Source: Intel CEO wants to cut costs and wants to spin off Altera and withdraw from German plant

(Reuters) — Intel (INTC) CEO Pat Gelsinger and key executives are expected to present a plan to the company's board later this month that would involve spinning off unnecessary businesses and restructuring capital spending to help the once-dominant chipmaker get back on its feet, a source familiar with the matter said.

The plan is also expected to include proposals for reducing overall costs by selling off business units that Intel can no longer finance from the company's once high profits. This includes the sale of the programmable chip division Altera.

Gelsinger and other senior Intel executives are expected to unveil the plan at a board meeting in mid-September, the same source said.

Details of Gelsinger's proposal are reported here for the first time.

Intel declined to comment.

The proposal does not yet include plans to split Intel and sell its contract manufacturing business or foundry to a buyer such as Taiwan Semiconductor Manufacturing Co. (TSM, 2330.TW), the source and another person familiar with the matter said.

The presentation, including the plans for the manufacturing processes, is not yet finalized and is subject to change prior to the meeting.

Intel has already separated its foundry business from its design business and has been reporting its financial results separately since the first calendar quarter of this year.

The company has built a wall between its design and manufacturing areas to ensure that potential customers of the design department do not gain access to the technology secrets of customers who use Intel's factories (called fabs) to manufacture their chips.

Intel is going through one of its worst periods as it tries to catch up in the AI ​​era with companies like Nvidia (NVDA), the dominant AI chipmaker with a $3 trillion market cap. In contrast, Intel's market cap has now fallen below $100 billion following a disastrous second-quarter earnings report in August.

The proposal Gelsinger and others will put forward will likely include plans to further reduce the company's investment in factory expansion. The proposal could include plans to pause or shut down the $32 billion factory in Germany, a project that has reportedly been postponed, the source said.

In August, Intel announced it would cut its capital spending to $21.5 billion in 2025, a 17 percent decline from this year, and gave weaker-than-expected third-quarter guidance.

In addition to the CEO and executives' plans, Intel has hired Morgan Stanley and Goldman Sachs to advise the board on which businesses Intel can sell and which it must keep, say two sources familiar with the company's consulting plans.

The story continues

Intel has not yet solicited bids for the product units but is likely to do so once the board approves a plan, say the two sources familiar with the company's consulting plans.

Spin-off from Altera

The board meeting in mid-September is crucial for the former chipmaker king. Intel reported a disastrous second quarter in August, which included a suspension of dividend payments and a 15 percent cut in staff with the goal of saving $10 billion.

Weeks later, chip industry veteran Lip-Bu Tan resigned from the board after months of debate over the company's future, Reuters reported, creating a vacuum of semiconductor experience on the board.

Last Thursday, following the Reuters report, Gelsinger attempted to reassure investors about the company's weak financial position.

“It's been a difficult few weeks,” Gelsinger said at a Deutsche Bank conference. “And we've worked hard to solve the problems.”

Gelsinger said the company is taking investors' comments “seriously” and that Intel is focusing on the second phase of its turnaround plan.

Some of those plans will remain unclear until the mid-September meeting, when the company's directors are likely to make important decisions about which businesses Intel will keep and which it will divest.

One possible division the company may want to divest is its programmable chip business, Altera, which Intel acquired for $16.7 billion in 2015. Intel has already taken steps to spin it off as a separate but still wholly owned subsidiary and has said it will sell some of its shares in a future IPO, though no date has been set.

Altera could also be sold entirely to another chipmaker interested in expanding its portfolio, and the company has quietly begun exploring the possibility of a sale, according to a source familiar with the advisory plans and one of the sources familiar with the plans to divest business units.

According to one of the sources, infrastructure chip manufacturer Marvell is a potential buyer for such a transaction.

Bloomberg had previously reported on various options for Intel, including a possible split of Intel's product design and manufacturing businesses, which is expected to be discussed at the board meeting.

(Reporting by Max A. Cherney in San Francisco and Milana Vinn in New York; Editing by Kenneth Li, Anirban Sen, Paritosh Bansal, Deepa Babington and Mark Porter)