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Intel CEO pushes for ‘austerity’ after Q2 earnings

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Yahoo Finance Live’s Brian Sozzi discusses the CHIPS Act passing in Congress and what Intel CEO Pat Gelsinger had to say about the chip maker’s second-quarter earnings.

Video Transcript

[MUSIC PLAYING]

JULIE HYMAN: Prices for tech products like graphics cards, gaming consoles, and automobiles could cool down after the $52 billion bill to boost semiconductor fabrication plants in the US passed in Congress. That's going to support companies like Intel. They've long awaited the bill. It might take a little while, though, to affect prices.

BRIAN SOZZI: As that is playing out, Julie, we just talked to Intel CEO Pat Gelsinger after their challenging quarter, late last week, and outlook. He says they're going to be going into a period of austerity, something you don't hear too often from a company like Intel. But here's what he told us.

PAT GELSINGER: Boy, this is a time for a bit of austerity, right. We've exited our Optane business. We sold the drone business. I made six product exits since we've been here. And those are allowing us to put more focus on key areas.

Also, a bit of austerity size allows us to-- well, we had stuff that accreted over the last decade that needs to be cleaned up, gotten more efficient as well. So a bit of austerity helps to drive a more accelerated pace to the transformation that we have underway. But we also say, hey, you know, this is the time to invest for the future.

BRIAN SOZZI: So three mentions of austerity by Intel CEO in 38 seconds, very, very interesting, caught my attention because I've never heard him say that before. But since he took over in early 2021, they have exited six businesses that has freed up about $1 and 1/2 billion for them to invest, whether it's to pad profits in some form, maybe it didn't show up in the most recent quarter, or just invest in other areas like their foundry business.

The next big area for them that they will look to free up is Mobileye. That's the autonomous driving division or software company they bought in 2017 for $15 billion. Gelsinger told me that that's still-- that divestiture or spin-off will-- is still on track for sometime later this year. That has been a very good business for Intel, really since it bought the company, second quarter sales up 41%. I believe the business is profitable.

Now, when they announced the spin-off late in 2021, I believe was early December, it was valued, Mobileye, at close to $50 billion. Whether that's the same valuation that it will come to market with given what we have seen with private market valuations and just valuations and tech stocks, to be determined, but that could be a nice cash raise for Intel that they can plow that money back into building foundries and maybe flow some to its bottom line.

JULIE HYMAN: I mean, at the same time, that's one of the only areas of the company that's growing like that. So--

BRIAN SOZZI: Yep.

JULIE HYMAN: --they lose that.

- Yeah. So how does this play out within their balance sheet as well? I mean, what's the take here at the end of the day?

BRIAN SOZZI: Take here, it's good to hear some austerity coming to Intel, not that they have been spending willy-nilly the past five years, but it's good to hear them say on that conference call these last week, you know what, we're not in the drone business anymore. That was the business they got into under prior CEO Bob Swan, I believe. Intel doesn't need to be in drones. It was cool five or six years ago to say you were in the drone business. The drone market hasn't really necessarily lived up to expectations. Let Intel focus on what it does best, making chips. And it has a lot work to do in that regard over the next decade.

JULIE HYMAN: I was going to say that business isn't going so well, though, what they do best.

BRIAN SOZZI: They have some big goals that they have to hit by 2025. And by 2025, Intel expects to get back to product leadership in chips. Let them divest the drone business, let them divest Mobileye, and dump all that money getting back into some form of leadership position over the next five years.

JULIE HYMAN: I mean, you got to question, though, those goals after this quarter, I would think.

BRIAN SOZZI: And the Street is doing it.

JULIE HYMAN: Yeah.

BRIAN SOZZI: And the Street is questioning it.

- Absolutely.

BRIAN SOZZI: Seven Wall Street downgrades, I believe, after that quarter.