Intel Embarks on Foundry Expansion, Aims to Reclaim Technological Leadership
Intel, the Silicon Valley pioneer, is embarking on a massive factory-building spree in an audacious plan to revitalize the company and reclaim its technological leadership. However, Intel’s CEO, Pat Gelsinger, is facing a crucial hurdle: he needs enough paying customers to make his turnaround plan for Intel successful. Gelsinger’s plan revolves around transforming Intel into a contract manufacturer known as a foundry, making chips for other companies. He has promised to reveal the names of these customers this year, and even just one significant customer would help investors justify their faith in Intel.
Intel’s pivot into the foundry market marks the company’s biggest strategic shift in decades. Historically, Intel has designed and built its own chips such as Pentium, Celeron, and Xeon, which powered computers worldwide. However, the company lost its technological edge over the years, leading some computer manufacturers to switch to Advanced Micro Devices (AMD) or even design their own chips. Intel’s foray into the foundry market presents an opportunity for the company to showcase its manufacturing prowess and regain its industry prominence.
While Intel hasn’t disclosed a major customer for its foundry business, there have been some early developments. Ericsson has committed to manufacturing some networking chips in Intel’s factories, and Amazon is considering utilizing Intel’s packaging services for semiconductors made elsewhere. Qualcomm is also exploring Intel’s chipmaking technology that is slated to be introduced in 2025.
Investors and analysts are eagerly waiting for the announcement of a flagship customer willing to prepay for future supply. Gelsinger has stated that such a customer exists but has not revealed their identity. However, even after the announcement, it may take years before revenue is generated from such a deal. Analysts caution that Intel has a long road ahead of them to compete with established players like Taiwan Semiconductor Manufacturing (TSMC) and Samsung, both of whom have dominated the industry for years.
The cost of equipping cutting-edge chip plants is exorbitant. For example, Intel’s most advanced production site in Leixlip, Ireland, features a line of seven ASML Holding machines known as the billion-dollar row. Additionally, even the more basic Muratec machines, which facilitate chip movement within the factory, cost as much as a new car each.
Gelsinger, who returned to Intel in 2021 to lead the turnaround effort, acknowledges the enormous challenge ahead. He continuously compares Intel with TSMC and Samsung, and he understands that Intel’s products are not yet considered world class. Gelsinger believes that Intel has to earn its way back into the industry and prove to customers that its manufacturing is back on track.
As the demand for advanced chip production continues to soar, there is a growing desire to diversify manufacturing locations beyond East Asia. This presents an opportunity for Intel to secure customers who are not direct competitors and thus, avoid potential conflicts. However, Intel will need to convince potential customers that its manufacturing missteps are a thing of the past.
The identity of Intel’s marquee foundry customer remains uncertain, but some investors are hopeful that it could be Nvidia. Jensen Huang, Nvidia’s CEO, has expressed openness to the idea. The possibility of AMD, Intel’s long-time rival, becoming a customer is considered unlikely as the company ceased manufacturing its own chips over a decade ago and currently relies on TSMC for production.
In conclusion, Intel’s ambitious foundry expansion is crucial to its strategy of reclaiming technological leadership. While the company has not yet disclosed a major customer, industry insiders eagerly await the announcement of a flagship partner that will validate Intel’s comeback plan. Gelsinger acknowledges the challenges ahead and aims to prove that Intel’s manufacturing capabilities are back on track, comparable to those of TSMC and Samsung. As Intel strives to regain its prominence, the industry eagerly watches its progress in the foundry market.
