Intel separates unprofitable chip manufacturing division into a subsidiary

Intel is seeking to improve its financial standing through restructuring. To this end, the company is transforming its chip manufacturing business into an independent subsidiary.

Intel revealed its plan in a memo to employees from CEO Pat Gelsinger, published more than a month after the company announced a 15% personnel cut. Intel is laying off over 15,000 workers as part of its $10 billion cost-cutting strategy to regain financial stability after incurring a net loss of $1.6 billion in the second quarter. In his new memo, Gelsinger explained that the transformation of the chip manufacturing business into a subsidiary will "unlock significant advantages," particularly the ability to attract and directly secure external funding.

Gelsinger stated that there would be no changes to the management of the manufacturing division, but the subsidiary will establish its own operational board with independent directors to oversee its operations. Intel is even considering making this line of business a separate public company.

The company is currently modernizing its existing factories and constructing new ones for its manufacturing operations, costing Intel billions of dollars. This effort aims to catch up with competitors in chip production, such as TSMC and Samsung. Reports indicate that over the past two years, the company has spent approximately $25 billion annually on its manufacturing business, although these investments have yet to yield profits.

In April, during an investor presentation, the company announced that this business faced $7 billion in operating losses for 2023 compared to $5.2 billion in losses the previous year. Meanwhile, the revenue for the division totaled $18.9 billion, down 31% from 2022. At the same time, Gelsinger warned investors that Intel expects operating losses in the manufacturing business to increase in 2024, with the company not anticipating a return to break-even until 2027.

In addition to spinning off the manufacturing division, Gelsinger also indicated in the memo that Intel plans to sell part of its stake in Altera, another chip manufacturer it acquired in 2015 for $16.7 billion.

Source: Engadget