Intel splits out manufacturing, pauses overseas fab builds

Business news | September 17, 2024

By Peter Clarke

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Pat Gelsinger, CEO of Intel, has doubled down on his foundry strategy and persuaded the board of directors that his plan to build up the manufacturing unit deserves more time.

However, he has also said the manufacturing unit, known as Intel Foundry, will be operated as a subsidiary company. That would make a spin-off easier and could bring such an outcome closer to realization.

Gelsinger announced Intel’s next steps in a note to employees that included mention of compulsary staff cuts, the sale of parts of its business including Altera but not manufacturing, and pausing for two years European projects for fabs in Germany and a chiplet assembly facility in Poland.

Intel’s Gelsinger to pitch Altera sale to board, says report

The European fab plan with a budget of US$32 million was already on a long time line with production not scheduled to start until four or five years after the European Union signs of on subsidies of about US$10 billion to be provided by the German government. A further two-year pause puts the likely start of chip manufacturing there into the next decade.

And the short-term need to avoid spending and raise funds is acute as Gelsinger said Intel also plans to “reduce or exit” about two-thirds of the real-estate the company holds globally by the end of the 2024. It is not clear what “reduce or exit” means.

Intel used to be the technology leader in chip manufacturing but has fallen behind foundry TSMC over the last decade and is making financial losses as it sees its traditional market, computer processors, being taken by rivals AMD and Nvidia. Gelsinger was brought in as CEO to try and recover the lost ground in technology but confidence in Intel has weakened in 2024 with some observers saying it was time for Intel to cut its losses on manufacturing and consider changing its CEO.

The company went public with the note sent to employees outlining the current plans following a board of directors meeting held last week. The note acknowledged that a lot of external focus has been on Intel following the announcement of the lossy 2Q24 financial results.

The big take away is that Intel is keeping hold of its manufacturing operation as it approaches the launch of products on the Intel 18A manufacturing process. But as the same time Intel Foundry is being converted into a subsidiary company with its own “operational board” of directors. The subisidiary company will still report to the CEO, Gelsinger said.

According to reports Intel has dropped is 20A manufacturing process and brought forward 18A but there have also been mixed reports about whether customers are finding the progress with yields acceptable. So it is unclear whether Intel is truly making progress with its 5N4Y program of developing five manufacturing processes and deploying them in four years.

In a move that may have addressed some concerns Gelsinger gave information about an expanded multiyear collaboration with Amazon Web Services. “We expect to have deep engagement with AWS on additional designs spanning Intel 18A, Intel 18AP and Intel 14A,” Gelsinger said. Gelsinger also referenced the announcement of an additional US$3 billion of direct funding under the CHIPS and Science Act to provide trusted manufacturing of leading-edge semiconductors for the US government for military and other secure applications.

Intel gets US$3 billion support from US government

Intel Foundry as subsidiary

Gelsinger said that running Intel Foundry as an independent company would provide customers and suppliers with clearer separation and would give Intel flexibility and options to raise funding for the unit. In other words the steps being taken are also those that would be taken prior to raising funds through equity capital, by an IPO or by a sale.

Gelsinger said Intel remains committed to Intel’s manufacturing in Ireland and its US projects in Arizona, Oregon, New Mexico and Ohio. No mention was made of Intel manufacturing in Israel.

On the jobs front Gelsinger said the company was half-way through the workforce reduction target of 15,000 people by the end of 2024, which was announced alongside the 2Q24 financial results. Many have taken voluntary redundancy or early retirement but Gelsinger said that if employees are to be laid off compulsorily they will be notified in mid-October.

The CEO said Intel would be acting with “urgency” to sell off part of Altera, its programable logic subsidiary, to generate proceeds for Intel on Altera’s route to an IPO. It had been thought that Intel would opt for a sale of the whole company to raise cash more quickly. Altera’s financial results were separated out from Intel’s in April 2024 and the plan of record was to bring in a private equity partner to help prepare the company for an IPO in the coming years.

For now, it appears the Gelsinger’s Altera-specific plan and plans more generally remain the same, but the level of rhetoric and urgency has been increased.