By Max A. Cherney
SAN FRANCISCO (Reuters) – The sudden resignation of a prominent Intel ( INTC ) board member comes amid differences with CEO Pat Gelsinger and other directors over what directors see as the U.S. company’s bloated workforce, risk-averse culture and its artificial intelligence strategy. lag behind. , according to three sources familiar with the matter.
Lip-Bu Tan, a semiconductor industry veteran, said he is leaving the board due to a personal decision to “prioritize various commitments” and that he remains “supportive of the company and important jobs,” in a regulatory filing on Thursday.
The former CEO of chip-software company Cadence Design joined Intel’s board two years ago as part of a plan to restore Intel’s place as a leading global chipmaker. The board expanded Tan’s responsibilities in October 2023, giving him the authority to oversee manufacturing operations.
Over time, Tan became frustrated by the company’s large workforce, its approach to contract manufacturing and Intel’s risk-averse and bureaucratic culture, according to sources, who were not authorized to speak publicly.
The circumstances surrounding Tan’s exit have not been reported before. The departure of the industry veteran, who is well-regarded by investors, through Intel’s strategy reflects the uncertainty of its turnaround efforts.
Tan left as the company endured one of the darkest periods in its five-decade history that has left it vulnerable to potential activist shareholder attacks, former executives said. Intel has hired investment bank Morgan Stanley to prepare the defense, according to sources familiar with the matter, confirming earlier reports.
Intel, headquartered in California, declined to comment. Tan’s venture capital firm, Walden Catalyst, did not respond to a request for comment.
out Tan leaves a vacuum of chip-industry technical and business acumen on the board, which is populated by leaders in academia and finance, and former senior executives from the medical, tech and aerospace industries, said investors and semiconductor industry insiders.
A former Intel executive told Reuters the company began preparing for the potential threat of activists last month. Reuters could not independently confirm if any shareholders were preparing an approach.
‘only the paranoid survive’
This month, Intel paused the dividend it has paid for decades when it reports results and plans to cut capital spending on factory construction. The next day, investors wiped more than $30 billion off the market value, or more than a quarter of its value.
Intel’s struggles come against a backdrop of aggressive investment and sales from rivals swept by a surge in interest in artificial intelligence. The AI ​​boom turned graphics chipmaker Nvidia into a $3 trillion market cap company. Intel passed on an opportunity in 2018 to take as much as a 30% stake in ChatGPT-maker OpenAI, Reuters previously reported.
Intel has acquired at least two AI startups, among more than four attempts since 2010 to build blockbuster AI chips, according to former executives. Although the Habana acquisition produced promising AI chips, senior leaders abandoned competing efforts in Israel, damaging Intel’s program, two sources said.
To cut costs, Intel announced layoffs in August of more than 15% of its workforce, the second round of cuts in two years. Intel has almost 125,300 employees globally according to its August financial results.
The layoff plan is one source of tension between Tan and the board, according to sources. Tan wanted certain cuts, including middle managers who do not contribute to Intel’s engineering efforts.
Gelsinger, who took over in 2021 as part of a turnaround plan, added at least 20,000 employees to Intel’s payroll by 2022.
For Tan and some former Intel executives, the workforce appears bloated. Teams on some projects are five times larger than others doing similar work at rivals such as Advanced Micro Devices, according to two sources. One former executive said Intel had to cut twice the number it announced in August last year.
Tan has told those who believe that Intel is being defeated by layers of middle-manager bureaucracy that are blocking progress in Intel’s server and desktop chip divisions and that cuts should be focused on these people.
Intel’s workforce, which is larger than Nvidia and Taiwan Semiconductor Manufacturing Co combined, has led to a culture of complacency and non-competitiveness, a far cry from the “just-paranoid-survive” ethos of Intel founder Andy Grove, a former Intel executive. said.
MANUFACTURING STRUGGLE
Intel’s turnaround plan hinges on building up its foundry business, which helps other companies make chips, similar to TSMC. But the company has yet to reveal its big customers and says the business won’t turn a profit until 2027.
Last year’s effort to enter into contract-manufacturing via a $5.4 billion purchase of Israel-based chipmaker Tower Semiconductor was scrapped after China blocked the deal. Intel is definitely getting an organization dedicated to making chips, something Intel has never done successfully.
Without Tower, Intel, historically its own chipmaker, lacks the expertise to work with external customers, which it has struggled to attract, according to four sources familiar with Intel’s manufacturing business.
Tan became frustrated that the board did not follow through on recommendations on how to make the manufacturing business more customer-focused and remove unnecessary bureaucracy, people close to Tan said.
Intel continues to build new factories in Ohio, Arizona and across Europe without naming new customers.
(Reporting by Max A. Cherney in San Francisco, additional reporting by Milana Vinn; editing by Kenneth Li and Rod Nickel)
