Intel has announced a significant restructuring of its operations, as it plans to spin off its struggling foundry business into an independent subsidiary. This decision comes shortly after CEO Pat Gelsinger revealed the company would be implementing a robust cost-reduction strategy, including laying off around 15% of its workforce, which translates to over 15,000 jobs. These changes aim to stabilize Intel’s finances after an alarming second-quarter loss of $1.6 billion.
In a communication to employees, Gelsinger emphasized that this separation will create substantial opportunities, particularly in securing external funding, which is crucial for revitalizing the business model. Although the leadership for the foundry division will remain unchanged, it is set to establish its own operating board featuring independent directors to oversee the branch’s operations effectively.
Intel is also exploring the possibility of transitioning the foundry business into a publicly traded entity—a move that could provide additional financial flexibility as it pours billions into modernizing its fabrication facilities. Over the last two years, the company has invested around $25 billion annually in this segment, but the expenses have yet to yield profitable returns.
The foundry business recorded a staggering $7 billion in operating losses last year, exceeding the previous year’s $5.2 billion deficit. Its revenue also experienced a significant setback, plummeting by 31% to $18.9 billion, down from $27.49 billion in 2022. Alarmingly, Gelsinger has warned investors to expect even larger operating losses in 2024, with the business unlikely to break even until 2027.
Further complicating matters, Intel’s promising next-generation manufacturing process, dubbed “18A,” reportedly encountered critical issues during evaluation, hindering its readiness for mass production. In light of these challenges, Gelsinger’s memo also indicated a strategic move to divest part of Intel’s stake in Altera, underscoring the company’s intent to streamline its operations amidst ongoing difficulties with the foundry branch.
By implementing these strategic changes, Intel aims to regain its competitive edge in the semiconductor market, which has been increasingly dominated by industry leaders like TSMC and Samsung. As the tech landscape continues to evolve, all eyes will be on Intel to see if these bold moves will pay off and restore stability to its operations. This separation represents a pivotal moment for the company, one filled with both risk and potential for future growth, especially as it aims to adapt to the shifting demands of the tech industry.