Comment The chairman of Intel’s board of directors, Omar Ishrak, is stepping down just days before the chipmaker is due to report its Q4 earnings and after a series of high-profile cutbacks.
Ishrak, who took over as Intel’s board chair in 2020, has shepherded the chipmaker through a difficult couple of years, as it has been confronted growing competition and repeated delays to key technologies, including its 7nm process and Sapphire Rapids Xeons.
The former chairman was also responsible, in part, for former Intel CTO and VMware CEO Pat Gelsinger’s return to the company as its chief executive in early 2021. At the time, Intel was reportedly under pressure from activist investor Third Point LLC to get its foundry operations back on track or expand the use of third-party fabs.
“He was instrumental in bringing me back to the company as CEO and has fostered a high-impact working dynamic across the board and management team,” Gelsinger said of Ishrak in a statement.
Taking Ishrak’s place as chairman is Frank Yeary, who’s served on Intel’s board of directors for nearly 14 years. Yeary’s background is primarily in the financial sector, where he also serves as a managing member of Darwin Capital Advisors and was the cofounder at CamberView Partners. Yeary is also on the boards of several high-profile tech and financial companies including Mobileye and PayPal Holdings.
“While the company certainly has big tasks ahead of it, I’m confident we have the right strategy in place. It’s imperative that we execute well and simultaneously deliver value to our stockholders,” Yeary said in a statement.
While Yeary’s comments don’t suggest a drastic course correction for the x86 giant, it could be argued that the company already made one. After the company’s revenues slid 20 percent year over year at the end of Q3, Intel committed to cutting $10 billion a year in spending by 2025. And, over the past few weeks, we’ve seen Intel slash several planned projects — including two valued at nearly $1 billion — and begin laying off workers in California.
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While Ishrak is giving up his seat at the head of the board, he isn’t going far. The longtime executive and former Medtronics CEO will retain a position as an independent director and will continue to serve on several committees, according to Intel.
“It’s been a privilege to serve as chair of Intel’s board of directors and help lay the foundation for the company’s transformation,” Ishrak said in a company statement.
Ishrak’s decision to step down as chair comes just two days before Intel is slated to publish its fourth quarter earnings report for the 2022 fiscal year, and, based on analyst predictions, things aren’t looking good.
Analysts predict the company will post revenues in the range of $14.51 billion for Q4 2022. If that holds true, that’d represent a 5 percent revenue decline from Q3 and a massive 30 percent decline from the year prior.
To be fair, Intel is hardly the only chipmaker struggling right now. Nvidia and AMD are also facing financial headwinds in large part due to slowing PC demand.
However, for Intel, this hits especially hard as sales of consumer CPUs used in laptops and desktops have helped to offset slowing demand for the company’s other divisions. And, while Intel finally released its Sapphire Rapids Xeon Scalable processors to customers earlier this month, the timing of the launch means they’re unlikely to make much of a dent in the company’s bottom line until Q1 at the very earliest.
Things aren’t looking any rosier when it comes to Intel Foundry Services (IFS) and Integrated Design Manufacturing (IDM) 2.0 strategy either. After surging 28 percent in 2022, global foundry revenues are expected to fall 4 percent year over year in 2023, according to a recent TrendForce report.
And this puts Gelsinger — who has spent the past two years making grandiose and incredibly expensive promises in a bid to reinvent the company as an integrated semiconductor design and manufacturing powerhouse — in a rather awkward position.
Since taking over as CEO, Gelsinger has announced somewhere in the neighborhood of $90 billion in foundry projects and facility upgrades and has promised more than $100 billion in additional investments over the next decade. Making matters worse, many of these are highly dependent on local and federal government subsidies and tax incentives that have yet to materialize.
The fact is the market that IFS and Intel’s IDM 2.0 strategy was born into has changed considerably in the last 18 months. People just aren’t buying chips the way they used to, and many of the forces that made them so difficult to get have largely abated. As the lengthy backlogs of orders are finally met, supply and demand are expected to return to equilibrium for many markets sometime in the second half of 2023.
Gelsinger is well aware of this and has been in this industry long enough to know that demand will pick up again before long. While speaking with reporters during the World Economic Forum in Davos last week, he emphasized the need for continued investment in semiconductor manufacturing despite the near-term downturn in demand.
To his credit, Gelsinger is not wrong. To avoid another crippling semiconductor shortage when the economic situation improves, additional capacity still needs to be brought online. But selling shareholders on a high-volume, low-margin business, like contract manufacturing, at a time when the company’s financials are headed in the wrong direction won’t be easy.
And with Ishrak stepping down as chairman of the board, Gelsinger may find his runway for returning Intel to its former glory may be getting shorter. ®
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