Pressure is mounting on Intel as the chip maker confronts an existential crisis.
Humbled by successive manufacturing failures, Intel has fallen further and further behind its rivals. Investors heaped scorn on the company last fall as its stock price sagged, demanding a solution.
Intel promised an answer by the middle of January. Company leaders were contemplating a major retreat, giving up on the advanced manufacturing that defined Intel and instead outsourcing the work to competitors in Asia.
Instead, Intel made a shocking turn: ousting its CEO and bringing back Pat Gelsinger, a veteran Oregon engineer who had left the company a dozen years earlier. And Gelsinger promptly indicated that he had no intension of backing down. Instead, he pledged to reinvigorate the company’s engineering and manufacturing and restore Intel to the pole position.
It’s a bold gamble with little margin for error. If Intel stumbles again it risks falling irretrievably behind.
Gelsinger, who turns 60 next month, is a throwback, a protégé of Intel’s legendarily ferocious former CEO Andy Grove. Direct and driven, Gelsinger is also an evangelical Christian who believes “companies need to be there for a higher purpose.”
He joined Intel at age 18 and told employees last month that this is the job he always hoped for, even back then.
“I wrote my mission statement to be CEO at Intel,” he said. “It was a crazy aspiration, now it’s coming real.”
To succeed, though, his homecoming has to be a great deal more than an exercise in nostalgia.
SKEPTICS ABOUND
Long one of Intel’s senior Oregon executives, Gelsinger formally returns to Intel Monday after a dozen years in software. He’s spent the last decade as CEO of VMware, a cloud computing company in Silicon Valley.
While VMware thrived during Gelsinger’s tenure – sales grew 134% over the eight years he ran the business – he benefited to some degree from running a cloud computing company at a time when that industry was soaring. He never faced anything like the challenge awaiting him back at Intel.
While he was away, Intel suffered an unprecedented string of production failures in its Hillsboro research factories. Stubborn manufacturing defects delayed the rollout of three successive generations of new chips, enabling rivals in Asia to leap ahead.
Intel’s sales remain solid but its outlook is tenuous. If the company cannot quickly regain the technological advantage, Intel’s lapses could render it a perennial also-ran. The company could find itself making trailing-edge chips, shedding market share and profits in a downward spiral.
Investors and analysts are pushing Intel to sell off its factories or outsource its manufacturing, a strategic retreat to position the company to do battle with nimble competitors. Gelsinger, though, has made it clear he’s not coming back to dismantle the business.
“It’s my dream job to come back and participate with all of you in shaping the best company to the best days that it has in front of it yet,” Gelsinger told employees last month.
While Intel’s stock surged in the days after Intel announced Gelsinger’s return, it plunged 9% the day after his first meeting with Wall Street analysts last month. He indicated that Intel is committed to its factories, and to building its own leading-edge chips.
That sounded to some like Gelsinger will walk the same unfruitful path as his predecessor, outgoing Intel CEO Bob Swan, a finance executive who left the company less than three years after being promoted to the top job.
“Our first impression of Mr. Gelsinger’s commentary last night is that he intends to continue Bob Swan’s strategy, but with more cowbell, if you will,” wrote Hans Mosesmann, who follows Intel for Rosenblatt Securities.
“We have believed Intel will need more disruptive change in architectural roadmaps,” Mosesmann wrote, and to be more open to outsourcing its manufacturing.
The Intel that Gelsinger left back in 2009 was the unquestioned leader in semiconductor manufacturing. Subsequent lapses, though, delayed its 14-nanometer, 10nm and its forthcoming 7nm chips – now due a year late, in 2023.
Semiconductor production is increasingly difficult as the features on the chips shrink to the atomic level. What’s worrying, though, is that Intel didn’t seem to anticipate its factory troubles – and that its rivals don’t appear to be having the same problems.
Contract manufacturers Taiwan Semiconductor Manufacturing Co. and Samsung now make chips generally acknowledged to be more advanced than Intel’s. And since they make chips for other companies, that has given Intel competitors like AMD – long a technological laggard – access to more advanced production technology than Intel has.
Just as alarming, longtime Intel customers may now be its competitors.
Apple has begun shifting its flagship line of Mac computers away from Intel processors to chips Apple has designed itself. The first Macs using Apple’s M1 chip handily outperformed equivalent models using Intel processors, according to technology benchmarks.
“We have to deliver better products to the ecosystem than any possible thing that a lifestyle company in Cupertino” makes, Gelsinger told Intel employees last month, a dismissive but evidently lighthearted reference to Apple and its corporate offices.
