When Pat Gelsinger took the helm of Intel (INTC -0.69%) in 2021, the hope was that he could be the mastermind who engineered the aging semiconductor titan's long-awaited turnaround.
Instead, he will now join the ranks of Intel CEOs who failed to reinvigorate the company and underperformed the stock market along the way.
Intel announced Gelsinger's retirement Monday morning, effective Dec. 1, and he was apparently shown out the back door. He won't remain with the company in any capacity, having relinquished both the CEO chair and his board seat. Intel said CFO David Zinsner and CEO of Intel Products Michelle (MJ) Johnston Holthaus would take over as interim co-CEOs while the company searches for Gelsinger's long-term replacement.
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Why Gelsinger was pushed out
Gelsinger spent most of his career at Intel, rising to chief technology officer before leaving to run VMWare in 2012 and then returning as CEO in 2021. He was generally well respected by Wall Street and industry insiders, but on his watch, the stock underperformed the market as Intel lost ground in the AI race to Nvidia.
Investors also seemed skeptical about the cornerstone of Gelsinger's strategy -- expanding Intel's in-house chip manufacturing infrastructure and becoming a third-party foundry for outside customers. Investors balked when they saw the billions in quarterly losses from the restructured foundry business, and the stock fell by 62% under Gelsinger's tenure, which included a massive restructuring and the elimination of its dividend in August.
Intel stock initially popped on the news that Gelsinger was stepping down, but had fallen into negative territory by Monday afternoon, showing investors were struggling to predict how his exit would impact the company.
What it means for Intel
Despite the stock's poor performance under his watch, Gelsinger's exit was a surprise, as Intel is in the middle of several years-long initiatives, including building out new manufacturing plants and the restructuring it announced in August that will include laying off approximately 15% of its workforce.
The news also leaves Intel without clear direction or leadership, and the board's choice to name two interim co-CEOs further indicates the company will be strategically stagnant until its next leader determines its new direction.
Frank Yeary, Intel's independent board chair, said in the retirement announcement, "While we have made significant progress in regaining manufacturing competitiveness and building the capabilities to be a world-class foundry, we know that we have much more work to do at the company and are committed to restoring investor confidence."
Yeary also implied that the product group, or chip design, would remain at the center of its strategy. That could be a sign that Intel will change its foundry strategy.
The company could spin off the foundry business. Gelsinger had announced a plan in September to make it an independent subsidiary, though some investors had hoped for a full spin-off. Selling it entirely is also a possibility, though TSMC, the world's leading contract chip manufacturer, said it had no interest in buying it. Gelsinger's departure could also help clear the way for Intel to merge with another company like Qualcomm, which had expressed interest in acquiring it.
Finding a replacement for Gelsinger may not be easy given the company's challenges and the board's apparent desire for a new strategic approach. Adding to the company's woes, the funding it's being awarded under the CHIPS Act was just reduced from $8.5 billion to $7.86 billion in light of Intel having also won a $3 billion contract to make chips for the U.S. military. The CHIPS Act funding still appears to be at risk as the timeline for Intel's plant construction could be pushed out even further now that it's without a permanent CEO.
Is Intel a buy now?
The market's initial reaction to the news of Gelsinger's abrupt exit seems wrong. Forcing a CEO out can help a company when that leader has made poor decisions, but that doesn't tell the whole story with Intel. The company was at a competitive disadvantage against rivals like Nvidia and TSMC for years before Gelsinger took over.
Plus, for the board to announce his exit before having a replacement on deck is not a maneuver that promotes investor confidence, especially given the company's disarray. It looks unnecessarily hasty. Running the struggling chipmaker could be the worst job in tech right now, and it's hard to imagine who the right person might be to take it on. When he came in, Gelsinger seemed to have the right pedigree, and he had earned respect from employees.
A new leader could breathe new life into the company, but Intel still looks to be years away from a reasonable turnaround, with or without Gelsinger. Given that, the stock is best avoided.
