At a Glance

  • Intel shareholders are asking a court to order former CEO Pat Gelsinger, current CFO and co-interim CEO David Zinsner, and other company leaders to return "all profits, benefits, and other compensation," alleging they breached fiduciary and contractual duties. The request stems from a shareholder derivative lawsuit filed Tuesday.
  • The lawsuit, filed by shareholder LR Trust on behalf of Intel in the U.S. District Court for the Northern District of California, accuses Gelsinger and Zinsner, as company executives, of issuing misleading information in financial disclosures related to the foundry business and failing to accurately report financial conditions, thereby breaching fiduciary duties. The suit also names other defendants, including current and former board members, alleging their misconduct "exposed the company to significant liability under federal securities laws."
  • The lawsuit states: "As a result of the defendants' breaches of fiduciary duties and other misconduct, Intel has suffered significant losses, and its reputation has been irreparably harmed." It notes that these executives received "unjust enrichment" due to their misconduct.

Deep Dive

The lawsuit comes as the chipmaker, headquartered in Santa Clara, California, works to regain shareholder trust after the failure of a turnaround plan led by Gelsinger, who spent 40 years at Intel. Following the company's report of a record $16.6 billion quarterly loss in the third quarter, related to turnaround efforts, Gelsinger abruptly resigned as CEO and board member on December 1, as previously reported by CFO Dive.

Subsequently, the company appointed Zinsner and Intel Products CEO Michelle Johnston Holthaus as co-interim CEOs, with Zinsner continuing as CFO while advancing a restructuring plan aimed at saving $10 billion in costs.

The restructuring plan also includes significant company-wide layoffs and focuses on the company's foundry business—a key element at the center of the shareholder derivative lawsuit.

Gelsinger's turnaround plan included adjusting Intel's foundry strategy, with the former CEO hoping to spin off the division into a standalone business to allow Intel Foundry to produce chips for competitors, as previously reported by CFO Dive.

However, the lawsuit alleges that Gelsinger, Zinsner, and other company leaders misled shareholders about the foundry division's financial performance. The suit claims that in multiple statements and company filings, including during the full-year 2023 results report, the two executives described the foundry division as a "significant tailwind" for Intel's business.

Yet, in a financial restatement filed in April, the chipmaker disclosed that Intel Foundry was one of its major cost centers—with the division reporting a $7 billion loss in 2023, according to a filing with the U.S. Securities and Exchange Commission. The lawsuit states that this restatement caused Intel's stock to plunge 9.2% at the time. As reported by The Register then, the news also triggered a class action lawsuit alleging shareholders were misled regarding losses related to the foundry business.

Therefore, the December shareholder derivative lawsuit alleges that Intel "has suffered and will continue to suffer significant losses due to the misconduct described in this complaint, but the board has not caused the company to take action to recover the damages the company has suffered and will continue to suffer."

In addition to Zinsner and Gelsinger, the lawsuit names several current and former board members as defendants. Other defendants include former board member Lip-Bu Tan, who abruptly resigned in August due to concerns over Gelsinger's turnaround plan, citing a Reuters report at the time.

Following the leadership changes, the semiconductor manufacturer remains focused on its foundry business. Zinsner said at a conference a few days after being named co-interim CEO that Intel remains committed to becoming a "world-class foundry." Therefore, Gelsinger's permanent successor will likely also need "certain capabilities" in foundry, he said at the time.

Intel declined to comment on the lawsuit. Plaintiff attorney Weiss Law did not immediately respond to a request for comment.