Intel pleases stock market, but Chinese lie in wait

Yesterday, Intel CEO Pat Gelsinger nearly uttered the word he had been unable to utter in his three years on the job: “spin off.” The CEO, who had devoted himself to Intel’s business unit, could not bear the idea, and he probably also recognized the regulatory and business difficulties that would entail. But investors and the board made the decision, and the process of separating the company’s chip development division from its manufacturing division began. “We plan to create Intel Foundry as an independent subsidiary within Intel,” Gelsinger wrote in a letter to Intel employees yesterday. The announcement, made after the close of trading in New York, sent Intel’s stock up about 8% in after-hours trading, after rising about 10% last week.

Gelsinger knows how difficult it will be. The goal is to secure a sponsor for the move, and several major projects will be put on hold. “We will pause our projects in Poland and Germany for about two years based on anticipated market demand,” Gelsinger wrote. “We plan to complete construction of our new advanced packaging plant in Malaysia, but we will work to align the startup with market conditions and maximize the utilization of our existing capabilities.”

But even if Gelsinger, who grew up at Intel and was previously the company’s chief technology officer, agrees to the split, it’s by no means certain that it will happen. That’s perhaps why Gelsinger described the plan as just a general, incomplete blueprint, without committing to any details. The model could be to bring in new minority investors, similar to Mobileye’s IPO, in which Intel retained an 88% stake.

But Gelsinger is well aware that any major restructuring would be subject to regulatory scrutiny. Intel’s management’s concern is that there is little room for flexibility. The chip industry has become a geopolitical issue in recent years, and a tool for the United States in its battle to maintain technological superiority over China. Intel’s proposed radical change would likely benefit chipmaking on American soil, which would draw criticism from China’s regulator, which would have to approve the move. The Chinese market accounts for 27% of Intel’s revenues, meaning that the company is torn not just by commercial interests but also by the Cold War between the two powers, as seen in the Chinese refusal to approve its acquisition of the Israeli company Tower Semiconductor.

Hope of Israeli employees

Intel’s 4,000 production workers in Kiryat Gat breathed a sigh of relief yesterday. Gelsinger described the painful cuts planned to the company’s manufacturing capacity, but he did not mention Israel, despite the fact that Intel has frozen the expansion of its new Fab 38 plant in Kiryat Gat.

The silence on Israel can be interpreted in two ways. One is that Intel is lifting the freeze. The other is that despite the freeze, the plant where the expansion was planned is almost complete. Either way, taking the manufacturing division public and bringing in new investors could be good news for employees, who may be holding onto stocks with better prospects than Intel’s, which is down 56% so far this year.

This article was published in Globes, Israeli Business News – en.globes.co.il – on September 17, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.