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The mayhem at Intel's corporate headquarters seems endless, with board members leaving, mass layoffs, a stringent cash conservation strategy that has now seen dividends slashed and winning investments - such as those in ARM Holdings - dumped unceremoniously, and a stock price that is in a tailspin. What's more, even Intel now expects no improvements until at least 2027.
For the recently concluded quarter, Intel failed to meet the consensus expectations of analysts for its top-line and bottom-line metrics in Q2 2024, and compounded this failure by posting underwhelming results for the key DCAI segment, which indicates that it is not managing to effectively leverage the secular AI-focused tailwind.
To further aggravate matters, Intel missed its own guidance for the just-concluded quarter's gross margin by a wide shot and guided to further sequential weakness ahead.
To conserve precious liquidity, Intel recently slashed its dividend and announced another mass layoff, to the tune of 15,000 employees, which constituted 13.6 percent of its workforce of around 110,000 at the start of the year. This follows the 5 percent layoff that the company implemented just last year.
Semiconductor Industry Veteran Lip-Bu Tan Quits Intel's Board
This brings us to the crux of the matter. Lip-Bu Tan, a high-profile board member of Intel, has now resigned, as per the reporting by Reuters.
Officially, Tan cited his "various commitments" as the stimulus behind his exit, asserting that he remained "supportive" of Intel's turnaround strategy. Privately though, Tan his purportedly voiced a litany of grievances.
To Tan, Intel appears a bloated mess with inertia-inducing layers of bureaucracy, including an army of middle managers who thwart innovation at the company's desktop and server divisions.
To put Intel's bloat into context, some of the teams are currently operating with a headcount that is five times the size of the given teams at the company's rivals doing comparable work.
Some of Intel's former executives, as quoted by Reuters, see its work culture as complacent and uncompetitive, which is a material deviation from the "only-the-paranoid-survive" maxim of the company's co-founder, Andy Grove.
In fact, with Intel employing more people than NVIDIA or TSMC, a former executive believes Intel should have doubled its recent layoffs, and implemented that culling years ago.
As for a turnaround, Intel is currently focusing on its Foundry unit to drive margin growth. The company expects the unit's ongoing expansion to result in cost savings of "more than $8 billion to $10 billion exiting 2025," which should allow for a non-GAAP gross margin of around 60 percent and non-GAAP operating margins of around 40 percent by 2030.
Yet, according to sources close to Tan, Intel refused to follow his recommendations on steps to make the contract manufacturing business more customer-centric and to remove unnecessary bureaucracy, leading to his frustration.
Intel made its most serious attempt yet to establish a state-of-the-art contract manufacturing business last year by attempting to buy Tower Semiconductors for $5.4 billion. That deal, however, was scuttled by China. Without Tower, Intel lacks the expertise to cater to third-party customers as it has historically only made chips for its own use.
While Intel expects its manufacturing business to turn profitable in 2027, it has yet to disclose a single major customer.
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