(Bloomberg) – Intel Corp.’s shares jumped to 15% after nominated Lip-Bu Tan as its next CEO, commissioning former board members and semiconductor veterans to one of the toughest jobs in the chip industry.
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Tan, 65, will take on the role on March 18th, the company said in a statement Wednesday. He will also be rejoining the board of directors after resigning in August 2024.
Tan, a former head of Cadence Design Systems Inc., is tasked with resilience to the fate of a pioneering chipmaker that will become a lagging industry. After dominating the semiconductor sector for decades, Intel is struggling with losses in market share, manufacturing setbacks and sharp declines in revenue. It also has been liable to pay around 15,000 jobs recently to cut.
The announcement surprised optimism from investors who sent stocks to up to $23.70 in New York on Thursday, marking the biggest day growth in nearly a month. Analysts at Bank of America Corp. upgraded their stock to “neutral” citing Tan’s “Solid Tract Record.” By the end of Wednesday, the company’s future became increasingly blurred, causing stocks to fall by more than 50% over the past 12 months.
In a note to Intel employees, Tan said he is confident he can turn the business around.
“I’m not saying that it’s easy. It’s not,” he said. “But I’m part of it because I believe that in every fiber of my existence we have what we need to win. Intel plays an important role in the technological ecosystem in the US and around the world.”
Tan’s predecessor, Pat Gelsinger, was pushed out by the board as it was perceived as not rejuvenating Intel’s lineup. One of the most obvious challenges is creating an artificial intelligence accelerator chip that rivals Nvidia Corp’s products. The company has skyrocketed its revenue and valuation over the past two years, once in Intel’s shadow, due to the AI computing boom.
“This is good for Intel,” said Stacey Lasgon, analyst at Bernstein. “If I had to choose someone, Lipbu would have been at the top of that list.”
Gelsinger also aimed to turn Intel into Chip Foundry, a contract manufacturer that manufactures products for external clients, but the effort is still in its early stages.
Tan signaled him to go that path. “We will work hard to restore Intel’s position as a world-class product company, establish itself as a world-class foundry and please its customers more than ever,” he said in a note posted on the company’s website. “That’s what this moment demands of us when we re-create Intel for the future.”
Intel is one of the world’s largest ship manufacturers by revenue, with annual revenue of over $50 billion. Its processors are more than 70% of the world’s personal computers and server machines. The company’s factories still represent a large part of its global capabilities for advanced manufacturing.
However, slip-ups in product development allowed rivals to gain an advantage. In addition to NVIDIA, Advanced Micro Devices Inc. has gained market share in PCs and servers, making it better than Intel than intruding on AI chips. In the shadow of these challenges, Intel is not even among the top ten chip industry companies around the world due to market value.
More details: Big Take: How Intel Lost That Edge (Podcast)
A Malaysian-born executive, Tan grew up in Singapore where he attended Nanyang University and studied physics. He later went to Massachusetts Institute of Technology to earn a Masters degree in Nuclear Engineering. He gave up his research for a doctorate in the field and left the University of San Francisco, where he earned his MBA.
After working in venture investment, he joined the Cadence Committee in 2004. He became co-CEO in 2009 after Michael Pfister left in 2008 and took on the role in 2009.
Cadence, along with Rival Synopsys Inc., dominates the market for computer-aided design used to create semiconductors. Their software and services are becoming more and more important due to the increasing complexity of devices. Engineers use the product to create a blueprint for the placement of tens of billions of transistors and connection wires. This is the architecture that underlies the small components.
Intel’s operations were once the most prestigious position in the industry. In its heyday, Intel’s profitability was extraordinarily high for manufacturers. That total margin – the percentage of sales remaining after deducting production costs was 60% north. The benchmark is currently struggling at about half that level.
When Gelsinger took the helm in 2021, he was considered a potential savior for the company. But Wall Street got worse with his turnaround plan after a series of unfortunate quarter results, including an August 2024 report that analysts described as the worst in its history.
In 2024, Intel was the lowest performer on the Philadelphia Stock Exchange’s semiconductor index, down 60%. As the company’s ratings go back to the level of the 1990s, the previously unthinkable idea of Intel Takeover has become plausible.
Intel’s new leaders will need to navigate the approach from suitors and decide whether to stick to Gelsinger’s attitude that breaking up is not necessary. Some people on Wall Street have proposed splitting the company’s chip design and manufacturing units.
Bloomberg News reports that Qualcomm Inc., Broadcom Inc., Broadcom Inc. and Arm Holdings Plc are investigating the idea of getting all or part of Intel. If a formal approach is taken, Intel’s boards will be pressured to consider scenarios Gelsinger rejected.
Separately, the Trump administration approached rival Taiwan Semiconductor Manufacturing Co. and asked them to consider taking stock of a spin-off of Intel’s factory. Under that proposal, reported last month by Bloomberg News, TSMC will run the plant and reconfigure it to use its technology. Intel plants now focus primarily on their own designs.
The plan also included attempting to invest in Intel spinoffs in TSMC’s biggest clients (a list that includes Qualcomm, AMD and Apple Inc.). But that report was followed a week later by TSMC’s announcement at the White House that it would increase investment in its own Arizona complex. It suggests that you don’t want to participate in external projects.
Based in Santa Clara, California, Intel is the largest recipient of grants from the US government under the Chip and Science Act, and the Biden administration is pushing to reinvigorate domestic semiconductor production.
The Chips Act totals nearly $8 billion, subject to completion of milestones, including buildings and equipment at new factories across the United States. Intel has already delayed some of its construction plans, including the Ohio complex. President Donald Trump also opposed the program.
Inter Chairman Frank Inai said in another statement that Tan could use his experience reinventing Cadence. Tan “fostered cultural change centered around customer-centric innovation,” he said.
“In his time as CEO, Cadence more than doubled revenue, expanded operating margins, and provided more than 3,200% stock price rise,” Yeary said. “He also knows Inter as a partner when he ran Cadence and recently worked on our board.”
If Tann can’t orchestrate a similar turnaround at Inter, Bernstein’s Lasgon said it was “probably in vain.”
– Support from Subrat Patnaik.
(Update by moving shares that start from the first paragraph.)
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