It was a sign of the times.
On Nov. 1 S&P Global said that AI-chip heavyweight Nvidia (NVDA) would replace Intel (INTC) in the Dow Jones Industrial Average "to ensure a more representative exposure to the semiconductors sector."
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It's quite a comedown for the company, which had been a member of the Dow 30 for 25 years and had once billed itself as "the Sponsors of Tomorrow."
Intel was founded in 1968 by semiconductor pioneers Robert Noyce and Gordon Moore, who is credited with the observation known as Moore’s law. That benchmark says the number of transistors in an integrated circuit doubles about every two years.
Intel created the world's first commercial microprocessor chip — the Intel 4004 — in 1971, and the company was a major factor in the rise of Silicon Valley as a high-tech center.
But the company faced increased competition and made a series of missteps, which including passing on the chance to develop the chip for Apple’s (AAPL) iPhone, paving the way for rivals like Qualcomm (QCOM) to dominate the mobile market.
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Intel also reportedly had a chance to take a 15% stake in OpenAI, the company behind ChatGPT, for $1 billion, but nixed the deal. That was partly because then-CEO Bob Swan did not think generative-AI models would make it to market in the near future, according to Reuters.
ChatGPT launched in 2022 and is now reportedly valued at about $80 billion.
Intel Ex-CEO notes company's rich history
In 2021, Intel said Pat Gelsinger, who started with the company in 1979 when he was 18 and eventually became its first chief technology officer, would take over as CEO.
"I have tremendous regard for the company’s rich history and powerful technologies that have created the world’s digital infrastructure," Gelsinger said then.
He noted that he had "learned at the feet" of Noyce, Moore and former CEO Andrew Grove, who is credited with transforming Intel into the world's largest semiconductor company.
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"I believe Intel has significant potential to continue to reshape the future of technology and look forward to working with the incredibly talented global Intel team to accelerate innovation and create value for our customers and shareholders,” Gelsinger said.
In 2023, during the company’s global “Intel Unleashed: Engineering the Future” webcast, Gelsinger announced the IDM 2.0 strategy, which he said would be "setting a course for a new era of innovation and product leadership at Intel."
But the company kept losing ground. In August, Intel said it was cutting its workforce by more than 15%, or more than 15,000 employees, as part of a $10 billion cost savings plan.
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In September, Intel said it would turn its costly foundry business into an independent unit with its own board and the potential to raise outside capital.
Intel has spent roughly $25 billion on the semiconductor manufacturing division in each of the past two years.
And on Dec. 2 Intel said Gelsinger had retired as CEO effective Dec. 1.
The board reportedly gave Gelsinger, a former CEO of VMWare, the choice to retire or be removed from his post by board vote, and he chose the former.
Intel shares are down nearly 55% year-to-date and almost 48% from a year ago.
Analyst: Intel board forced CEO out
Veteran trader and TheStreet Pro analyst Stephen Guilfoyle said he had been long shares of Intel because he was intrigued by the idea of distancing the core business from the foundry, which he said had not been aiding Intel's broad performance since its inception.
In addition, he said the company had hit a low point and that he felt it had to start improving.
Guilfoyle, whose career goes back to the New York Stock Exchange floor in the 1980s, noted that Intel's Dec. 2 news release said Gelsinger had retired from the company one day before.
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"Hmm ...usually when a high-level executive retires from a high-profile company, he or she doesn't do so, effective the day before the press release," he said. "That kind of smells like the board had enough of the current leadership and pulled some levers."
Intel is expected to report fourth-quarter performance on Jan. 23. Wall Street is looking for adjusted earnings of 12 cents a share, an unadjusted loss per share of 22 cents and revenue of $13.83 billion.
“These numbers would compare poorly to the year-ago [comparables] of $0.54, $0.64 and $15.4 billion respectively,” Guilfoyle said.
“It may just be speculation on my part, but I would expect that perhaps Intel might have some trouble reaching these lower numbers given the timing of this move.”
Analysts see key hurdles ahead for Intel
Several investment firms issued research notes following Gelsinger's departure.
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Bank of America Securities analysts said that given Gelsinger's IDM 2.0 strategy hasn't yielded much fruit to date, the transition is not a complete surprise.
“Importantly, we now see a greater possibility that INTC considers separating its Products and Foundry arms, which would grant both businesses their much-needed operational and financial independence,” the firm said.
B of A also said a full separation must clear some key hurdles, such as the $8 billion Chips Act award, which is contingent on Intel maintaining a 35% to 50.1%+ stake in the foundry business.
“While in the (unexpected) scenario that Chips Act is revamped under the incoming U.S. administration, there could be more flexibility for potential split between various INTC entities, we still highlight both businesses are undergoing their own strategic, structural, financial, and competitive issues, with no near-term solution in sight," the investment firm said.
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The management change could provide a near-term boost to the stock, but B of A maintained its underperform rating and $21 price target.
Oppenheimer said that while investors appreciate Gelsinger's efforts to refocus the company, Intel continues to face myriad structural headwinds, according to The Fly.
The headwinds include Intel Foundry process technology continuing to lag the competition, lacking meaningful external customer interest, and remaining deeply unprofitable; and market-share loss in core server and client central-processing unit franchises, driven by lagging performance and increased competition.
The investment firm also cited a lack of meaningful growth drivers as Intel has thus far missed the opportunity to capitalize on the high-growth AI accelerator market with its Gaudi 2 and Gaudi 3 efforts.
Oppenheimer said Gelsinger's successor faces significant challenges as turnaround efforts play out. The firm remains on the sidelines with a perform rating.
Stifel analysts said that a fresh set of eyes likely makes sense at this point and it expects additional modifications to the company's strategy.
This could include yet another change in direction for the Foundry business, which could further delay the company's ability to right its technology roadmap toward the rapidly evolving AI total addressable market opportunity.
The firm also said, though, that the recent finalization of the U.S. Department of Commerce direct-funding award through the Chips and Science Act limits some potential options.
That's a reference to restrictions on certain change-of-control transactions including a requirement that Intel retain majority ownership of the foundry division.
Stifel rates Intel shares hold.
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