Highlighting Tan Lip Bu's compensation (INTC) - worth a punt?
Sorry to those who can actually pen good dialogues
Fictional Dialogue
Rrrrinnggggggg….
Lip Bu: “Yo what up?”
Intel Rep: “Hey old pal. Look, I know you’re busy so I’m going to keep this short and sweet, and am gonna skip the formalities.
Remember the scuffle with ole mate Patty Gel last year? …
Yeah, Pat’s real nice. He ain’t wanna be known as “Neutron Pat” or “Pat the Butcher”. Anyway, he’s gone now.
Intel is kinda in the rut and we need a phoenix-out-the-ash type leader, someone who’s got the experience, the smarts and the chutzpah.
Look mate, we’ve thought long and hard and we keep circling back to you. You up for it?”
Lip Bu: “Yeah, I don’t bear no grudge. Hmm… what’s in it for me?”
Intel Rep: “Well, we’ll pay you a boatload of money, you could …”
Lip Bu: “Hush! Come on matey, you know that’s not what I’m about..”
Intel Rep: “You could solidify yourself in semi-land. If you make Intel great again, the walls of semi-mansion will echo your name with perfect symphony, far into eternity.”
Lip Bu: “Don’t have to tease me brother. You know I’m always up for a good challenge.”
Intel Rep: “All good brother. We’ll take this as done then. Let me, redirect you to our compensation committee to iron out the ka-chings…..
Hey Lip-Bu, really happy you’re back with the boys out here in Intel. For your compensation, would you like to…”
Lip Bu: “Nah hold up. I said I ain’t about the money. I’ve thought of this already.
You know where I grew up, if you got an A, you’re at fault for not getting an A+. If you got 99 for math, you’re at fault for losing that one mark. That’s my attachment style.
Give me a salary lower than dear ole Patty. Attach my stock options to stock price performance.
Give me a sec…
Oh wow, Intel at its peak was like what, 70 and change? Well, tell you what, tie my max vesting of stock units to me tripling the stock price from here. It’s going to take a while though so give me a five year runway.
And yeah, I’m going to pony up $25m of cold hard cash to buy Intel stock. Count me on my words, I ain’t going to sell a dime till Intel rises from the ashes. If I break my word, cancel all my performance stock units.
This is how I roll…”
Mic drop…
Lip-Bu the legend?
Recently, Intel (INTC) onboarded Tan Lip-Bu as their new CEO. For many of us who aren’t exactly into the whole semiconductor and transistors and fabs etc… we’re probably not too familiar with Tan Lip-Bu.
He’s basically one of the all-time semiconductor greats, responsible for turning Cadence around and multi-bagging the stock 30-40x. Yeah, a majority of those gains are baked in from GFC prices… but I don’t think this takes away from his leadership there.
Here’s what Morris Chang said about him:
"In 2009, Cadence was in pretty big trouble," Chang said. "And Lip-Bu led Cadence out of the trouble. In the last seven years, he has made it a very strong company. He instituted an execution-first, technology-first attitude in Cadence, made key acquisitions, attracted top talent, into Cadence and even more importantly he rejuvenated Cadence’s design tool."
As we know, the chip industry is dynamic, chaotic and moves rapidly. Cadence, an EDA, had to make important acquisitions and partnerships, to build a up a full-stack one-stop software offering for chip designing and manufacturing, with the ability to iterate its tools with each process node improvement. So this isn’t like taking the helm of Costco at the depths of the GFC and claiming victory for improvements thereafter.
Apart from Morris Chang lauding praise on Lip Bu, the holy grail of semiconductor books - Fabless - features Lip-Bu a couple of times and pretty much semi-gushes over him in a very bro-way…
And at SemiWiki, the OG semiconductor news-site, author Daniel Nenni has historically been very critical of just about every CEO of INTC over the last decade but has absolutely incredible things to say about Lip Bu.
Great news last week as Intel fills the CEO slot for the 9th time in 56 years with industry legend Lip-Bu Tan. From what I hear, Intel employees, and the entire industry for that matter, are overjoyed. I’m sure there are one or two competing companies that are concerned but overall it is an absolute love fest.
In addition to working with Intel while at Cadence, Lip-Bu joined the Intel board in 2022 and resigned in August of 2024, Pat Gelsinger resigned on December 1st 2024, probably not a coincidence. Hopefully you understand my “overqualified” comment now?
Bottom line: Lip-Bu Tan knows Intel better and is more qualified than any of the other CEO candidates that have been mentioned in the press by a very wide margin.
I think it is obvious but this is my opinion based on my 40+ years in the semiconductor industry. Lip-Bu Tan is all about establishing his legacy as one of the all-time greatest semiconductor CEO’s. I seriously doubt he would risk his hard earned reputation if he did not see a clear path of success for Intel.
