Sudden Resignation of Intel Board Member

By Max A. Cherney
SAN FRANCISCO (Reuters) – The sudden resignation of a high-profile Intel (NASDAQ:INTC) board member came after differences with CEO Pat Gelsinger and other directors over what the director considered the U.S. company’s bloated workforce, risk-averse culture, and lagging artificial intelligence strategy, according to three sources familiar with the matter.

Lip-Bu Tan, a semiconductor industry veteran, had said he was leaving the board because of a personal decision to “reprioritize various commitments,” stating he remained “supportive of the company and its important work” in a regulatory filing on Thursday.

Tan, the former CEO of chip-software company Cadence Design (NASDAQ:CDNS), joined Intel’s board two years ago as part of a plan to restore Intel’s position as the leading global chipmaker. The board expanded Tan’s responsibilities in October 2023, authorizing him to oversee manufacturing operations.

However, Tan grew frustrated with the company’s large workforce, approach to contract manufacturing, and risk-averse bureaucratic culture. The circumstances around Tan’s exit have not previously been reported. His departure, as Intel looks to turn around its operations, illustrates the uncertainty surrounding its efforts.

Tan leaves Intel during one of the bleakest periods in the company’s five-decade history, raising concerns about potential activist shareholder attacks. Intel has hired investment bank Morgan Stanley to prepare a defense against such threats.

Gaps in Expertise

Tan’s exit creates a vacuum of chip-industry technical and business acumen on the board, which is largely populated by leaders from academia and finance, as well as former executives from the medical, tech, and aerospace sectors. Former Intel executives noted that the company began preparing for possible activist threats months before Tan’s resignation.

This month, Intel paused its longstanding dividend and announced plans to reduce capital spending on factory construction. Investors responded, wiping more than $30 billion from its market value immediately after the report.

Competitive Landscape

Intel’s struggles are set against fierce competition in AI, with rivals like Nvidia (NASDAQ:NVDA) reaping significant market gains. Intel had previously passed on buying a substantial stake in ChatGPT-maker OpenAI in 2018. Despite acquiring at least two AI startups, attempts to build a top-tier AI chip have repeatedly faltered.

To manage costs, Intel announced layoffs of over 15% of its workforce, its second reduction in two years. Tensions reportedly arose between Tan and the board over the layoff strategy, particularly concerning middle management who were not contributing effectively to engineering efforts.

Tan, along with some former Intel executives, believed the workforce was bloated. Comparisons suggested that some project teams at Intel were five times larger than those at rivals, with instances cited where significant cuts should have been made years ago.

Manufacturing Challenges

Intel’s turnaround strategy hinges on developing its foundry business, which would support other companies in chip manufacturing similar to TSMC. However, the company has not identified a significant customer and does not expect this business to become profitable until 2027.

An attempt last year to enter contract manufacturing through a $5.4 billion acquisition of Israel-based Tower Semiconductor (NASDAQ:TSEM) was halted after China blocked the deal, denying Intel a division focused on contract chipmaking—an area where the company has historically struggled.

Tan expressed frustration over the board’s reluctance to adopt his recommendations on how to enhance manufacturing operations and streamline bureaucracy. Despite ongoing efforts to establish new factories in locations like Ohio, Arizona, and Europe, Intel has yet to announce new customers.