Intel Corporation faces a derivative lawsuit filed by shareholders accusing the company’s executives, including former CEO Pat Gelsinger, of making false and misleading statements about its manufacturing segment reorganization. The lawsuit, first reported by Bloomberg Law, alleges violations of federal securities laws, breaches of fiduciary duties, and other forms of misconduct. Shareholders claim these actions caused significant damage to Intel and its stockholders.
What Is a Derivative Lawsuit?
A derivative lawsuit is brought by shareholders on behalf of the corporation against directors or executives accused of breaching their duties. Unlike direct lawsuits, any damages awarded go to the corporation rather than the shareholders. This type of legal action underscores the shareholders’ commitment to holding leadership accountable for corporate governance.
Details of Intel’s Reorganization Plan
Separation of Product and Foundry Lines
In February 2024, Intel announced a significant restructuring, splitting its Product and Foundry lines into two distinct businesses. The company’s Foundry segment was tasked with reporting its own profits and losses, a move Intel claimed would enhance transparency and accountability.
New Financial Reporting Model
Intel also introduced a revamped financial reporting system designed to promote cost discipline and higher returns. The Foundry segment became a standalone operating entity, while other business units, including Client Computing Group (CCG), Data Center and AI (DCAI), and Network and Edge (NEX), were consolidated under the Intel Products division.
Financial Outcomes of the Restructuring
Following the reorganization, Intel Foundry reported an alarming $7 billion in operating losses for 2023. Revenue for the Foundry unit declined by 31%, dropping to $18.9 billion from $27.49 billion in 2022. These figures raised concerns about the effectiveness of the new structure and the transparency of prior statements regarding the business’s performance.
Similar Legal Actions Against Intel
Stourbridge Investments Lawsuit
In June 2024, Intel faced another derivative lawsuit filed by Stourbridge Investments. This case similarly accused Intel of making “materially false and misleading statements” about its Foundry business.
Federal Raptor Lake Lawsuit
Separately, a federal lawsuit was filed in San Jose, California, by Mark Vanvalkenburgh, alleging that Intel’s Raptor Lake desktop processors were defective and unstable. Despite known issues, the company allegedly continued selling the processors without notifying customers.
Shareholders’ Demands and Intel’s Response
In the most recent lawsuit, shareholders are seeking restitution and punitive damages from individual defendants, along with reimbursement of court costs. Intel has declined to comment on these allegations.
Broader Implications for Intel
Leadership and Financial Challenges
2024 has been a turbulent year for Intel. The company reported consecutive quarters of billion-dollar losses, resulting in:
- Layoffs affecting 15,000 employees.
- Delayed construction of proposed semiconductor fabrication plants (fabs).
- The announced “retirement” of former CEO Pat Gelsinger.
Interim Leadership’s Commitment
Despite these challenges, interim co-CEOs Dave Zinsner and MJ Holthaus emphasized their focus on building world-class products and a robust foundry business. The company remains determined to navigate its current difficulties and restore investor confidence.
Frequently Asked Questions (FAQ)
What prompted the derivative lawsuit against Intel?
Shareholders allege that Intel executives made false and misleading statements about the company’s Foundry business reorganization, leading to significant financial losses.
Who are the key individuals named in the lawsuit?
Former CEO Pat Gelsinger is among the executives named in the lawsuit, along with other senior leaders accused of misconduct.
How does a derivative lawsuit differ from a direct lawsuit?
In a derivative lawsuit, shareholders sue on behalf of the corporation, and any awarded damages benefit the company rather than the shareholders directly.
What were the financial results for Intel’s Foundry segment in 2023?
The Foundry segment reported $7 billion in operating losses, with revenue declining by 31% compared to the previous year.
What other legal challenges has Intel faced recently?
In addition to the Foundry-related lawsuits, Intel is dealing with allegations about defective Raptor Lake processors and their continued sale without customer notification.
