Intel Faces Critical Decisions Amid Financial Struggles and Foundry Challenges

Intel (INTC.US) is facing significant challenges in its manufacturing and foundry operations, posing a critical juncture for the company led by Pat Gelsinger. While Intel has bet its future on its foundry business, Citigroup suggests the company exit now while it still can.

Recently, amid declining performance and falling behind in the AI race, the American chip giant Intel is urgently drafting a self-rescue strategy. According to sources, Intel's top management plans to present a cost-cutting blueprint to the company's board by the end of the month, which is expected to involve shedding non-core businesses to optimize its financial structure. Notably, the current plans do not include splitting up Intel as a whole or selling off its chip foundry business.

The assets likely to be divested include the programmable chip division Altera, which Intel acquired for $16.7 billion in 2015 and currently operates as a wholly-owned subsidiary. Altera might be sold off to interested buyers in the chip industry.

Moreover, Intel is contemplating halting or terminating its $32 billion chip factory construction project in Germany. This decision will have far-reaching implications on the company’s future capacity layout. The specifics of these self-rescue measures are expected to be discussed in detail at the mid-month board meeting, and the final plan remains uncertain.

Intel has been going through tough times since its founding, with their recent second-quarter earnings report deemed "disastrous," leading to a market value drop below $100 billion. Earlier, Intel announced various cost-saving measures, such as suspending dividend payments and laying off 15% of its workforce, aiming to save up to $10 billion.

However, these efforts haven't resolved Intel's woes. The company missed the chance to invest in OpenAI and lead the AI wave, and its contract manufacturing business continually loses to TSMC. Despite aggressive moves like suspending dividends and mass layoffs, industry analysts and former board members generally believe these actions may not fully reverse Intel's current decline.

Ryan Detrick, Chief Market Strategist at Carson Group, bluntly stated that removing Intel from the Dow Jones could only be a matter of time. He warned that the latest performance figures could be the final straw for Intel.

According to recent reports, Intel is considering spinning off or selling its foundry business to salvage this year’s poor second-quarter financial performance. For logic chip Integrated Device Manufacturers (IDMs), the idea of splitting or divesting the foundry business isn't new; there have been instances of selling off fabs even at a loss.

While Samsung and Intel remain the only logic chip IDMs capable of advanced process technology, Intel has given its foundry division greater decision-making authority within its organizational structure, though it still loses money. In contrast, AMD, which decisively spun off its foundry business, is now debt-free and nimble.

Intel’s "self-rescue" plan may also include selling some shares of Mobileye Global Inc., its autonomous driving system developer. Intel currently owns 88% of Mobileye, and selling shares might help capitalize on Mobileye’s struggles to generate funds.

Intel is indeed at a crossroads, considering various drastic measures to navigate through what may be the toughest time in its 56-year history.