Intel Seeks to Restructure and Sell Assets to Revive Its Fortune: Plans to Divest Altera and Cut Capital Spending

Intel Seeks to Restructure and Sell Assets to Revive Its Fortune: Plans to Divest Altera and Cut Capital SpendingIntel CEO Pat Gelsinger and company executives are expected to present a revitalization plan to the board later this month, according to sources, which aims to shed non-core businesses, adjust capital expenditures, and claw back its spot as a chipmaking leader. The plan will include selling off certain businesses, such as its programmable chip division Altera, to reduce overall costs

Intel Seeks to Restructure and Sell Assets to Revive Its Fortune: Plans to Divest Altera and Cut Capital Spending

Intel CEO Pat Gelsinger and company executives are expected to present a revitalization plan to the board later this month, according to sources, which aims to shed non-core businesses, adjust capital expenditures, and claw back its spot as a chipmaking leader.

The plan will include selling off certain businesses, such as its programmable chip division Altera, to reduce overall costs. Intel has been struggling to fund these businesses as its profits have plummeted.

Sources say Gelsinger and other Intel executives will present the plan at a board meeting in mid-September. This marks the first time details of Gelsinger's plan have been reported. Intel declined to comment.

The plan does not include splitting Intel's operations or selling its foundry business to a buyer like TSMC, according to sources. Proposals, including the company's chip manufacturing plans, are not final and could change before the meeting.

Intel has already separated its foundry business from its chip design business and has been reporting the financials of this part of the business separately since the first quarter of this year. The company has implemented a firewall between its chip design and manufacturing businesses to ensure that potential customers of its design division do not have access to Intel's foundry customers' confidential technologies.

Intel is currently experiencing one of its toughest periods in history and is attempting to catch up to companies like Nvidia in the AI era. Nvidia is a leader in AI chips and boasts a market cap of $3 trillion. In comparison, Intel's market cap has fallen below $100 billion after the company released its disappointing second-quarter earnings report in August.

The plan Gelsinger et al. will present could include further reductions in the company's capital spending on factory expansions. Sources say that this could include pausing or outright canceling the $32 billion project to build a plant in Germany. The project has reportedly been delayed. In August, Intel announced plans to reduce capital expenditures to $21.5 billion by 2025, a reduction of 17% from this year. The company also issued a third-quarter earnings outlook that fell short of market expectations.

In addition to the plan that the CEO and executives will submit, Intel has engaged Morgan Stanley and Goldman Sachs to advise the board on which businesses could be sold and which need to be retained, according to sources familiar with Intel's consultations. The two sources say Intel has not yet sought bids for these business units, but could take action if the board approves the plan.

The proposed divestiture of Altera is scheduled for discussion at the mid-September board meeting, which is crucial for Intel, once a chip-making behemoth.

In August, Intel reported dismal second-quarter earnings, which included halting dividend payments and laying off 15% of its workforce to save $10 billion in costs. Reports surfaced several weeks later that chip industry veteran Leslie Culbertson had resigned from the board due to long-standing disagreements about the company's future direction, leaving a void in semiconductor expertise on Intel's board.

Last Thursday, Gelsinger tried to reassure investors about the company's weak financials at a conference hosted by Deutsche Bank. "It's been a very difficult few weeks," Gelsinger said. "We've been working hard to address these issues." He also mentioned that the company is "very attentive" to investors' feedback and is focused on executing its Phase 2 revitalization plan.

Some aspects of these plans will not be finalized until the mid-September meeting, where the company's board will make critical decisions about which businesses to retain and which to divest.

One division that Intel may consider selling is its programmable chip business, Altera. Intel acquired the business in 2015 for $16.7 billion and has taken steps to spin it off into a separate but wholly owned subsidiary. The company had said it planned to sell a portion of Altera through an IPO in the future, but no date was set. However, Intel could also sell Altera entirely to another chipmaker interested in expanding its product portfolio, according to a source familiar with Altera's consultations. The company has begun exploring this possibility privately.

One potential buyer is infrastructure chipmaker Marvell, according to one of the sources.

Previous reports suggested that Intel may split its chip design and manufacturing operations, and the board meeting will address that possibility.

This board meeting is crucial for Intel as it will determine the direction of the company's future. Intel needs to take decisive actions to revive its position in the chip-making industry and address the fierce competition from rivals such as Nvidia.