Intel CEO Details Plan To Silence Critics As It Fights For Every Inch

Shares of Intel shot up nearly 10% in after hours trading on apparent optimism from an open letter the company's CEO, Pat Gelsinger, sent to employees last night. In the letter, Gelsinger outlined the "next phase of Intel's transformation," which among other things includes turning its chip making business into an independent subsidiary inside of Intel, as was previously rumored.

"A subsidiary structure will unlock important benefits. It provides our external foundry customers and suppliers with clearer separation and independence from the rest of Intel. Importantly, it also gives us future flexibility to evaluate independent sources of funding and optimize the capital structure of each business to maximize growth and shareholder value creation," Gelsinger explained in the letter.

Intel's Foundry leadership team will remain in place and continue reporting to Gelsinger. However, the new subsidiary will have its own operating board, including independent directors to govern the subsidiary, and report its earnings separately from Intel. According to Gelsinger, the move will enable better transparency and accountability as the chip maker looks to turn things around after a rough second quarter followed by a big round of layoffs.

"A more focused and efficient Intel Foundry will further enhance collaboration with Intel Products. And our capabilities across design and manufacturing will remain a source of competitive differentiation and strength," Gelsinger added.

Gelsinger also highlighted several other moves and developments, such as an expansion to its collaboration with Amazon Web Services (AWS) that includes a co-investment into custom chip designs. This is part of a multi-year, multi-billion-dollar framework encompassing Intel's products and wafers.

"Specifically, Intel Foundry will produce an AI fabric chip for AWS on Intel 18A. We will also produce a custom Xeon 6 chip on Intel 3 that builds on our existing partnership, under which Intel produces Xeon Scalable processors for AWS," Gelsinger explained.

Additionally, Gelsinger noted that Intel has been awarded up to $3 billion in direct funding under the US government's CHIPS and Science Act. Combined with the Amazon contract, Gelsinger says Intel is making continued progress towards building a world-class foundry business.

Other aspects of Gelsinger's open letter include streamlining the company's portfolio with a top priority being placed on maximizing the value of its x86 franchise across multiple chip segments (client, edge, and data center), making AI investments, and becoming a leaner and more efficient company.

"We need to fight for every inch and execute better than ever before. Because that’s the only way to quiet our critics and deliver the results we know we’re capable of achieving," Gelsinger bluntly stated.

What will truly quite the critics will require more than words and bold planning, but execution on the moves that are being put into place, as outlined in the open letter. It will take some time to see if Gelsinger's strategy pays off.