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Last week, Intel (INTC) appointed Lip-Bu Tan as its new CEO, and in his message to employees, he talked about creating the “new Intel.” Notably, when his predecessor Pat Gelsinger took office in 2021, he also embarked upon “transforming” Intel under the IDM 2.0 strategy, which in hindsight, we know did not go as planned.
Gelsinger’s strategy did not yield the desired results, and the once iconic chip company continued to sink deeper on an absolute as well as relative basis. The year 2024 turned out to be the worst year for Intel stock in more than one way. INTC lost 60% of its market cap — its worst price action in history — while posting a record net loss of $18.8 billion. The company announced 15,000 layoffs, again the highest in its history, and also had to suspend its dividend amid soaring losses and rising cash burn.
If that wasn’t enough, the S&P Dow Jones Indices replaced Intel with Nvidia (NVDA) in the 30-share Dow Jones Industrial Average Index ($DOWI). The announcement was hardly a surprise and a reflection on how Intel lost out to rivals over the years. It is no longer the chip industry bellwether it once was.
What Went Wrong with Intel?
Before we examine whether Intel’s new CEO can turnaround the ailing company, let’s examine what went wrong with the restructuring under Gelsinger.
To be sure, at least on paper, Gelsinger’s strategy looked solid. He intended to make the company a global leader in the foundry business by setting up factories in the U.S. and Europe, both of which are looking to support domestic chip manufacturing.
He also put focus on innovation, especially AI chips where the company lost out big time to Nvidia. Intel was also looking to monetize its stake in some businesses and listed Mobileye Global (MBLY), even as it still holds the majority of the stake. The company has also been looking to list Altera, which it acquired for almost $17 billion in 2015.
In a nutshell, Gelsinger wanted Intel to be a combination of Nvidia and Taiwan Semiconductor Manufacturing Company (TSM), which was never going to be easy. Both Nvidia and TSM have built a strong moat in their respective businesses. As things turned out, Gelsinger overestimated Intel’s capabilities, which is aptly reflected in the poor performance of its Gaudi AI chip.
Tan Wants to Build a “New Intel”
In his note titled “Remaking our company for the future,” Tan talked about making the “new Intel” and said, “We will learn from past mistakes, use setbacks to strengthen our resolve and choose action over distraction to reach our full potential.” Tan said Intel will work toward restoring its “position as a world-class products company, establish ourselves as a world-class foundry and delight our customers like never before.”
INTC Stock Forecast
Wall Street took note of Tan’s appointment, and Bank of America upgraded INTC from an “Underperform” to “Neutral.” The analyst raised the INTC target price from $19 to $25 citing the CEO’s “solid track record.” Bank of America did caution that “The upside potential, however, is balanced against risks from a lack of AI roadmap and increasing competition from ARM-based PC and server CPU rivals.”
Overall, Intel has a consensus rating of “Hold” from the 37 analysts covering the stock and its mean target price of $24.43 is just about 1.5% higher than the March 14 closing price.
Can Intel’s New CEO Turn Around the Company?
Intel, which became the world’s biggest chipmaker in 1992, is now fighting for relevance. Comparisons have been drawn between Intel and other fallen giants like Nokia (NOK), Kodak (KODK), and Blackberry (BB), which once held dominant positions in their respective industries but are now shadows of their glorious pasts.
I won’t write off Intel yet, partially because of bipartisan support from Western politicians for the onshoring of chip production. The company is too big and too important for the U.S. to let it fail, and President Donald Trump has reportedly called for TSM’s help to revive the company.
Intel’s sum-of-the-parts valuation could be more than the stock’s current valuation, considering that the book value of its foundry segment’s property, plant, and equipment is higher than the company’s market cap. Notably, reports suggest that several companies, including Qualcomm (QCOM) and TSM, have expressed interest in Intel’s foundry business, and the latter even pitched a joint venture to Nvidia, Advanced Micro Devices (AMD), and Broadcom (AVGO) to run that business.
There is potential for value unlocking for Intel shareholders as the company explores its options under the new CEO.
Corporate turnarounds are seldom easy, but I will continue to bet on Intel as the company now embarks on its second turnaround in just about four years.
