Intel Breakup Could Challenge US Chip Manufacturing Ambitions, Former CEO Claims

Key Takeaways

• In September, Intel CEO Pat Gelsinger announced plans to spin off the company’s foundry business into an independent subsidiary.
• Former Intel CEO Craig Barrett has warned against breaking the company up.
• Intel’s profitable design unit has attracted the attention of prospective buyers.

In September, Intel reportedly fielded an acquisition offer from Qualcomm and rejected a proposal from Arm to buy its product division, sparking a debate about the chipmaker’s future.

Weighing in on the question of whether Intel should be broken up, former CEO Craig Barrett recently cautioned against the idea. 

Qualcomm and Arm Eye Intel Acquisition

The news that Qualcomm approached Intel with a takeover offer, first reported by the Wall Street Journal on Sept. 20, has caused quite a stir among observers.

That Qualcomm is potentially in a position to buy out its older rival signals just how far Intel has fallen in the last two years.

Once the most valuable chip company in the world, Intel’s market capitalization  was more than twice Qualcomm’s as recently as March 2020.

A similar reversal can be seen with Arm, which first floated on the Nasdaq in 2023 at an initial valuation of a little over $50 billion but is today worth more than three times that.

Intel was once one of Arm’s largest shareholders but recently offloaded its stake to generate cash.

While Intel didn’t publicly respond to Qualcomm’s approach, it rejected Arm’s offer to buy part of its business, Bloomberg reported on Friday, Sept. 27.

Splitting Intel Is Bad for America, Claims Former CEO 

While he didn’t attend to any specific proposals, in a recent op-ed, Barrett argued  against spinning off the profitable design business as proposed by Arm.

“Splitting Intel into two separate companies wouldn’t do the U.S. any good if the Intel design business succeeds and the foundry business does not,” he warned, noting that such a scenario would leave the U.S. reliant on foreign manufacturers.

According to Barrett, for the U.S. to become truly self-reliant, it needs a foundry on the scale of the Taiwan Semiconductor Manufacturing Company (TSMC), which Intel and other American firms can outsource.

As he noted, over a decade since AMD spun off its own manufacturing unit into GlobalFoundries, like most major chipmakers, the company now uses TSMC.

By way of a warning for Intel, Barrett concluded that “GlobalFoundries just didn’t have enough research and development (R&D) budget, and with limited production and revenue, struggled to keep up with market leaders.”

The Logic Behind Breaking Up

Despite its stock market decline, Intel remains the only large U.S. chip maker committed to making its own wafers. Although Intel’s foundry business has been a major drag on the company’s revenues, there are signs its investments are beginning to bear fruit.

Barrett’s intervention comes at a crucial time for Intel, which has already set out a course to spin off the foundry unit into an independent subsidiary.

In a letter to employees in September, current CEO Pat Gelsinger said the subsidiary model would provide customers and suppliers with “clearer separation and independence” from the rest of Intel. Meanwhile, it will allow the company to “evaluate independent sources of funding” that aren’t possible under the current structure.

Gelsinger’s apparent disagreement with his predecessor highlights the complexity of Intel’s situation. Given that his time as CEO has been defined by efforts to boost Intel’s manufacturing capabilities, he is the last person who would want to see the company’s foundry business flounder.

Yet Gelsinger has insight into Intel’s day-to-day challenges that Barrett doesn’t. For example, he recently complained  that CHIPS Act subsidies and tax breaks the company was promised have yet to materialize.

Ultimately, Barrett and Gelsinger’s views aren’t necessarily opposed. In order to have it both ways, Intel could split off its foundry unit while still retaining a controlling stake in the new entity. This would allow it to raise additional capital by selling a minor stake without sacrificing strategic business alignment.