Intel confirms the divestiture of its networking communications business, anchoring its investment model to replicate the Altera path

According to an internal memorandum obtained by Zhitong Finance APP, Intel (INTC.US) has disclosed plans to spin off its Network and Edge business unit (NEX) and seek external investment for this business unit. The document, written by NEX head Sachin Katti, has been confirmed by an Intel spokesperson.

Katti, who has led the NEX division since early 2023, was appointed Chief Technology and Artificial Intelligence Officer by CEO Pat Gelsinger in April this year, responsible for formulating the AI strategy for the chip giant. In the memorandum, Katti stated that Intel "internally announced" on Thursday the transformation of the "NEX business into an independent company," aiming to create "a cutting-edge silicon solutions provider focused on critical communications, enterprise networking, and Ethernet connectivity infrastructure."

An Intel spokesperson confirmed in a statement: "We plan to spin off the core segments of the networking and communications business to establish an independent company and have initiated the selection process for strategic investors. Similar to the Altera transaction, Intel will retain anchor investor status while driving business growth and sharing future profits."

On the same day the spin-off plan was announced, the semiconductor giant also disclosed several transformation initiatives under Gelsinger's leadership: including a global workforce reduction of 15% and adopting a more conservative strategy for its foundry business. "We are fully committed to strengthening our core product portfolio and AI technology roadmap to enhance customer service capabilities," Gelsinger emphasized in the statement.

Katti did not provide a specific timeline for the spin-off. Since last September, the division has focused its main business on networking and communication products after transferring its edge computing business to the Client Computing Group and its integrated photonics solutions to the Data Center Group. He revealed that Intel will follow past spin-off cases, retaining equity in the new company while bringing in external investors.

"Intel will continue to act as a core investor, but we are actively seeking more strategic and capital partners to help the new company grow," Katti promised, stating that this restructuring is "fundamentally aimed at enhancing customer service," with the existing service support system remaining seamlessly connected while empowering NEX to "more efficiently expand into new business areas." The executive expects that the independent company, supported by Intel, will accelerate innovation and investment, advancing customer strategies and product planning more agilely.

Since taking over as CEO in March, Gelsinger has consistently made it clear that he intends to divest non-core strategic assets. Reports in May indicated that Intel was considering selling the NEX division. Although he did not directly mention the NEX spin-off during Thursday's earnings call, Gelsinger discussed plans for "non-core asset disposals," including the recent reduction of Intel's stake in Mobileye (MBLY.US). He revealed that the transaction to sell a majority stake (51%) of the Altera programmable chip business to Silver Lake Capital is expected to be completed by the end of September, with Intel retaining a 49% stake.

"While continuing to focus on core businesses and strategies, I will also assess other optimization opportunities," Gelsinger stated during the earnings call