Investors don't seem to know what to do with Intel's (INTC -0.69%) recent CEO announcement.
The ailing chipmaker issued a press release before markets opened on Monday saying that CEO Pat Gelsinger, who had run the company for nearly four years, retired effective Dec. 1, giving up both his full-time position and his board seat. The company appointed CFO David Zinsner and CEO of Intel Products Michelle Johnston Holthaus as interim co-CEOs while it searches for a permanent replacement.
The nature of the announcement, which didn't include the customary advisory role for Gelsinger, indicated that he was pushed out, and other media reports confirmed this later that day. The move was surprising -- not necessarily because Gelsinger is leaving the company, as the stock performance has been woeful and the company has continued to fall behind competitors. What was surprising is that Intel didn't bother to find a replacement before showing Gelsinger the door.
The move leaves the company without a leader at a time when the business is in the midst of its biggest transition in 40 years, as Gelsinger said just a few months ago.
After Intel stock initially jumped on the news Monday morning, it gave up those gains in the afternoon session and fell 6.1% on Tuesday. Wall Street analysts weighed in on the move with many of them skeptical that the decision will help Intel, at least in the near term.
The move looks like a setback for Intel for now, but it also gives an advantage to two of the company's rivals, Taiwan Semiconductor Manufacturing (TSM -0.70%) and Arm Holdings (ARM -0.38%). Here's how.
Image source: Getty Images.
TSMC extends its manufacturing lead
TSMC is the world's largest contract chip manufacturer. It handles more than half of the chip production for fabless chip companies such as Nvidia, Apple, Broadcom, and Advanced Micro Devices, and roughly 90% of advanced chips.
Intel also operates its own foundry, but historically that has served to manufacture the company's chips. A key component of Gelsinger's strategy was restructuring the business to open the foundry up to outside customers, following TSMC's strategy.
However, that effort seemed to falter as Intel's foundry racked up billions in losses, and a new CEO could mean the company scales back those efforts or spins off its foundry business entirely. Whatever happens, Intel's foundry ambitions are likely not happening at the pace that Gelsinger imagined, and it recently pushed back its timeline to finish some of its new plants until after 2030. The upshot is that Gelsinger's removal seems to take away a threat to TSMC as the former Intel chief had aimed for the foundry business to be the world's second-largest, behind TSMC, by 2030.
Arm can push its CPU advantage
TSMC is Intel's biggest competitor in the foundry space. On the product side of its business, it faces a number of competitors, but Arm may be the most formidable in CPU (central processing unit) architecture.
Arm competes directly with Intel's x86 CPU architecture. While the two components offer different strengths and weaknesses, they compete with each other across the semiconductor industry, including in the data center where Arm is increasingly gaining market share on x86 processors, benefiting from its power efficiency as AI applications demand a lot of power.
Intel's products business doesn't seem to be as directly affected by Gelsinger's ouster as the foundry business, but the gap in leadership could impact the company's competitiveness, speed to market, and ability to recruit new employees.
Additionally, Intel's products business depends on the foundry for manufacturing, and a spin-off of the foundry could disrupt that relationship. Arm also makes its money from licensing its designs for new products, and the upheaval at Intel could lead prospective customers to lean toward Arm as the company looks more reliable by comparison.
Continued setbacks at Intel should help boost Arm's growth.
