Options For Intel’s Troubled Foundry Business
Intel is exploring its options, including a potential separation or sale of its troubled foundry business, according to a report. What are the options?
By Mark LaPedus
Amid a period of losses, layoffs and product miscues, Intel is exploring its options, including a potential separation or sale of its troubled foundry business, according to a report from Bloomberg.
The report, which appeared on Friday (8/30), also indicated that Intel is looking at M&A possibilities for the foundry unit, dubbed Intel Foundry Services (IFS), as well as scrapping various fab projects. Sources also believe that Intel is taking a hard look at its product strategy.
Intel has several options on the table (see below). Nothing has been decided, according to the report. The report caused Intel’s stock to increase.
Intel is looking at its options following a gloomy period for the company. 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 2022, Intel reentered the foundry business, which in general is a large but competitive market. Basically, foundry vendors are companies that make chips for others. TSMC, Samsung, UMC, SMIC, GlobalFoundries and others compete in the foundry business.
After Intel reentered the foundry business, the company announced that it would build a number of new manufacturing facilities or fabs. It hoped to attract a wave of new foundry customer. By generating revenue from these sales, it could fund the development of its new fabs and process R&D.
At the same time, Intel attempted to develop five new process technologies over four years. The goal was to catch up and potentially surpass TSMC and Samsung in terms of process technology.
So far, Intel is making progress in developing new processes. But the company has failed to attract a wide range of foundry customers, causing a string of losses. Now, the company is weighing its options here. In my opinion, here are some of Intel’s options for its foundry business:
Maintain the status quo and keep the foundry business
That’s what Intel would like to do, but the unit continues to spill red ink. And it will continue to lose money for the foreseeable future. So that option is not viable, even if it changes management. On the other hand, the government could rescue Intel in the form of a bailout. That’s not happening, at least in the near term. Long term? It’s possible.
Spin off the foundry business into an independent company and let it run on its own
That’s also an ideal situation for Intel. Get rid of a loss-ridden operation would solve a lot of problems. But a new standalone foundry company would have trouble surviving. It takes billions of dollars of investment, not to mention foundry customers, to make it work. That would require a government bailout. That’s not happening.
Exit the foundry business but keep some fabs
Intel could simply scrap the foundry business and go back to what it does best—design microprocessors. It could also focus on regaining market share in the server processor market and come up with a new AI chip strategy. To me, that’s the best option. But my guess is that Intel will want to recoup its investment and sell the foundry business or form a joint venture in the arena.
Form a foundry joint venture and locate some investors like Bain Capital or others
That makes sense--except for the investors. The investors would need to pour billions of dollars into Intel’s foundry business, but there is little or no hope for a return in the short term.
Sell the foundry unit to TSMC or GlobalFoundries, or form a joint venture with those companies
That’s perhaps the best hope. That way, Intel could find someone who actually knows how to run a foundry business and make it viable. That option seems doubtful. Intel and the other parties would need to gain approval from regulators from the U.S. and other nations. China would likely block any deal.
There are other possible options, as well. But none of the options above are ideal. So right now, it’s unclear which way Intel will turn.
But clearly, the company needs to make some tough decisions. A change in the top management is perhaps the first step. A new product direction is needed. Intel missed the AI chip market and it needs to address that. Dealing with the loss-ridden foundry business also needs to be addressed.
That’s just the tip of the iceberg at what once was the shining star in the semiconductor industry.