Yesterday, Intel Corporation CEO Pat Gelsinger all but said the word he has not been able to bring himself to utter in his three years in the job: spin-off. The CEO who has been committed to Intel’s unity was unable to bear the thought, and perhaps also saw the regulatory and business difficulties that the move would involve. But the investors and the board of directors decided, and the process of splitting the company’s chip development division from its production division is underway. "We plan to establish Intel Foundry as an independent subsidiary inside of Intel," Gelsinger wrote in a message to Intel employees yesterday. The announcement, which came after the close of trading in New York, sent Intel’s share price up nearly 8% in after-hours trading, after a rise of nearly 10% last week.
Gelsinger recognizes the difficulty. The aim is to recruit a sponsor for the move, and several major projects will be suspended. "We will pause our projects in Poland and Germany by approximately two years based on anticipated market demand… We plan to complete the construction of our new advanced packaging factory in Malaysia but will align the startup with market conditions and increased utilization of our existing capacity," Gelsinger wrote.
But even after Gelsinger, who grew up in Intel and was formerly the company’s CTO, has agreed to the spin-off, it is not at all certain that it will happen. This may the reason why Gelsinger described the plan in general and incomplete outline only, without committing himself to any details. The model could be one of bringing in new investors as a minority, along the lines of the flotation of Mobileye, in which Intel has retained 88% of the shares.
Gelsinger understands very well, however, that any substantial restructuring will have to undergo regulatory scrutiny. The fear on the part of Intel’s management is of the narrow range of flexibility in this regard. Chip manufacture has become a geopolitical issue in recent years, and a tool that the US uses in its battle to maintain technological supremacy over China. A dramatic change such as Intel proposes is likely to benefit chip manufacture on US soil, which will arouse criticism from the Chinese regulator, who will have to approve the move. The Chinese market represents 27% of Intel’s revenue, which means that the company is torn not only between business interests, but also by the cold war between the two powers, something that it experienced in the refusal by the Chinese to approve its acquisition of Israel’s Tower Semiconductor.
The Israeli employees’ hope
Intel’s 4,000 production workers in Kiryat Gat breathed a sigh of relief yesterday. Gelsinger described the painful cutbacks planned in the development of the company’s manufacturing capacity, but didn’t mention Israel, despite the fact that Intel has frozen the expansion of the new Fab 38 in Kiryat Gat.
The silence about Israel could be interpreted in two ways. The first is that Intel will lift the freeze. The second is that, despite the freeze, the fab in which the expansion was due to have taken place is almost complete. Either way, a flotation of the production division on the stock exchange and the introduction of new investors could be good news for the employees, who will perhaps hold shares with better prospects than those of Intel, which have fallen by 56% so far this year.
Published by Globes, Israel business news - en.globes.co.il - on September 17, 2024.
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