Intel CEO Pat Gelsinger has stepped down after a tumultuous tenure at the helm of the chip giant

Intel (INTC) announced Monday that CEO Pat Gelsinger retired and resigned from the company’s board of directors, effective Dec. 1. Gelsinger led more than three years of aggressive efforts to turn around the troubled U.S. chipmaker.

Intel shares were up about 5% midday on the news before changing direction. Shares fell as much as 2.5% in afternoon trading as Wall Street analysts issued bearish notes, maintaining their hold ratings on the stock and ending the day down half a percentage point.

A person familiar with the matter told Yahoo Finance that the board has lost confidence in Gelsinger and a change is needed before 2025. The person added that the decision was made by a small group of people within Intel and that the leadership team was only informed of it Sunday afternoon.

It’s unclear whether Intel will continue Gelsinger’s expensive expansion into making chips for other companies, the source said.

Intel has named CFO David Zinsner and former head of client computing Michelle Johnston Holthaus as interim co-CEOs. Holthaus was also named CEO of Intel Products. The company said its board has formed a search committee and “will work diligently and expeditiously to find a permanent successor for Gelsinger.”

“While we have made significant progress in restoring manufacturing competitiveness and building the capabilities to become a world-class foundry, we know we still have work to do within the company and are committed to restoring investor confidence.” Intel CEO Frank Yeary said in a statement.

Intel is facing two separate lawsuits this year filed by investors who claim they were misled about the company’s financial performance. The last report was filed in August by a pension fund after the chipmaker announced it would cut 15,000 jobs.

Gelsinger previously worked at Intel for 30 years but left the company in 2009. He rejoined the company in 2021, taking over the role of CEO from Bob Swan.

Gelsinger promised that his tenure would bring a “Grovian” mindset back to the company and correct years of missteps that led to Intel losing its lead in the chip market to Nvidia (NVDA), the leading artificial intelligence chip designer, and chipmaker TSMC (TSM ) lost.

That goal referred to former CEO Andy Grove, who engineered a spectacular turnaround for the company in the 1980s as Intel struggled to maintain its dominance in the memory chip market in the face of competition from Japan – and a dramatic shift towards it Production of another type of chip, called CPUs, of which it became the leading manufacturer.

FILE - Intel CEO Pat Gelsinger speaks while holding a new chip called Gaudi 3 during an event called AI Everywhere in New York on Dec. 14, 2023. (AP Photo/Seth Wenig, File) — Intel CEO Pat Gelsinger speaks while holding a new chip called Gaudi 3 during an event called AI Everywhere in New York on December 14, 2023. (AP Photo/Seth Wenig, File) · RELATED PRESS

Many of the problems facing Intel predate Gelsinger’s tenure and will remain a challenge for the next leadership group.

Intel is struggling with a slump in PC chip sales that is just beginning to improve and increased competition in that market from AMD (AMD) and British chip designer Arm (ARM), while the CPU market as a whole is struggling threatened by the rise of GPU chips that power generative artificial intelligence – a market dominated by Nvidia.

As CEO of Intel, Gelsinger wanted to strengthen the company’s foundry business by producing chips for external customers. Intel makes its own chips, but had never produced semiconductors for outside customers, and beginning in the mid-2010s, its own chip manufacturing processes experienced delays.

Gelsinger launched an aggressive effort to improve Intel’s manufacturing processes – which he outlined at the start of his tenure as CEO in 2021 – aimed at reversing the foundry’s previous failures within five years. Intel has recently focused on switching to a manufacturing process called 18A, which would allow it to compete directly with TSMC as an AI chip maker.

Gelsinger’s departure raises doubts about the company’s focus on its services foundry, which analysts say could hurt Intel’s ability to catch up in the AI space.

“While keeping (the foundries) feels like dead weight (and a continuation of the strategy Pat put out), eliminating them would also be fraught with difficulties related to the product roadmap, outsourcing strategy, the CHIPS Act and the political navigation is connected.” Bernstein analyst Stacy Rasgon wrote this in a note to clients on Monday.

In late November, Intel officially received $7.86 billion in CHIPS Act funding for its semiconductor manufacturing and packaging operations in Arizona, New Mexico, Ohio and Oregon.

The company also recently announced plans to split its foundry business into an independent subsidiary, and Gelsinger’s exit could accelerate that shift, according to Srini Pajjuri, an analyst at Raymond James.

The move toward Intel’s loss-making chip-making business has so far failed to boost confidence in the company. Intel has recently become a takeover target and the company’s shares have fallen more than 50% for the year. Meanwhile, the S&P 500 is up 26%. Intel stock was recently replaced in the Dow by Nvidia stock.

As Bernstein’s Rasgon wrote, “There don’t seem to be any easy answers here, so whoever ends up filling this spot is in for a tough ride.”

Correction: An earlier version of this article misspelled the name of Intel CEO Frank Yeary. We regret the error.

Laura Bratton is a reporter for Yahoo Finance. Follow her on X @LauraBratton5.

Yahoo Finance Brian Sozzi contributed to this story.

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Intel CEO Pat Gelsinger has stepped down after a tumultuous tenure at the helm of the chip giant

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