And for you analysts and media who think Lip-Bu only has one year to accomplish this, or are underestimating Lip-Bu’s ability as a CEO: stop embarrassing yourself. And for those of you who are calling Lip-Bu Tan LBT please stop. It sounds like a sandwich.
Compensation
Attached is Lip-Bu’s opening letter as CEO - here.
What really caught my eye, and as seen in the terrible dialogue I concocted up there, was Lip Bu’s compensation scheme as seen in this filing.
In summary, Lip Bu will
Purchase $25m worth of stock from the open market over the month of March
and earn
$1m in base salary and $2m in annual cash bonus
Non-qualified options that vest over time
Annual equity grants
A bunch of normal PSUs tied to shareholder returns relative to S&P500 index over 3 years
New hire option grants that vest through 3rd and 5th year, tied to performance against S&P500 as well
And this is the juicy part…
New hire PSU grants at large sums that vest in year 3 and year 5 but contingent on the stock doubling for vesting of the grant, or tripling for vesting of three times the grant.
The key criteria however is that Lip Bu doesn’t sell a single dime of his $25m purchased shares***
I’m not exactly an expert in calculating how much his total compensation max vested will amount to but as per some experts, it’s going to be worth up to more than $400m, contingent on Intel’s stock price tripling, as per the PSU threshold.
Of course, there is a flurry of ways for Lip Bu to get paid, and it’s good that they’re tying a portion of his returns to the S&P 500. As you can see, Intel has been absolutely demolished by the S&P over the last 5 years. So the trajectory from here on out has to be very different for Lip Bu to walk away with at least a “satisfactory” portion of his compensation package.
If he’d like em all, well then, he’d have to take INTC back to $70 bucks and change.
I’m not a corporate governance expert but typically, whenever management ties their compensation to some aggressive stock price targets, it’s worth paying attention to, at least to figure out what in the world they’re smoking…
For what it’s worth, he’s taking a pay cut on what Pat Gelsinger was earning - $1.25m base salary and cash bonuses of ~$3.4m annually.
Final thoughts
Betting on turnarounds is always tricky, especially when it comes to fast-moving industries like technology and chips. I’m sure there have been many instances where superstar CEOs fumbled critical rescue missions, so perhaps a yawn is well-deserved from fellow veterans.
INTC has been a classic case of innovators’ dilemma, clinging onto its x86 architecture, missing the smartphone era against ARM, and then losing the AI market to NVDA. Lip Bu is not coming into this empty handed however, he’s voiced his view of the company’s strategy but that was incongruent with the old leadership’s view which led to him leaving the board last year.
A few green shoots so far… probably some layoffs to come. Not apples to apples, fabrication takes a lot more manpower than fabless designing. INTC is an IDM and a blend of the two. Still, given the scale differences, I just don’t think INTC needs that many employees.
Secondly, INTC seems have to have produced a comparable chip (Panther Lake) to TSMC’s 2nms, set for production on an earlier timeline than the latter. Of course, apart from being able to produce next gen stuffs, the yield (i.e. how much of production is workable) is up for question.
I also wonder whether INTC sort of just stops being an IDM at some point. They’re pretty much the last big man in America - as per Jerry Sanders “real men own fabs”. But it’s clear that’s not been the playbook for value creation in the world of advanced chips, not to mention the conflicts of interest therein.
Here are two articles (1 , 2) providing a view of what INTC could possibly do going forward.
Some hints from Lip Bu’s initiation letter:
“Under my leadership, Intel will be an engineering-focused company. We will push ourselves to develop the best products..”
“We cannot take anything for granted, and we will do regular deep dives to assess our progress. In areas where we have momentum, we need to double down and extend our advantage. In areas where we are behind the competition, we need to take calculated risks to disrupt and leapfrog. And in areas where our progress has been slower than expected, we need to find new ways to pick up the pace.”
“Together, we will work hard to restore Intel’s position as a world-class products company, establish ourselves as a world-class foundry and delight our customers like never before. That’s what this moment demands of us as we remake Intel for the future.”
Seems like Lip Bu is very focused on the design side of things, with constant emphasis on developing the best products. But clearly he doesn’t intend to abandon the foundry as well… AMD spun-off its foundry and today’s its Global Foundries (which is on the lagging edge anyway). So I’m not too sure if a separation is in the books just yet…
Anyway, this isn’t going to be an easy job but Lip Bu has had experience in this field via Cadence and knows the market intimately. Moreover, I couldn’t help myself to a good ole punt given the aggressive targets embedded within Tan’s compensation structure. Let’s see.
If anyone has opinions to share, drop em in the comments and we can kick off a discussion.
Looks interesting. Thanks. Haven't looked at intc for a while.