The announcement propelled Intel's shares up by 9.5 per cent to $22.04 in New York on Friday, marking the most significant single-day increase since October 2022.
Long-time advisors Morgan Stanley and Goldman Sachs Group are providing counsel on potential scenarios, which may also encompass mergers and acquisitions. The urgency of these discussions has intensified following a dismal earnings report from Chipzilla, which resulted in shares plummeting to their lowest level since 2013.
The sources indicated that these options are expected to be presented at a board meeting in September. However, no significant decisions are imminent, and the discussions are still in preliminary stages. Representatives for Intel declined to comment, while Morgan Stanley and Goldman Sachs did not immediately respond to requests for comment.
Prior to the recent rally, Intel's stock had declined by 60 per cent this year, in stark contrast to a 20 per cent gain for the Philadelphia Stock Exchange Semiconductor Index, a benchmark for the chip industry.
A potential separation or sale of Intel’s foundry division, which manufactures chips for external clients, would represent a significant shift for Chief Executive Officer Pat Gelsinger. Gelsinger has considered this division crucial for re-establishing Intel’s prominence among chipmakers, with aspirations to compete with industry leader Taiwan Semiconductor Manufacturing Co.
It is more probable that Intel will take less drastic measures, such as postponing some of its expansion plans. The company has already financed Brookfield Infrastructure Partners and Apollo Global Management with project financing deals.
Gelsinger is under increasing pressure to achieve a much-needed turnaround. His strategy to expand Intel’s factory network despite declining sales has proven financially unsustainable. The company reported a net loss of $1.61 billion last quarter, and analysts forecast further losses in the coming year.
“It has been a challenging few weeks,” Gelsinger told investors at the Deutsche Bank Technology Conference last week.
He emphasised that the company had attempted to provide a “clear view” of its future steps during its earnings report. “The market’s reaction was understandably negative. We acknowledge that.”
Gelsinger’s strategy involved restructuring Intel into two distinct groups: one focused on chip design and the other on manufacturing. The manufacturing arm would then seek business from different companies.
However, Intel remains the primary client of its factory network. Until the foundry business secures more external customers, it will continue to face financial challenges. The division reported operating losses of $2.8 billion in the most recent quarter and is projected to have a worse year than anticipated.
With a market value of $86 billion, Intel has fallen out of the top 10 largest chipmakers globally. It is the second-worst performer on the Philadelphia chip index this year, suffering compared to Nvidia's meteoric rise, which is on track to double Intel’s revenue in 2024.
As recently as 2021, Intel’s revenue was three times that of Nvidia.