Intel had a big event last week during which CEO Pat Gelsinger presented his strategy to not only fix Intel but to make it so we never again have a catastrophic chip shortage.
The plan is strategic, which is kind of funny when you consider one of the industry jokes used to be that Intel execs couldn’t spell “strategy,” let alone execute one. What is also amusing is that now that Intel is thinking strategically, investors don’t want strategic companies. They want tactical companies with plans that pay off within a quarter.
What is undoubtedly painful to watch for Intel is that three of its competitors – AMD, NVIDIA and Qualcomm – have been working strategically for years, and not only are they reaping the benefits today, but they also didn’t seem to get the grief that Intel is while they were executing their strategies.
Gelsinger is one of the smartest CEOs I know, and I’m sure he knows that both AMD and Qualcomm had several CEOs during that time, and NVIDIA’s CEO only survived because he was both a founder and he anticipated the market so far in advance that he didn’t seem to take a critical hit. But Gelsinger is rightfully concerned because if major investors are unhappy with your performance, they’ll force you out even if you are doing the right thing for the survival and eventual success of the company.
And while I tend to think this focus on tactics over strategy is both sad and stupid, it is the world we live in, and it brings up what Michael Dell had to do a few years back before Gelsinger worked for him at VMware: Michael Dell took Dell private, but it was a nightmare process.
Will Intel need to take the same path as Gelsinger’s former employer? Let’s discuss that possibility this week.
Wall Street’s Problem with Strategic CEOs
It isn’t uncommon to see CEOs go out of their way to appease investors – even if that means screwing employees and customers.
Look at Apple, for instance. It’s one of the most valuable companies in the world (and has been the most valuable company several times), yet it got there by charging its customers excessively by using lock-in tactics (which are generally perceived as anti-customer), and has a history of treating employees poorly. Most recently it has come to light that the company effectively demotes every employee who leaves to associate, effectively penalizing the employees’ career prospects by not giving them credit for higher-level work in employment verification databases. I’m not aware of another company anywhere else that does anything like this, and eventually these practices are likely to critically hurt the company, particularly after the current executive staff leaves.
In contrast, Pat Gelsinger has implemented programs to bring talent on board and improve the Intel culture to make working there more pleasant. He has followed AMD’s lead in terms of opening Intel’s doors to build custom parts, and he has recognized that the lack of manufacturing capacity for processors in the U.S. is a strategic weakness. In short, his efforts haven’t been to hurt customers and employees to create bigger margins, but to turn Intel into a better place to work and do business with, while taking the lead in addressing the critical chip shortage plaguing the West in general and the U.S. in particular.
But if you look at Intel’s stock market valuation – recently surpassed by AMD – it would appear Intel is being punished for thinking long-term and moving strategically to help its home country, which suggests that the model, not the CEO, is to blame for Intel’s valuation slide. You’d be hard-pressed to find a better example of Wall Street’s destructive influence on American business.
Also read: Intel’s Bold New Chip Manufacturing Plan
Going Private May Be the Best Option for Intel
Roughly a decade ago, Michael Dell had much the same problem. He needed to fix Dell and he knew that he couldn’t do it while Dell was public. So he took the company private, which gave him the time he needed to fix what had to be fixed, and then he creatively took the company public again so he could again access the investor pool of money and use shares and options for employee retention (which is often problematic for a private company).
To accomplish what Gelsinger needs to get done, he may need to take Intel private. Fortunately, he knows Michael Dell well, and I’m sure Dell would step up to help given that Dell is tied at the hip to Intel. Should Gelsinger be forced out, the result for Dell would not be good (the two CEOs get along well and I know Dell appreciates what Gelsinger is trying to do).
But to get the time he needs to execute what appears to be a well thought out plan to fix both Intel and the U.S. chip industry’s manufacturing problem – likely to be made even worse by Russia’s invasion of Ukraine – he may need to consider taking Intel private because the current investment market, overpopulated with hedge funds, really doesn’t like a company to be strategic even though the smarter Wall Street minds likely know that tactical companies are far more likely to fail than strategic ones. The pressure to meet quarterly numbers is inconsistent with a company’s long-term health and strategy.
A Changing Chip Market
I complain a lot about the number of CEOs that seem to only care about their salary, perks and golden parachutes while ignoring customers and employees. Gelsinger is one of the rare exceptions who puts his company, employees and customers first and is seemingly being punished by the market for his more honorable approach.
Last week Gelsinger made a decent effort to explain both his long-term strategy and why it’s critical. There were no obvious gaps in either his strategy or the need for it, yet the market punished Intel’s valuation because of Gelsinger’s position. It shouldn’t be that way, and if this adverse pressure doesn’t moderate, Gelsinger may have to follow Michael Dell’s lead and not only go big, but also go private.
The chip market is changing dramatically, between global chip shortages, Intel’s changing relationship with AMD, and a potential alliance between Nvidia and Arm. Getting the space needed to navigate that turbulence would be a smart move.