Intel Corporation’s (NASDAQ: INTC ) foundry unit is a massive uphill climb. Now analysts, board members, and even investors are sounding the alarm on its performance. The cash-strapped sector has come under greater and greater fire for a possible spinoff. This urgency grew more acute after the surprise retirement of its architect, Pat Gelsinger, in December. Gelsinger, the former CEO of Intel, took with him a deep bench of leadership. It’s time for the company to stop glossing over its faults and face that reality.
The Trump administration has emerged as a key player in this scenario, indicating its intention to exert influence over Intel’s business decisions related to its foundry unit. Industry, lawmakers and the administration all agree on the need to promote domestic chip manufacturing. This focus comes in the wake of many key players retreating into the offshore fabs of the Taiwan Semiconductor Manufacturing Company.
Most recently, Intel won a merger clearance agreement that netted the company $5.7 billion in cash. This agreement has a long five-year warrant. It gives the U.S. government the option to take an additional 5% ownership stake in Intel should the company maintain less than 51% ownership of its foundry operation. The warrant’s exercise price is set at $20/share. David Zinsner, Intel’s CFO, expressed skepticism about the warrant’s future, stating, “I think from the government’s perspective, they were aligned with that; they didn’t want to see us take the business and spin it off or sell it to somebody.”
Even with this flush of cash, Intel’s foundry unit is still bleeding badly. For years, analysts and stakeholders have sounded the alarm over its fails-tastic performance and have called on the company to reexamine its direction. As a response, Intel recently inked an artificial intelligence chip deal with Amazon Web Services (AWS) while placing plans for expansion in Poland and Germany on hold.
Intel’s current troubles call to the fore the existential challenges it is grappling with in a fast changing semiconductor world. The administration’s involvement raises questions about Intel’s independence. How much latitude, if any, will Intel have in restructuring or eventually divesting its foundry operations.