Why Intel Stock May Fall After Its CEO's Removal

WASHINGTON, DC - MARCH 23: CEO of Intel Corporation Pat Gelsinger holds up a semiconductor as he ... [+] testifies during a hearing before Senate Committee on Commerce, Science, and Transportation at Russell Senate Office Building on Capitol Hill on March 23, 2022 in Washington, DC. The committee held a hearing on “Developing Next Generation Technology for Innovation.” (Photo by Alex Wong/Getty Images)

After a 52% plunge in its stock price so far in 2024, a 6% revenue drop paired with a whopping $16.6 billion loss in the latest quarter, Intel’s board ousted CEO Pat Gelsinger, according to CNBC.

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

But Gelsinger’s resignation will not fix what ails the once great semiconductor giant. The culprit for Intel’s woes comes from a different place — an organizational structure and compensation system that pits internal fiefdoms against each other, says an industry expert who requested anonymity to maintain his relationship with the company.

This expert says Intel cannot even think about how to compete with Nvidia until it replaces the board and general managers with ones who will agree on a radical revamp of that compensation system.

After nearly four years on the job, Gelsinger — who climbed Intel’s ranks to become chief technology officer during a 30 year career before taking over VMWare and in 2021 rejoining Intel as CEO — retired December 1 as CEO and left the board, according to the New York Times.

Intel has suffered a loss of market share and failed to get traction against Nvidia in the AI chip market, as I noted in my book Brain Rush. More recently Intel slashed 15,000 jobs and between 2021 and 2023, the company’s revenue fell more than 30%, the Times reported.

But Intel’s problems sprang from too much success. Since the 1980s, Intel was the leading chip company — selling 80% or more of the CPUs used for PCs — technology the company later adapted for larger data center computers.

Intel was too dependent on PCs long after Nvidia had created new growth markets for its GPUs aimed at the gaming, blockchain, and generative AI markets. And Intel lost ground to TSMC in manufacturing, noted the Times.

When he became Intel’s CEO, Gelsinger set out to compete with Samsung and TSMC in chip manufacturing by building chip fabs in Arizona, Ohio and elsewhere while winning government contracts for secure chips and receiving a $7.86 billion grant from the U.S. CHIPS and Science Act. This strategy reduced Intel’s free cash flow and increased the company’s debt, noted CNBC.

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

Intel’s board wants Intel to compete more effectively. “We are working to create a leaner, simpler, more agile Intel,” said Yeary — who was a key driver in Gelsinger’s ouster according to an anonymous source — wrote CNBC.

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

On December 2, Intel’s board named Chief Financial Officer David Zinsner and Michelle Johnston Holthaus, general manager of Intel’s client computing group, as interim co-CEOs, reported the Times.

“With MJ’s permanent elevation to CEO of Intel Products along with her interim co-CEO role of Intel, we are ensuring the product group will have the resources needed to deliver for our customers,” Yeary said according to a statement.

“Ultimately, returning to process leadership is central to product leadership, and we will remain focused on that mission while driving greater efficiency and improved profitability,” he added.

I think Intel picked two co-CEOs because the board did not have confidence that Holthaus would be able to handle the financial side. Normally they might have the CFO report to the interim CEO but in this case, they decided they should share the CEO job so the CFO would have equal power.

Simply put, I think this arrangement is the board's way of saying that Intel's financial position is too delicate not to have a product and financial person share the job. The pair should keep Intel from deteriorating further to help the board’s search committee to find a permanent successor to Gelsinger.

Intel expressed optimism about the co-CEO arrangement. “With Dave and MJ’s leadership, we will continue to act with urgency on our priorities: simplifying and strengthening our product portfolio and advancing our manufacturing and foundry capabilities while optimizing our operating expenses and capital,” noted Yeary’s statement.

Industry analysts do not see how a new CEO will fix what ails Intel. “There don’t seem to be any easy answers here, so whoever winds up filling the slot looks in for a tough ride,” Sanford C. Bernstein analyst Stacy Rasgon wrote in a December 2 note featured by the Times.

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

Gelsinger — who unlike the co-CEOs knows how semiconductors are made — was the best choice to turn around Intel. Nobody could fix Intel due to the interdepartmental rivalries that disconnect engineering from marketing and both of them from customers, the expert wrote me.

To fix Intel, the expert would replace all the board members and general managers, and redo executive compensation to encourage the departments to work together to develop better products for Intel’s customers, noted the expert.

Once Intel’s top team has signed up “to be one company and not ten rival companies, we could work on the roadmap and infrastructure,” the expert wrote.

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

This outcome seems unlikely and — absent an acquirer — so does a recovery in Intel’s stock.