Intel facing groundbreaking strategic shift: Manufacturing division on the verge of a spin-off?

Intel is at a pivotal stage in its 56-year history. The chipmaker is reconsidering its ongoing manufacturing projects and evaluating various strategic options, including a possible division of the company into a product-focused and a manufacturing-focused entity, Bloomberg reports. While rumors about spinning off the manufacturing branch are not new, these speculations seem dramatic in light of the significant financial burdens the company is facing. Among the discussed options is the possible separation or sale of the foundry business, which has posted losses in the billions over the past quarters. In the second quarter, for example, the Intel Foundry unit reported a loss of $2.8 billion. Consequently, Intel recorded a net loss of $1.61 billion in the last quarter, and analysts predict further losses in the coming year. The Intel Foundry unit, which produces chips for both Intel itself and external customers, is a central component of Pat Gelsinger's strategy to reposition Intel and make it a strong competitor to fabless chipmakers like AMD and Nvidia, as well as contract manufacturers like TSMC and Samsung Foundry. However, Intel Foundry has so far failed to secure significant orders from external customers. Therefore, the unit remains heavily dependent on Intel as its primary customer, raising questions about its sustainability. Reportedly given significant financial and operational challenges, Intel is seeking advice from investment banks Morgan Stanley and Goldman Sachs. The urgency of these discussions increased following a disappointing quarterly report that led to Intel's stock price falling to its lowest level in over a decade. The company's shares have plummeted by 60% this year, in contrast to a 20% rise in the Philadelphia Semiconductor Index. After a massive loss of $1.6 billion, Intel was forced to make tough financial and operational decisions. The company began cutting jobs and plans to eliminate around 15,000 positions. Additionally, Intel recently suspended its dividend. Some analysts expect Intel to significantly reduce its investments in new production capacities next year. Given that the manufacturing division is the only Intel unit experiencing significant losses, primarily due to high investments, it is hard to imagine the company taking this area public soon. However, this does not rule out a spin-off similar to AMD's in 2008, when the company partially sold its manufacturing branch to a sovereign wealth fund to establish GlobalFoundries. Another question is whether private equity or sovereign wealth funds would be interested in purchasing a loss-making unit with an uncertain future in contract manufacturing.