Intel is weighing options, including breaking the foundry at stem losses

(Bloomberg) — Intel Corp. is working with investment bankers to help navigate 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 a split of its product design and manufacturing businesses, as well as which factory projects could be abandoned, said the people, who asked not to be identified because the deliberations are private.

Morgan Stanley and Goldman Sachs Group Inc., Intel’s longtime bankers, have advised on the possibilities, which could also include potential mergers and acquisitions, the people said. The talks have become more urgent since the Santa Clara, Calif.-based company delivered a dismal earnings report that sent the stock to its lowest level since 2013.

The various options are expected to be presented at a board meeting in September, the people said.

No major moves are imminent and talks are still in the early stages, 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 spin-off or sale of Intel’s foundry division, which aims to make chips for external customers, would be a sea change for Chief Executive Pat Gelsinger. Gelsinger saw the deal as key to restoring Intel’s position among chipmakers and hoped it would eventually compete with Taiwan Semiconductor Manufacturing Co., which pioneered the foundry industry.

But Intel is more likely to take a less dramatic step before reaching that point, such as abandoning some of its expansion plans, the people said. The company has already entered into project financing agreements with Brookfield Infrastructure Partners and Apollo Global Management.

Intel’s Gelsinger is running out of time to make a much-needed turnaround. He has tried to expand the chipmaker’s factory network at the same time as sales are falling — a money-losing proposition. The company posted a net loss of $1.61 billion last quarter, and analysts are predicting more red ink next year.

Gelsinger, an Intel veteran who left the company for more than a decade, took over in 2021 and promised to restore the company’s technological edge. Under previous CEOs, the chip pioneer lost market share and its much-vaunted reputation for innovation.

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But his comeback plan proved too ambitious, and the company had to downsize. When it reported earnings earlier this month, Intel announced plans to cut about 15,000 jobs and reduce capital spending. The company even suspended its much-cherished dividend.

“It’s been a tough couple of weeks,” Gelsinger told investors at the Deutsche Bank Technology Conference on Thursday. The company tried to present a “clear vision” of its next steps during its earnings report, he said. “Obviously the market has not responded positively. We understand that.”

Adding to the turmoil, director Lip-Bu Tan abruptly resigned from the board last week. The veteran semiconductor player, who was brought in two years ago to help with the comeback effort, cited scheduling commitments. But his departure removed one of the few directors with knowledge and experience in the field.

Intel shares have fallen 60 percent this year, compared with a 20 percent gain for the Philadelphia Stock Exchange Semiconductor Index, a benchmark of the chip industry.

Gelsinger’s comeback plan was based on reforming Intel into two groups: one that designs chips and one that manufactures them. The manufacturing arm would then be free to seek business from other companies.

But the biggest customer of Intel’s factory network is still Intel. Until the foundry business has more external 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-than-forecasted year.

With a market value of $86 billion, Intel dropped out of the top 10 largest chipmakers in the world, ranked by this measure. It’s 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 on track to double Intel’s revenue in 2024.

In 2021, Intel was three times larger than Nvidia by revenue.

(Updates with Intel’s stock performance in the 13th paragraph.)

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