ANALYSIS-Trump call to oust Intel CEO Tan could sidetrack chipmaker's turnaround

By Arsheeya Bajwa Aug 8 (Reuters) - Intel (INTC.O) CEO Lip-Bu Tan is already facing an uphill battle in turning around the ailing chipmaker. Now, U.S. President Donald Trump’s demand that Tan resign over his ties to Chinese firms will only distract him from that task, two investors and a former senior employee said. Trump said on Thursday that Tan was “highly conflicted” due to his Chinese connections. Reuters reported exclusively in April that Tan had invested in hundreds of Chinese firms, some of which were linked to the Chinese military. Tan may now have to mount an effort to reassure Trump that he remains the right person to revive the storied American chipmaker, pulling his focus away from the cost cuts he’s trying to implement. “It is distracting,” said Ryuta Makino, analyst at Intel investor Gabelli Funds, which, according to LSEG data, owns more than 200,000 shares in Intel. “I think Trump will make goals for Intel to spend more, and I don’t think Intel has the capabilities to spend more, like what Apple and Nvidia are doing.” AI chip market leader Nvidia (NVDA.O) and iPhone-maker Apple (AAPL.O) have committed hundreds of billions of dollars to expand domestic manufacturing, which, according to Trump, will bring jobs back home. Until recently, Intel had emerged as one of the biggest beneficiaries of the 2022 CHIPS Act, as former CEO Pat Gelsinger laid out plans to build advanced chipmaking factories. Tan, however, has significantly pared back such ambitions, as the company’s goal of rivaling Taiwanese chipmaker TSMC’s (2330.TW) contract manufacturing chops have fallen short. Tan said last month that he would slow construction work on new factories in Ohio and planned to build factories only when he saw demand for Intel’s chips, a move that is likely to further strain relations with Trump. The company, its board and Tan were making significant investments aligned with Trump’s America First agenda, Intel said in a statement on Thursday, without any mention of Trump’s demand. The statement was “bland”, said David Wagner, a portfolio manager at Intel shareholder Aptus Capital Advisors, which owns Intel stock through index funds. “Either defend your leader, which will be the beginning of a difficult road ahead, or consider making a change,” Wagner said. Having this play out over a few months is not something that Intel can afford, he said. Tan himself released a statement late on Thursday. “The United States has been my home for more than 40 years. I love this country and am profoundly grateful for the opportunities it has given me. I also love this company,” he said, adding that the board was “fully supportive of the work we are doing to transform our company.” “BUILT ON TRUST” Tan, a chip industry veteran, took the helm at Intel about six months ago, after the board ousted previous boss Pat Gelsinger over years of missteps and burgeoning losses. The company’s shares are largely flat this year after losing nearly two-thirds of their value last year. Tan was the CEO of chip-design software maker Cadence Design (CDNS.O) from 2008 through December 2021. Cadence last month agreed to plead guilty and pay more than $140 million to resolve charges for selling its products to a Chinese military university believed to be involved in simulating nuclear blasts, Reuters reported. The sales to Chinese entities occurred under his leadership. Reuters reported on Wednesday that U.S. Republican Senator Tom Cotton sent a letter to Intel’s board chair with questions about Tan’s ties to Chinese firms and the criminal case involving Cadence. “There has been a lot of misinformation circulating about my past roles,” Tan said in his statement on Thursday. “I have always operated within the highest legal and ethical standards. My reputation has been built on trust,” he said. It is not illegal for U.S. citizens to hold stakes in Chinese companies unless those companies have been added to the U.S. Treasury’s Chinese Military-Industrial Complex Companies List, which explicitly bans such investments. Reuters in April had found no evidence that Tan at the time was invested directly in any company on that list. But Trump’s remarks have now forced the limelight on an issue that could erode investor confidence. “If you add in another layer of government scrutiny, and everybody looking into how the company is doing whatever it’s doing … that just makes it harder,” said a former senior executive at Intel, who was familiar with the company’s strategy under Gelsinger. The source, who declined to be named, was let go as part of Gelsinger’s workforce reduction drive last year. Tan’s strategy is to “get rid of all of the non-productive parts of the company and really focus on a key few products,” the person said. “If (Tan) leaves, it’s going to just prolong whatever Intel has to do and needs to do really quickly.”