Intel shares could fall. “If HE couldn’t fix it, can anyone?” Asks expert

After a 52% drop in share price so far in 2024, a 6% drop in revenue coupled with a whopping loss of $16.6 billion in the most recent quarter, Intel’s board fired CEO Pat Gelsinger, according to reports CNBC.

It’s no coincidence that Nvidia is having a much better year. The AI ​​chip designer’s stock is up 186% this year, its revenue is up 94%, and the company’s third-quarter net margin was a whopping 55%, according to my November Forbes Post.

But Gelsinger’s ouster won’t fix the once-great semiconductor giant’s problems. The culprit for Intel’s woes comes from another place – an organizational structure and compensation system that pits internal interests against each other, says an industry expert who requested anonymity to maintain his relationship with the company.

This expert says Intel can’t even think about how it can compete with Nvidia until it replaces the board and executives with those who agree to a radical overhaul of this compensation system.

Why was Pat Gelsinger ousted?

After nearly four years on the job, Gelsinger, who rose to chief technology officer over his 30-year career at Intel before taking over VMWare and returning to Intel as CEO in 2021, retired as CEO on Dec. 1 and resigned from the company Board of Directors New York Times.

As I noted in my book, Intel suffered market share losses and was unable to compete with Nvidia in the AI ​​chip market Brain rush. Recently, Intel cut 15,000 jobs and between 2021 and 2023 the company’s revenue fell by more than 30% Just reported.

But Intel’s problems stemmed from too much success. Since the 1980s, Intel has been the leading chipmaker – selling 80% or more of the CPUs used in personal computers – a technology the company later adapted for larger data center computers.

Intel was too dependent on PCs long after Nvidia created new growth markets for its GPUs, targeting the gaming, blockchain and generative AI markets. And Intel was losing ground to TSMC in manufacturing, it noted Just.

When he became CEO of Intel, Gelsinger set out to compete with Samsung and TSMC in chip manufacturing by building chip factories in Arizona, Ohio and elsewhere, while winning government contracts for secure chips and a $7.86 billion grant -dollars from the US CHIPS and Science Act. That strategy reduced Intel’s free cash flow and increased the company’s debt, it said CNBC.

Intel’s board was not happy. “We still have work to do at the company and are committed to restoring investor confidence,” the company’s interim chief executive, Frank Yeary, said in a statement.

The Intel board wants Intel to compete more effectively. “We are working to create a leaner, simpler and more agile Intel,” wrote Yeary, who, according to an anonymous source, was one of the main reasons for Gelsinger’s downfall CNBC.

“It has been a challenging year for all of us as we have made difficult but necessary decisions to position Intel for current market dynamics,” Gelsinger added in a statement.

What will Intel’s board do next?

On Dec. 2, Intel’s board named CFO David Zinsner and Michelle Johnston Holthaus, general manager of Intel’s client computing group, as interim co-CEOs, the reported Just.

I think Intel chose two co-CEOs because the board wasn’t confident that Holthaus would be able to handle the financial side. Normally the CFO would report to the interim CEO, but in this case they decided that they should share the CEO job so that the CFO has equal power.

Simply put, I think what the board is trying to convey with this agreement is that Intel’s financial situation is too delicate for a product and financial expert to not share the job. The pair should prevent Intel from deteriorating further and help the board’s search committee find a permanent successor to Gelsinger.

Can a new CEO turn Intel around?

Industry analysts don’t see how a new CEO can fix Intel’s problems. “There appear to be no easy answers here, so whoever fills this position will have to take a difficult path,” Stacy Rasgon, an analyst at Sanford C. Bernstein, wrote in a Dec. 2 note published by the Just.

Intel will have difficulty recruiting a successor to Gelsinger. “Those in the industry who know Pat will say, ‘If HE couldn’t fix it, can anyone?’ “ an industry expert wrote to me in an email dated December 2nd.

Gelsinger – who, unlike the co-CEOs, knows how semiconductors are made – was the best choice to turn Intel around. No one could fix Intel because of the interdepartmental rivalries that separate engineering from marketing and both from customers, the expert wrote to me.

To fix Intel, the expert noted, he would replace all board members and executives and reorder executive compensation to encourage departments to work together to build better products for Intel’s customers.

Once Intel’s top team committed to “being one company and not ten competing companies, we could work on the roadmap and infrastructure,” the expert wrote.

“The question for each group would be: What is your contribution to the planning? In other words (to quote JFK): Don’t ask what Intel can do for you, ask. . .” he added.

This outcome seems unlikely and therefore – in the absence of a buyer – Intel shares will recover.