Intel held an important board meeting last week, and yesterday they released the highlights of that meeting in the form of a letter from CEO Pat Gelsinger. This letter is dense, and so there is a lot to read between the lines. We were tempted to write this piece as a plain-English interpretation of the letter, but our impression is that things at Intel are a little tense right now, so maybe not the best time for humor. That being said, this paragraph speaks volumes:
Let me start by saying we had a highly productive and supportive Board meeting. We have a strong Board comprised of independent directors whose job it is to challenge and push us to perform at our best. And we had deep discussions about our strategy, our portfolio and the immediate progress we are making against the plan we announced on August 1.
The letter is addressed to the “Team”, but it clearly has a broader audience. Not least the activists circling in the dark out there.
It touches on eight subjects:
- The assignment from the Board: launch 18A and build Foundry; cut $10 billion in costs; and refocus on x86. This looks a lot like the three problems we keep saying Intel has to solve.
- Intel Foundry’s first customer announcement is AWS. Intel will produce an AI fabric chip for AWS, as well as create a custom Xeon SKU. Good news in that this is a real customer, with a lot of potential volume. On the other hand, AWS was already announced as a customer and there was so much confusion around their status that we take this one with a dose of salt.
- A further grant from the CHIPS Act to build a Secure Enclave. Another good customer announcement.
- A new corporate entity for Intel Foundry. This is almost pure activist bait. We are creating an entity for Intel Foundry that is much easier to split off.
- They also outlined changes to their manufacturing roll-out plans. This is euphemistically called “more efficient Foundry buildout”, but it is mostly a delay to projects in Poland, Germany and Malaysia. No changes to US build-out plans, which the US government will appreciate, but the Europeans will not.
- A re-organization of their products and business units. This contains a bunch of organizational changes, and is intended for customers and channel partners. Edge and Auto move under the client group, which should have been done years ago. Continued investment in AI PCs, especially for the enterprise – this category is the most likely to save the company. Assurances that they will continue to work on photonics and telco.
- Some financial engineering. They continue to reduce the workforce as they announced last month, but they will also exit 2/3rds of their real estate, which sounds like more deals with Brookfield. And as rumored, sale of at least some stake in Altera. The most noteworthy part of this section is their use of the word ‘urgency’, which is accurate and good to see they understand that.
- They close with lots and lots of disclaimers. This section is the biggest tell in the whole letter. Almost a third of the letter is given over to “Forward-Looking Statements” disclaimers, the kind which litter anything a company thinks the SEC might some day review. We scanned the past few years and found several letters from Gelsinger to his “team” and none of them had these disclaimers. This is like a reverse canary in the coal mine, when the disclaimers come to life to warn of impending danger. As we have said, Intel is in play, and all communications from management and the board could be interpreted as part of that process. The company needs to be able to demonstrate to shareholders that they are taking action as part of a plan. Others will contest that plan, possibly in court. So Intel needs to make sure it covers its legal bases.
One final note. We understand that Intel has to present a clear plan here, but we continue to find their urge to lump all good news into one press release a bad approach. They need to string these things out, ideally with weekly items of good news. Nonetheless, it is clear to us from this letter that the company and the Board are feeling the stress. They recognize they are in a difficult position and are starting to get more forceful in their response.
Image by Google Gemini
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