Following up on our post yesterday, we spent the day speaking to many people about the news and about Intel’s future. Much of the focus of inbound questions centered on the palace intrigue that led to CEO Pat Gelsinger’s departure, and the timing of the announcement – all the inside gossip. The most concerning aspect to come out of all this is that it really seems like the Board did not have a plan in place to deal with his departure. We have been commenting for months that the various pieces of Intel do not seem to be acting in a coordinated fashion, with different stakeholders acting on different sets of information. All of which lays bare the cold hard truth – Intel’s Board is failing.
At this point, they have to bear all responsibility going forward. They are responsible for the past ten years of mistakes too, but that is all sunk cost. The question now is what they are going to do next.
It is clear to us that they do not fully grasp the depth of the crisis Intel is under. We have long criticized Intel for the poor information flow, with people actively filtering out bad news from flowing to senior management and the Board. This is true of any company, but Intel’s blinders are notoriously strong, a self-directed reality distortion field.
We think this is evident in the company’s choice for co-Interim CEOs – an Intel Product person and the CFO. Yesterday we pointed out the implications of co-CEO Holthaus’s statement about the importance of Product (over Fabs), but having the CFO co-lead the company is equally concerning. To be clear, we have no criticism of Intel’s CFO David Zinsner, he seems to be doing a good job in a very difficult environment. But four years ago, Intel demonstrated to the world that CFOs should not run chip companies. Everyone but Intel seems to have learnt that lesson, and we say that as a CFO ourselves.
We have now heard several reports that the focus of the Board is cutting costs, earnings and the share price. If true, that is horribly short-sighted – band-aids for a punctured artery.
The fact that the Board allowed, or more accurately encouraged, Gelsinger to resign without a replacement ready on hand borders on a reckless breach of fiduciary duty. We have fielded a lot of questions about who the next CEO will be. Among the candidates we have heard suggested, almost all lack sufficient experience running fabs, and the few who could credibly right the operations side of the ship all seem very unlikely to be interested in the job.
The hard truth is that absent an acquisition or some form of government bailout Intel is effectively out of the business of running fabs. Unless they come up with a surprise candidate in the next 30 days, Intel should just cut bait and shut all the fabs. We know this is unlikely, and the next CEO will likely mount an exhausting charade. Better to come clean now and save the product side by stemming the fab losses cold turkey.
To be abundantly clear, we hate this idea. The world needs a second leading edge foundry. This would be a massive blow to the US’s electronics industry, and very painful for some incredibly talented people. There are still many paths for saving Intel’s fabs and keeping them competitive, but unfortunately our sense is that the company’s current Board is incapable of delivering on that.
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