Intel considers foundry business split in turnaround: BBG

Intel (INTC) is reported to be exploring strategic options with Morgan Stanley (MS) and Goldman Sachs (GS), according to Bloomberg, a move that could split apart the semiconductor manufacturer's foundry segment. Intel shares are rising in Friday's pre-market trading, while it is down by 40% over the last year and has fallen by nearly 60% year-to-date in 2024.

The Morning Brief's Brian Sozzi and Brad Smith discuss what this could mean for Intel as it attempts to better compete with chip giant Nvidia (NVDA), looking back on Intel's August 1 earnings report where it citied plans to layoff 15,000 workers.

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This post was written by Luke Carberry Mogan.

Video Transcript

Let's switch gears and talk Intel.

Intel is reportedly weighing strategic options to address its struggling business.

Bloomberg reports Intel is working with Morgan Stanley and Goldman Sachs and considering splitting up its product design and manufacturing businesses, plus scrapping factory projects.

Shares are off more than 40% over the past year.

The company reported second quarter results earlier this month that missed on sales gross pot, ft margin and earnings and then announced the suspension of its dividend.

And, oh, yeah, if that wasn't enough, they announced a 15% head count reduction that amounts to about 15,000 people here.

It sent the shares to their worst day.

And, uh, or at least the share price action saw its worst day in about 50 years after that report.

Uh, Brad, this is a tough one.

I we should note, uh, I did reach out to Intel for comment on this one.

Did not return my request, uh, for comment, but you could put a lot of pieces together here.

Now this is really after a couple of weeks, Pat Gelsinger CEO of Intel came out here announced 15,000 job cuts.

This is a company that had been cutting jobs already.

So I think that really shocked a lot of, uh, investors.

Now.

I asked Pat what is going wrong with Intel because there were some signs of a turnaround a couple quarters ago that does not appear to be the case anymore.

Here's what Pat told us.

This is the biggest restructuring of Intel, I'd say.

Since the memory microprocessor decision four decades ago, you know, we laid out the new operating model and we're taking decisive steps to execute on the process and product work that we've done to now combine it with an operating model to make us effective for the long term.

So, Brad, this is, uh I would say, the most serious position intel has been in for decades dealing with major transition.

But when you hear them or this being floated a potential sale, uh, or some form of transaction for the foundry business, Pat is the one that is focused on building that business up.

Really, since he got in the house or back in the house here, O over intel.

So to see a potential about face, whatever that might look like is, uh, it's it would be tough to see.

But this is business, uh, under siege margins, sales.

You know, we've been talking all week about NVIDIA.

It is an NVIDIA dominant market.

Now, Intel is gonna have some new A. I chips out later this year, but still, uh, investors are obsessed with, uh, NVIDIA a MD.

And Intel is not in these discussions.

I wouldn't be surprised if it made it into the discussions or even on the stage of debates later on in the presidential and general election cycle that we are in right now, because oh, yeah.

A lot of people are probably gonna think about that.

Nearly $20 billion in US grants and loans that Intel was able to take on to really boost a lot of that foundry business coming online.

And so that's something that we could hear even more about from political candidates.

All the while the business trying to figure out all right, what is coming next.

And what are the cost coming measures they can.

They can continue to institute to offset, uh, some of the larger businesses challenges that they're seeing right now.