Intel Sued for Misleading “Intel Foundry” Performance Claims, Pointing Finger at Ex-CEO Pat Gelsinger and CFO David Zinsner

Intel Corporation finds itself embroiled in escalating legal challenges, notably facing a lawsuit from its shareholders who accuse the company of misleading them regarding the performance of its Intel Foundry Services (IFS). This situation primarily points to strategic missteps during the tenure of former CEO Pat Gelsinger.

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Recent reports indicate that Intel is under significant scrutiny, as shareholder LR Trust has initiated legal proceedings against the company. According to The Register, the lawsuit contends that misrepresentations about IFS’s performance led to misguided expectations from investors, with the suit specifically targeting Gelsinger and current CFO David Zinsner. The lawsuit demands compensation totaling $207 million—an amount reflective of Gelsinger’s reported salary for the years 2021 to 2023.

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The legal action highlights the company’s overly optimistic stance on Intel Foundry, which has yet to secure a robust customer base. The allegations suggest that Intel knowingly disseminated false information regarding IFS’s revenue performance, which had significant ramifications for shareholder confidence and investment. The lawsuit reveals that IFS experienced a staggering operating loss of $7 billion in 2023, a trend that appears set to continue into 2024, despite previous pledges of a turnaround. An excerpt from the lawsuit details these claims:

“[A]s later admitted by Intel, and in breach of the individual defendants’ fiduciary duties, the true status of Intel’s affairs at the time were that: (1) IFS’s growth was not indicative of revenue growth reportable under its segment; (2) IFS experienced substantial operating losses in 2023;

(3) IFS experienced a decline in product profit driven by lower internal revenue; (4) due to the foregoing, IFS could not be a strong tailwind to Intel’s foundry strategy; and (5) the Company failed to maintain adequate internal controls.

– via The Register

In response to these allegations, shareholders are seeking restitution that mirrors the salaries and benefits provided to Gelsinger and Zinsner during what they describe as a period of fiscal irresponsibility. The lawsuit is currently being processed in federal court in San Jose, California, and marks the second such case brought forth this year, with a similar complaint filed back in August.

Intel’s challenges extend beyond legal ramifications as the company grapples with deteriorating financial conditions. The ambitious plans laid out by its former leadership for Intel Foundry appear to be unraveling, particularly as the division has struggled to attract key clients amidst soaring semiconductor demand. With these developments, the outlook for Intel Foundry remains bleak, prompting speculation about a potential sell-off of the division in the near future.

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