Intel carves out foundry unit in strategic overhaul

• Intel’s CEO Pat Gelsinger has outlined a strategic overhaul at the chip giant
• The Intel Foundry chip manufacturing unit is to become a separate subsidiary that could attract external investment
• Intel has also put its chip manufacturing investment plans in Germany and Poland on ice
• And it’s looking to sell a stake in its Altera subsidiary 

Intel is carving out its chip-making business into a separate subsidiary and putting some of its foundry expansion plans on ice as part of a strategic overhaul designed to reset the company and help keep costs under control, the semiconductor vendor’s CEO Pat Gelsinger revealed late on Monday in a letter to employees. 

Intel has had a difficult year, both financially and strategically, as it struggles to find the right path after failing to anticipate the AI chip market boom that has propelled rival Nvidia to the forefront of the processor sector. Intel announced plans to cut 15,000 jobs to reduce its operating costs by $10bn when it reported its second-quarter results in early August and only weeks later speculation was swirling that further cost-cutting plans were being drawn up and that some parts of the Intel empire, particularly its Altera programmable chip business that was spun out as separate company earlier this year, might even be sold off. 

Now Gelsinger has outlined the new company plan and, while it doesn’t include any asset sales (yet), it does put some of the company’s main plans for international expansion on ice. Gelsinger stated that he wanted to “provide some updates and outline what comes next” as there has been “no shortage of rumours and speculation about the company”. 

At a recent Intel board meeting it was agreed, noted the CEO, that “we have a lot of work ahead to drive greater efficiency, improve our profitability and enhance our market competitiveness.” 

That work includes driving “greater capital efficiency” at Intel Foundry (launched in February this year to focus on chip production “for the AI era”). It will also act with “urgency” to achieve its $10bn cost reductions and refocus on the company’s strong position with its x86 processors “while streamlining our product portfolio in service to Intel customers and partners”. As part of the cost-cutting efforts, Intel is “implementing plans to reduce or exit about two-thirds of our real estate globally by the end of the year,” noted the CEO.

In order to achieve the first of those specific targets, Intel is to establish Intel Foundry, which reported a $2.8bn operating loss in the second quarter of this year alone, as an independent subsidiary to give the company “future flexibility to evaluate independent sources of funding and optimise the capital structure” as well as provide “external foundry customers and suppliers with clearer separation and independence from the rest of Intel.” 

And to help curb costs, Intel Foundry’s planned investments in Germany and Poland have been put on hold for about two years, with Intel’s chip production plant in Ireland remaining as the company’s main European chip production facility for now. 

Intel Foundry manufacturing facility investments in the US (Arizona, Oregon, New Mexico and Ohio) will continue as planned, while the company aims to complete the construction of a new advanced packaging factory in Malaysia, though the timing of when that facility will come online is now uncertain and will be determined by “market conditions”.  

“We remain well positioned to scale up production around the world based on market demand as we grow our foundry business,” noted the CEO. 

And there’s some good news for Intel Foundry as well, as it has struck a multi-year, multibillion-dollar deal with hyperscaler Amazon Web Services (AWS) to design and produce custom AI chips. “This is a significant expansion of the two companies’ longstanding strategic collaboration to help customers power virtually any workload and accelerate the performance of artificial intelligence (AI) applications,” noted Intel.   

In addition, Intel has been awarded up to $3bn in direct funding under the Chips and Science Act to “expand the trusted manufacturing of leading-edge semiconductors for the US government.”

In terms of the company’s product portfolio revamp, Intel is seeking to cut costs by shifting its Edge and Automotive businesses into its Client Computing Group (CCG), moving its Integrated Photonics Solutions unit into its Data Center & AI (DCAI) group to enable a “more focused” R&D plan, and integrating its Software and Incubation business into the vendor’s core business units “to foster more integrated roadmaps, unlock efficiencies and create value”.

In addition, Intel’s Networking and Edge (NEX) unit will be “focusing on networking and telco”, which will come as a relief to all the companies that rely on Intel-based servers for their cloud, virtual and Open RAN strategies. Although it seems clear that some parts of NEX are going to be dropped or sidelined, so this is an area of Intel’s development that’s worth tracking as the company reports throughout the rest of this year.   

And it seems the speculation about Altera was at least partially correct, though Intel is claiming its plans haven’t changed. Gelsinger noted in his letter that Intel intends to sell “part of our stake in Altera, which is something we have talked about publicly several times and has long been part of our strategy to generate proceeds for Intel on Altera’s path to an IPO.” 

The CEO concluded: “Collectively, these changes are critical steps forward as we build a leaner, simpler and more efficient Intel… All eyes will remain on us. We need to fight for every inch and execute better than ever before. Because that’s the only way to quiet our critics and deliver the results we know we’re capable of achieving. We must maintain our focus on innovation while also becoming an engine of operational efficiency and financial performance that’s built to win in the market. As I’ve said before, this is the most significant transformation of Intel in over four decades. Not since the memory-to-microprocessor transition have we attempted something so essential. We succeeded then and we will meet this moment and build a stronger Intel for decades to come.” 

The new plan appears to have been welcomed by investors, as Intel’s share price was trading up by 6.7% to $22.31 in pre-market trading on Tuesday. 

- Ray Le Maistre, Editorial Director, TelecomTV