Are Intel’s problems too big to fix?

Intel announced Monday that Gelsinger is retiring as chief executive and stepping down from the board of directors. The move had the tone of a peaceful transition, but the reality was still clear, with Gelsinger calling the day “bittersweet" and board chair Frank Yeary noting the goal of “restoring investor confidence" in the press release. Intel’s stock lost 61% of its value between Gelsinger’s first day on the job in early 2021 and Friday’s close, making it the worst performer on the PHLX Semiconductor Index over that time, according to data from S&P Global Market Intelligence. The S&P 500 has gained 53% over the same period.

A CEO exit following such an uninspiring run naturally sparks some hope; Intel’s shares jumped more than 5% Monday morning before ending the day with a slight loss. But the move raises even more questions about the company’s path, both in the short and the long run. Current financial chief David Zinsner and Michelle Johnston Holthaus, who has been running Intel’s PC chip business, will act as co-CEOs while the board seeks a permanent replacement. That keeps the top job in limbo as Intel supposedly is nearing the end of its ambitious race to catch up its manufacturing processes with chip-making giant Taiwan Semiconductor Manufacturing.

The culmination of that race is a production process called Intel 18A. Intel said on its last earnings call on Oct. 31 that the first chips manufactured on that process are expected to start shipping in the middle of next year. Much rides on their success as 18A is the final phase of Gelsinger’s plan to have Intel race though five so-called “nodes" in four years (Intel used to spend at least two years on a single node).

A CEO switch so late in that cycle, therefore, naturally raises some eyebrows. “As the standard-bearer for the company’s ‘five nodes in four years’ guiding mantra, Mr. Gelsinger’s sudden departure leaves us unsure of the strategic path ahead for Intel," wrote Joshua Buchalter of TD Cowen in a note to clients on Monday. In his own report, Stacy Rasgon of Bernstein said, “We might have expected Pat to at least make it until 18A is out the door (at which point we would see how it stacks up), and as he hasn’t, one has to wonder whether his departure foreshadows any negative implications for the health of the process roadmap."

Intel’s other major problems involve both selling the chips that it makes and finding companies willing to use its factories to make their own. Neither effort is going great at the moment. Intel’s foundry business, which handles manufacturing for external clients, has lost more than $11 billion in the first nine months of 2024—nearly double what it lost in the same period last year. And while the company’s stock jumped after its third-quarter report showed data center revenue beating Wall Street’s expectations after four straight quarters of misses, the unit is still generating half the annual revenue it made in 2020, just before Gelsinger took over.

That is due to Intel losing share to Advanced Micro Devices in server CPU chips and booming demand for Nvidia’s GPU chips used in artificial intelligence computing. Intel’s own attempt at a data center GPU has been a bust; the company admitted on its last call that its recently launched Gaudi GPU chip will fall short of its target of $500 million in revenue this year. Nvidia’s current data center GPU family, known as Hopper, is projected to hit nearly $83 billion in revenue for the fiscal year ending in January, according to consensus estimates from Visible Alpha.

Some think Gelsinger’s exit raises the possibility of some sort of deal—perhaps one that separates Intel’s product and chip design business from its money-losing foundry arm. But that would be extremely difficult since the $7.86 billion Intel is receiving from the U.S. government through the Chips Act requires the company to retain at least 50% ownership of its fabs. And any foreign buyer is unlikely to pass muster with regulators given Intel’s position as the largest U.S.-based chip manufacturer.

Intel, in short, has no easy options, and even few very difficult ones. Chip manufacturing is a complicated process that requires years of research and development on each process and product. Much of the company’s current predicament stems from strategic missteps made well before Gelsinger returned to the company. “We think the potential for a new strategy raises some optimism—but Intel is in a difficult position and the path forward will be difficult no matter the leadership," wrote Chris Caso of Wolfe Research on Monday in a note to clients.

Even with nearly two-thirds of its market value gone under the last CEO, Intel’s new boss will have a surprisingly tough act to follow.

Write to Dan Gallagher at dan.gallagher@wsj.com