Even more concerning is the possibility that Amazon, Google, Microsoft and other companies that run large data centers might go the same route with their high-powered servers. That could cost Intel one of its most lucrative, and fastest growing markets.
“We have to do better and lean into those relationships,” Gelsinger told employees. He was apparently suggesting Intel could do more to anticipate the needs of the big cloud computing companies, and build those features into its chips.
‘FAIL OR SUCCEED QUICKLY’
Intel’s headquarters are in Silicon Valley, and that’s where Gelsinger will work. He moved away from Oregon in 2012 but still has a home and an adult son living here.
Intel’s brain is in Oregon, too, where the company has 21,000 employees – more than any other business. It spends billions of dollars a year equipping its Oregon factories, one of the state’s primary economic engines.
Most advanced semiconductor companies specialize in either design computer chips or manufacturing them. Intel does both in Hillsboro, maintaining that its integrated model enables it to act faster and more profitably than its rivals.
As Intel faltered over the past several years, though, contract manufacturers TSMC and Samsung raced ahead in production technology. And Intel began losing sales to rivals like AMD, which doesn’t have its own factories and so uses that contractors (the chip industry calls them foundries) to make its chips.
After Intel announced setbacks with its 7nm chips last summer, the company openly flirted with sending its advanced manufacturing to the Asian foundries in order to meet its goal of introducing the chips in 2023.
Some investors and many Wall Street analysts cheered the idea, while others pushed to do more – advocating that Intel sell off its factories altogether.
Either option would significantly diminish Oregon’s role in Intel’s business. It would certainly reduce Intel’s scope, but some analysts felt it the best choice among bad options given the successive production failures.
In his first days after announcing his return to Intel, though, Gelsinger rejected both ideas. Manufacturing is “the power and soul of the company,” he told employees, telling Wall Street analysts the following week that he is “confident that the majority of our 2023 products will be manufactured internally.”
Wall Street remains dubious – but it’s giving the new CEO a brief honeymoon period to show he can deliver. Intel’s stock has been erratic in the weeks since the company announced Gelsinger’s hiring, but has rallied over the last several days and is now up 20% since last month’s announcement.
“While we remain somewhat pessimistic Gelsinger can restore Intel to manufacturing prominence, we do believe it’s ultimately worth a try as the prize is so great,” Susquehanna Financial Group analyst Christopher Rolland told clients last month. “However, our advice is to ‘fail or succeed quickly.’”
WHY NOW?
Growing up on a farm in Pennsylvania Dutch country, Gelsinger became accustomed to sleeping just five hours a night. Friends say he has maintained that energetic pace his whole life.
An engineer at heart, former colleagues describe Gelsinger as a demanding and passionate leader who skips fluidly from discussing chip architecture to business strategy, economic policy and politics.
Intel co-founder Gordon Moore with Pat Gelsinger, then the company's chief technology officer, in 2007.Intel photo
Intel’s top job was open in 2013 and again in 2018 and both times observers floated Gelsinger as a likely candidate. He acknowledged to The Oregonian/OregonLive in 2019 that he had discussed returning when the job was last open but said, at the time, he said he was happy running VMware.
It’s not clear what changed in 14 months, but when Wall Street analysts pushed Gelsinger for an explanation last month he offered a couple clues.
It was “very exciting to see the unity of the board in calling me to the role,” Gelsinger said. That could suggest Intel’s board wasn’t unanimous in its enthusiasm for hiring him last time around, or that it couldn’t agree on a strategy for reviving the company.
Additionally, Gelsinger noted that chip production has mostly moved offshore – Intel is the last company making leading-edge chips in the United States, and if it had gone ahead with outsourcing its advanced manufacturing then that would be gone, too.
“This company needs to be healthy for the technology industry for technology in America and to me it’s an opportunity to help and to unquestionably put Intel and the United States in a technology leadership position,” Gelsinger told analysts.
Intel made the decision easier this time by offering Gelsinger a pay package it valued at $116 million. Gelsinger, though, says he gives away half of what he makes -- mostly to evangelical groups.
Intel says Gelsinger’s favorite charities include a number of Christian organizations including William Jessup University, Stadia, Missions of Hope International, Mercy Ships and the Oregon-based Luis Palau Association, run by Gelsinger’s longtime friend Kevin Palau.
Many Sunday mornings, Gelsinger tweets an inspirational Bible passage.
Though Palau said he cannot speak for Gelsinger, he said he expects the reason he’s returning to Intel is pretty straightforward: “He doesn’t need a prestige job or more money. He’s clearly not doing it for those reasons. I think he loves Intel.”
