Intel’s Reorg Creates New Foundry Subsidiary
Speculation mounts that Intel could one day spin-off or sell its loss-ridden foundry unit.
By Mark LaPedus
Intel has announced a major reorganization within its ranks, combining several product groups and creating a new independent subsidiary for its troubled foundry unit.
The changes fueled more speculation that Intel could one day spin-off or sell its foundry unit. Previously, that group, called Intel Foundry, operated as a unit inside Intel with profit and loss (P&L) responsibilities.
As part of the new reorganization, the chip giant now plans to establish Intel Foundry as an independent subsidiary inside of Intel. The move provides a clearer separation between Intel Foundry and the rest of Intel.
In addition, Intel will also establish an operating board, which includes independent directors to govern Intel Foundry. There is no change to the leadership team in the foundry unit.
“Importantly, it also gives us future flexibility to evaluate independent sources of funding and optimize the capital structure of each business to maximize growth and shareholder value creation,” said Intel CEO Pat Gelsinger in a letter to employees on Monday (Sept. 16). All of this portends a sale or spin-off of the foundry unit, although Intel didn’t disclose any news here.
In any case, the move to create a subsidiary for Intel Foundry will complete a process Intel initiated earlier this year. At the time, Intel separated the P&L as well as financial reporting for Intel Foundry and its product groups.
Besides the new changes in its foundry unit, Intel disclosed other major news on Sept. 16:
*Intel plans to sell part of its stake in Altera, its FPGA vendor.
*As part of the reorganization, the company is moving its edge and automotive businesses into its Client Computing Group (CCG). It is also moving its photonics group into its Data Center & Artificial Intelligence Group (DCAI).
*Intel has delayed its fab project in Germany, as well as its chip-assembly project in Poland.
*Intel plans to complete the construction of its new advanced packaging factory in Malaysia, but the completion date depends on market conditions.
“There are no changes to our other manufacturing locations. We remain committed to our U.S. manufacturing investments and are moving forward with our projects in Arizona, Oregon, New Mexico and Ohio. We remain well-positioned to scale up production around the world based on market demand as we grow our foundry business,” Gelsinger said in the letter.
More woes
As reported, Intel has been looking at its options following a gloomy period for the company. The company is not only losing money in the foundry market, but it is also facing intense competition in its core processor business from the likes of AMD, Qualcomm and others.
Intel reported sales of $12.8 billion in its most recent quarter, down 1% year-over-year. The company lost $1.6 billion in the quarter, compared to a profit of $1.5 billion a year ago.
The company’s foundry business has experienced several consecutive quarterly losses. For the most recent quarter, the unit lost $2.8 billion on sales of $4.3 billion. Most of the unit’s sales are derived from Intel’s own product groups, not from external foundry customers.
In response to the losses, Intel expects to reduce headcount by greater than 15% with the majority completed by the end of 2024.
Besides the losses, Intel recently revised its chip-manufacturing roadmap. In the previous roadmap, Intel intended to manufacture chips based on the following nodes—7nm, 4nm, 3nm, 20A and 18A.
Both 7nm and 4nm are believed to be in production. At present, Intel is ramping up its chips at the 3nm node.
But instead of moving to the 20A node, Intel will skip that process and move directly to the 18A technology. Originally, Intel was supposed to manufacture its Arrow Lake processor family at the 20A node within its own fabs. Now, Intel’s Arrow Lake processor family will be built primarily using external foundry partners and packaged by Intel Foundry.
It, however, remains to be seen if Intel can ramp up its 20A process on time. Slated for 2025, Intel’s 20A consists of two new technologies—the RibbonFET gate-all-around transistor architecture and the PowerVia backside power delivery technology. These complex technologies are difficult to manufacture.
What’s next?
Still, the question is clear: What is the eventual plan for Intel Foundry?
For now, Intel Foundry will become an independent subsidiary inside of Intel. “A more focused and efficient Intel Foundry will further enhance collaboration with Intel Products. And our capabilities across design and manufacturing will remain a source of competitive differentiation and strength,” Gelsinger said in the letter.
In recent times, Intel has been making inroads with foundry customers for its packaging business. That appears to be a bright spot for Intel.
But the company has had a difficult time finding high-volume chip customers for its foundry business. Simply put, Intel has found it difficult to compete in the foundry business against TSMC, the dominant player in the segment. And so, Intel Foundry will continue to lose money for the foreseeable future.
It's not all doom and gloom. On Monday, Intel also disclosed two major announcements:
*Intel has been awarded up to $3 billion in direct funding under the CHIPS and Science Act for the Secure Enclave program. Intel already has a contract to make leading-edge chips and packages for the U.S. government. The new program is designed to expand the manufacturing of leading-edge semiconductors for the government.
*Intel and Amazon Web Services announced a co-investment in custom chip designs under a multi-billion-dollar framework. In addition, Intel will produce an AI fabric chip for AWS on Intel’s 18A process. Intel will also produce a custom Xeon 6 chip on its 3nm process, building on the existing partnership under which Intel produces Xeon Scalable processors for AWS.
Nonetheless, Intel’s move to create an independent subsidiary for its foundry unit makes sense on several fronts. On one hand, Intel Foundry will become more independent, which in turn could make it a more nimble competitor in the business.
On the other hand, the new operating structure gives Intel more time to evaluate its foundry business—and look for a potential buyer or investor for the unit. That’s an ideal situation for Intel. Shedding a loss-ridden operation would solve a lot of problems for the company.
Time will tell which path Intel will take for the foundry unit.