for the future.”
Investors applauded the hiring of Tan, 65, despite the lack of a clear signal that he’ll take Intel in a new direction. The shares gained more than 10% in late trading Wednesday after the announcement.
The stock had rallied last month on anticipation that the company would be broken up - with Intel potentially separating the foundry business from its chip design group.
Plowing ahead with the foundry strategy means taking on Taiwan Semiconductor Manufacturing Co in a market that the Asian company pioneered. TSMC is dominant in the field, churning out chips for clients such as Nvidia Corp, Apple Inc and Advanced Micro Devices Inc.
Intel spent most of its history just producing chips for itself, rather than outside customers. Its decades of dominance over the industry were built on the tight coupling of cutting-edge manufacturing and its own products, designed in-house. But the power of that combination has waned, and TSMC is able to produce more advanced components.
It’s still an open question whether Tan might split up the foundry and chip-design businesses, Srini Pajjuri, an analyst at Raymond James, said in a note to clients. Barring that move, Intel will have to demonstrate that it can produce better products.
Members of the Trump administration also have floated the idea of TSMC backing a spinoff of Intel’s factory business. But TSMC’s recent plan to invest US$100bil (RM443.13bil) in its own factories suggests that it’s not aiming to pursue that idea.
"In case of no split, the stock will likely remain a show-me story until investors get a better sense of company’s manufacturing road map,” Pajjuri said.
Gelsinger, who opposed an Intel breakup, was pushed out by the board in February after he struggled to execute his turnaround plan. He had set out to dramatically expand Intel’s factory network with new plants – including one facility in Ohio that was expected to be the world’s largest.
He also secured nearly US$8bil (RM35bil) in federal grants from the US Chips and Science Act. But the money was contingent on reaching certain manufacturing targets, and Intel has already begun to delay its plans. The first Ohio plant, for instance, now won’t be ready until the 2030s. President Donald Trump also has derided the Chips Act, sowing more doubts.
Intel is likely to continue taking it slow with the manufacturing build-out, even if it sticks with the foundry plan. Chief financial officer Dave Zinsner, who served as interim co-CEO after Gelsinger’s departure, said Intel won’t add capacity until demand warrants it.
But even maintaining Intel’s current factories – spanning Oregon, Arizona, New Mexico, Ireland and Israel – is a massive expense. The company lost US$19.2bil (RM85bil) last year, and the red ink is projected to continue at least through the September quarter. Capital spending and research costs have climbed while Intel’s revenue has declined.
Without getting too specific, Tan said he would create a "new Intel.”
"We will learn from past mistakes, use setbacks to strengthen our resolve and choose action over distraction to reach our full potential,” he said.
Tan has an engineering background and is credited with turning around Cadence Design Systems Inc, a maker of computer-aided chip design software. That raises confidence that Intel can deliver more advanced technology, including its long-in-the-works 18A production technique, said Raymond James’ Pajjuri.
But even then, Intel is playing catch-up in the hottest segment of the industry: artificial intelligence chips for data centers. Nvidia remains dominant in that area.
"Intel lacks an AI narrative,” Pajjuri said. "As such, we remain on the sidelines as we await to hear from the new CEO on his plans for the company.” – Bloomberg