While serving as a senior Intel executive, Gelsinger wrote a book on balancing faith, family and his career. As VMware’s CEO, Gelsinger routinely traveled to Christian schools and organizations to speak on his spirituality – and he helped launch Transforming the Bay with Christ, an organization that sought to encourage collaboration among churches in and around San Francisco.
“His faith is not a ritual. It’s a genuine part of his life that I think makes him deal with pressure well,” Palau said. He said Gelsinger’s spirituality grounds him, enabling him to focus and not be overwhelmed by whatever complex issues confront him in his work or life.
Evangelical Christianity hasn’t always squared with Silicon Valley’s liberal ethos. Speaking to The Oregonian/OregonLive in 2019, Gelsinger acknowledged that he has “certain views of the family.”
In his book, Gelsinger and his wife elaborated. While he describes advising “mutual submission” in a marriage when counseling other couples, his wife, Linda, writes in an afterward that she has chosen a submissive role in their own relationship in keeping with Colossians 3:18.
“Pat is open to my suggestions and opinions, but the final decision falls on him,” she wrote. “The final responsibility also falls on him, and I know that God will use those opportunities to make Pat the godly man he is supposed to be. And I can support him with a proper mind-set, emotions, and a joyful and submissive attitude.”
In 2019, though, Gelsinger was emphatic that he does not impose his beliefs on others – about marriage, faith or other topics.
“Diversity means valuing the diversity of opinion,” he said, and welcoming LGBQT employees, atheists, Muslims and Hindus.
Intel, like the broader tech industry, remains overwhelmingly male and disproportionately white and Asian. Speaking to Intel employees last month, Gelsinger endorsed the company’s longstanding diversity goals and, somewhat awkwardly, professed support for recruiting more women to the company’s engineering team.
“I’m a deep believer in diversity and inclusion,” he said, especially “technical females.”
GETTING THE BAND BACK TOGETHER
Veteran Oregon chip architect Glenn Hinton had been retired from Intel for three years when the company brought him back last year to help out with a special project. The work was winding down in January but Intel was trying to lure him back full time.
Hinton hesitated, saying later he was wary because he didn’t know the people running the company and was unsure about its direction. Then he woke up one morning to the news that Gelsinger was returning.
“When I found out that Pat was coming back then all the concerns that I had went away,” Hinton said. He said he let out an unprompted whoop, then called Intel the next day to accept the offer.
Hinton hadn’t talked to Gelsinger before making that decision, but he said they’ve been in touch several times over the past few weeks.
“He just seems very excited and upbeat,” Hinton said. “I think he realizes he’s got a big challenge ahead of him and he wants to do whatever he can to get Intel to be the best they can be.”
In recent years, Intel sought to revitalize its engineering by recruiting new leaders from outside the company – Qualcomm, AMD and elsewhere. None of those high-profile hires stuck, a few were spectacular failures.
“Most executives don’t really understand computers very well. But Pat’s very bright,” Hinton said. “Not only is he very good at leading an organization, he actually understands the technical issues.”
Gelsinger, who spent 30 years at Intel during his first stint and was its first chief technology officer, appears to believe Intel’s future lies in its past. Even before formally starting work Monday, he has been working the phones, enlisting former Intel colleagues to join him on the comeback tour.
In addition to Hinton, Intel announced that former Vice President Sunil Shenoy is returning to the company as head of its Oregon-based design engineering group.
“You’ll be seeing other announcements of key leaders coming back in,” Gelsinger told Wall Street analysts last month. Gelsinger promised to rebuild Intel’s in the model of his mentor, the late Intel CEO Andy Grove.
“I was trained at the feet of Grove and we will have the Grovian maniac execution, transparent data driven culture and rebuilding that as part of this company,” he said.
Friends describe Gelsinger as direct, open and transparent. He doesn’t pull his punches, they say, but also doesn’t bring the harsh, combative edge that defined Intel’s culture of “constructive confrontation” when Grove was running the business.
In his analyst remarks last month, Gelsinger noted that Intel has stumbled in the past – notably when it was late to produce multicore processors that gave computers more horsepower. Intel’s engineers overcame those shortcomings, and Gelsinger indicated that he is putting his faith in them again.
“Great companies are able to come back from periods of difficulty in challenge and they come back stronger, better, and more capable than ever,” he said. “That, I believe, is the opportunity at Intel and I’m confident that this company has its best days in front of it.”
-- Mike Rogoway | mrogoway@oregonian.com | twitter: @rogoway | 503-294-7699