New CEO Tan says Intel faces ‘tough decisions,’ eyes major operational overhaul

Investing.com -- Intel's (NASDAQ:INTC) incoming CEO, Lip-Bu Tan, is preparing major changes to the company’s chip manufacturing strategy and artificial intelligence initiatives as he returns to lead the struggling tech giant, Reuters said in a Monday report.

Citing sources familiar with the matter, the report says that Tan sees an urgent need to streamline operations, restructure Intel’s AI approach, and cut middle management, which he views as bloated and slow-moving.

A top priority for Tan will be revamping Intel’s manufacturing business, particularly its Intel Foundry division, which has shifted from producing chips solely for Intel to making semiconductors for external clients like Nvidia (NASDAQ:NVDA).

His goal is to improve efficiency and attract new customers. In the near term, he is also expected to push forward plans for AI server chips while exploring opportunities in software, robotics, and AI foundation models.

At a recent town hall, Tan told employees that “tough decisions” would be necessary, signaling potential workforce reductions.

Industry analyst Dylan Patel criticized former CEO Pat Gelsinger’s reluctance to restructure management, saying he was “too nice.”

“He did not want to fire a bunch of middle management in the way they needed to.”

Intel cut about 15,000 jobs last year, bringing its headcount to roughly 109,000.

Tan, 65, has been an outspoken critic of Intel’s recent leadership. A former CEO of Cadence and a longtime tech investor, he was on Intel’s board until August 2023, when he resigned over disagreements about the company’s direction.

Before stepping down, he had been tasked with assessing Intel’s manufacturing operations and came away frustrated with its culture, believing decision-making had become sluggish.

For decades, Intel produced chips exclusively for its own products, but under Gelsinger’s leadership, it prioritized contract manufacturing to compete with Taiwan’s TSMC. However, execution issues led to missed deadlines and technical failures, eroding confidence in the company.

Tan’s return is expected to bring a renewed focus on making Intel’s foundry business more competitive.

He has already hinted at maintaining control over the company’s factories while working to improve manufacturing yields—a key measure of efficiency in semiconductor production.

His efforts will be critical as Intel begins mass-producing its new AI-enabled chips, known as Panther Lake, using its advanced “18A” process. Strong sales of these chips will be essential for Intel’s financial performance this year.

To turn its manufacturing ambitions into a success, Intel will need to secure at least two major clients for high-volume chip production, the Reuters report said, citing industry analysts.

The company is also aiming to transition to an annual release cycle for AI chips, similar to Nvidia, though Reuters says it will take until at least 2027 to develop a compelling new AI architecture.

In a memo published last week, Tan emphasized his commitment to restoring Intel as a “world-class foundry.” His ability to deliver on that vision will determine whether Intel can regain its footing in an industry increasingly dominated by competitors like Nvidia and Arm Holdings (NASDAQ:ARM).

This article first appeared in Investing.com