A member of Intel's board has resigned following disagreements regarding the company's strategy for revitalizing its operations.


The unexpected resignation of a prominent Intel board member followed disagreements with CEO Pat Gelsinger and other directors regarding what the member viewed as an excessively large workforce, a cautious corporate culture, and a stagnant artificial intelligence strategy, as reported by three sources with knowledge of the situation.

Lip-Bu Tan, a seasoned professional in the semiconductor industry, stated that his departure was a personal choice to "reprioritize various commitments" while expressing continued support for the company and its significant initiatives in a regulatory filing on Thursday.

Tan, who previously served as CEO of Cadence Design, joined Intel’s board two years ago as part of a strategy to reclaim Intel’s status as the foremost global chip manufacturer. In October 2023, the board expanded Tan’s role, granting him oversight of manufacturing operations.

However, over time, he became increasingly dissatisfied with the company’s extensive workforce, its contract manufacturing strategy, and its risk-averse, bureaucratic culture, according to sources who requested anonymity.

The details surrounding Tan's departure have not been disclosed previously. His exit, as a respected figure among investors, highlights the uncertainty surrounding Intel's strategic turnaround efforts.

Tan's resignation comes at a time when the company is facing one of the most challenging periods in its 50-year history, making it susceptible to a possible activist shareholder intervention, according to former executives. Sources indicate that Intel has engaged Morgan Stanley to devise a defensive strategy, corroborating earlier reports.

Based in California, Intel has chosen not to comment on the situation, and Tan's venture capital firm, Walden Catalyst, has not provided a response to inquiries.

Tan's departure creates a gap in technical and business expertise within the board, which primarily consists of leaders from academia, finance, and former executives from the medical, technology, and aerospace sectors, as noted by investors and industry insiders.

Former Intel executives informed Reuters that the company has been preparing for a potential activist challenge for several months, although Reuters has not been able to independently verify if any shareholders are planning to take action.

This month, Intel announced the suspension of its long-standing dividend following the release of its financial results and a decision to cut back on capital expenditures for factory construction. The subsequent day, investors reacted sharply, erasing over $30 billion from the company's market capitalization, which represents more than 25% of its total value.

Intel's challenges are set against a backdrop of significant investments and sales growth from competitors capitalizing on the rising interest in artificial intelligence.

The AI surge has propelled graphics chip manufacturer Nvidia to a market valuation of $3 trillion. Notably, Intel missed an opportunity in 2018 to acquire a stake of up to 30% in OpenAI, the creator of ChatGPT, as reported by Reuters.

Since 2010, Intel has made at least two acquisitions of AI startups, among several attempts to develop a leading AI chip, according to former executives.

While its acquisition of Habana resulted in promising AI chip technology, the departure of senior leaders to establish a competing venture in Israel has negatively impacted Intel's initiatives, according to two sources.

In August, Intel revealed plans to reduce its workforce by over 15%, marking its second round of layoffs in two years as part of cost-cutting measures. The company reported having nearly 125,300 employees worldwide in its August financial results.

This layoff strategy reportedly created friction between CEO Pat Gelsinger and the board, with Gelsinger advocating for targeted reductions, particularly among middle management that he felt did not contribute effectively to Intel's engineering initiatives. Since taking the helm in 2021 as part of a restructuring effort, Gelsinger had increased Intel's workforce by at least 20,000 by 2022.

However, Tan and several former executives viewed the workforce as excessive, noting that some project teams were up to five times larger than those at competitors like Advanced Micro Devices. One former executive suggested that Intel should have implemented more significant cuts years earlier.

Tan has expressed concerns that Intel was hindered by excessive bureaucratic layers among middle managers, which he believed slowed progress in the server and desktop chip divisions.

Former Intel executives noted that the company's workforce, larger than that of Nvidia and Taiwan Semiconductor Manufacturing Co combined, contributed to a culture of complacency, straying from the competitive spirit championed by co-founder Andy Grove.

CHALLENGES IN MANUFACTURING

Intel's strategy for revitalization hinges on the expansion of its foundry operations, which enable other firms to produce chips, akin to the model employed by TSMC. However, the company has yet to announce any significant clients and has indicated that profitability in this sector is not anticipated until 2027.

Last year, an effort to enter the contract-manufacturing arena through a $5.4 billion acquisition of Tower Semiconductor, an Israeli chip manufacturer, was thwarted by a blockade from China. This acquisition would have provided Intel with a dedicated contract chipmaking entity, a capability it has historically struggled to establish.

In the absence of Tower, Intel, which has traditionally focused on in-house chip production, lacks the necessary experience to engage effectively with external clients, a challenge it has faced in attracting, according to four insiders familiar with the company's manufacturing operations.

Tan expressed frustration as the board did not heed his suggestions for enhancing customer focus within the manufacturing division and for eliminating excessive bureaucracy, as reported by a source close to him.

Meanwhile, Intel has persisted in constructing new facilities in Ohio, Arizona, and various locations in Europe, yet has not disclosed any new customer partnerships.