(Bloomberg) – Intel Corp. is working with investment bankers to help it through the most difficult period in its 56-year history, according to people familiar with the matter.
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The company is discussing various scenarios, including splitting its product design and manufacturing businesses, as well as possible factory projects, said the people, who asked not to be identified because the deliberations are private.
Morgan Stanley and Goldman Sachs Group Inc., Intel’s banker, have advised on the possibility, which could also include M&A potential, the people said. The discussion only became more important after the Santa Clara, California-based company posted a dismal earnings report, which sent the stock down to its lowest level since 2013.
The various options are expected to be presented during the board meeting in September, the people said.
No major moves are imminent and discussions are still at an early stage, the people warned. A representative for Intel declined to comment, while Morgan Stanley and Goldman Sachs did not immediately respond to requests for comment.
A potential split or sale of Intel’s foundry division, which is aimed at manufacturing chips for external customers, will be the face of Chief Executive Officer Pat Gelsinger. Gelsinger sees the business as key to restoring Intel’s position among chipmakers and hopes it will compete with Taiwan Semiconductor Manufacturing Co., a pioneer in the foundry industry.
But it’s more likely that Intel will take less dramatic steps before reaching that point, such as putting some expansion plans on hold, the people said. The company has entered into a project financing deal with Brookfield Infrastructure Partners and Apollo Global Management.
Intel’s Gelsinger is running out of time to pull off the necessary pullback. They have tried to expand the chipmaker’s factory network at the same time that sales are shrinking – a money-losing proposition. The company posted a net loss of $1.61 billion last quarter, and analysts are predicting more red ink for next year.
Gelsinger, an Intel veteran who left the company for more than a decade, takes the helm in 2021 and promises to restore the company’s technological edge. Under the previous CEO, the chip pioneer has lost market share and its long-vaunted reputation for innovation.
But his comeback plan proved too ambitious, and the company had to back off. When it reported earnings earlier this month, Intel announced plans to cut about 15,000 jobs and reduce capital spending. The company is even suspending its long overdue dividend.
“It’s been a tough few weeks,” Gelsinger told investors at the Deutsche Bank Technology Conference on Friday. The company tried to lay out a “clear view” of its next steps during its earnings report, he said. “Obviously the market is not responding positively. We know that.”
Adding to the turmoil, director Lip-Bu Tan suddenly stepped down from the board last week. The semiconductor veteran, who was brought in two years ago to help with the comeback effort, expressed his schedule commitment. But the departure removed one of the few directors with industry knowledge and experience.
Intel shares have declined 60% this year, compared with a 20% gain for the Philadelphia Stock Exchange’s Semiconductor Index, the chip industry’s benchmark.
Gelsinger’s comeback plan hinges on recasting Intel into two groups: one that designs the chips and the other that manufactures them. The production arm will then be free to seek business from other companies.
But the biggest client of the Intel factory network is still Intel. Until the foundry business has more outside customers, it will be financially challenged. It reported an operating loss of $2.8 billion in its most recent quarter and is now on track for a worse year than forecast.
With a market value of $86 billion, Intel has come out of the top 10 largest chipmakers in the world ranking by that measure. It is the second-worst performer on the Philadelphia chip index this year and suffers compared to the stratospheric gains of Nvidia Corp., a company that is certain to double Intel’s earnings by 2024.
By 2021, Intel will be three times the size of Nvidia by revenue.
(Update with Intel stock performance in the 13th paragraph.)
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