"It's stupid for Intel to sell a profitable business to look less incompetent short-term."
Profitable? Anandtech article about this deal states the probable reason:
"While Intel’s Non-Volatile Memory Solutions Group (NSG) as a whole brought in $4.4B in revenue for 2019, the group has lost money for 4 of the last 5 years, recording flat or negative operating incomes. Only in the last six months has Intel made any real money off of NAND, reporting $600M in operating income for the first half of 2020. So although NSG – and by large part, Intel’s NAND business – have played a big part in Intel’s record revenues, they haven’t turned a significant profit for a company that’s renowned for their 60% gross margins."
SSD's are already a commodity and Intel has a long history in well performing SSD's. But now even the cheapest Chinese drives are reasonably competitive with the big boys' offerings and offer good enough performance that most people won't perceive the difference in regular use.
This deal doesn't cover Optane which is top end high-price enterprise stuff. Which means higher margins and assiaciates Intel as high-end (in some minds at least).