Intel CEO Patrick Gelsinger speaks on the Intel Ocotillo Campus in Chandler, Arizona, on March 20, 2024.
Brendan Smialowski | AFP | Getty Images
It was quite every week for Intel.
The chipmaker, which has lost over half its value this yr and last month had its worst day in the marketplace in 50 years after a disappointing earnings report, began the week on Monday by announcing that it’s separating its manufacturing division from the core business of designing and selling computer processors.
And late Friday, CNBC confirmed that Qualcomm has recently approached Intel a couple of takeover in what can be one in every of the largest tech deals ever. It is not clear if Intel has engaged in conversations with Qualcomm, and representatives from each firms declined to comment. The Wall Street Journal was first to report on the matter.
The stock rose 11% for the week, its best performance since November.
The rally provides little relief to CEO Pat Gelsinger, who has had a troublesome run since taking the helm in 2021. The 56-year-old company lost its long-held title of world’s biggest chipmaker and has gotten trounced in artificial intelligence chips by Nvidia, which is now valued at almost $3 trillion, or greater than 30 times Intel’s market cap of just over $90 billion. Intel said in August that it’s cutting 15,000 jobs, or greater than 15% of its workforce.
But Gelsinger continues to be calling the shots and, for now, he says Intel is pushing forward as an independent company with no plans to spin off the foundry. In a memo to employees on Monday, he said the 2 halves are “higher together,” though the corporate is organising a separate internal unit for the foundry, with its own board of directors and governance structure and the potential to lift outside capital.
Intel CEO Pat Gelsinger speaks while showing silicon wafers during an event called AI In all places in Latest York, Thursday, Dec. 14, 2023.
Seth Wenig | AP
For the corporate that put the silicon in Silicon Valley, the road to revival is not getting any smoother. By forging ahead as one company, Intel has to 2 clear two gigantic hurdles directly: Spend greater than $100 billion through 2029 to construct chip factories in 4 different states, while concurrently gaining a foothold within the AI boom that is defining the long run of technology.
Intel expects to spend roughly $25 billion this yr and $21.5 billion next yr on its foundries in hopes that becoming a domestic manufacturer will persuade U.S. chipmakers to onshore their production somewhat than counting on Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung.
That prospect can be more palatable to Wall Street if Intel’s core business was at the highest of its game. But while Intel still makes nearly all of processors at the center of PCs, laptops, and servers, it’s losing market share to Advanced Micro Devices and reporting revenue declines that threaten its money flow.
‘Next phase of this foundry journey’
With challenges mounting, the board met last weekend to debate the corporate’s strategy.
Monday’s announcement on the brand new governance structure for the foundry business served as a gap salvo meant to persuade investor that serious changes are underway as the corporate prepares to launch its manufacturing process, called 18A, next yr. Intel said it has seven products in development and that it landed an enormous customer, announcing that Amazon would use its foundry to provide a networking chip.
“It was very essential to say we’re moving to the subsequent phase of this foundry journey,” Gelsinger told CNBC’s Jon Fortt in an interview. “As we move to this next phase, it’s rather more about constructing efficiency into that and ensuring that we’ve got good shareholder return for those significant investments.”
Still, Gelsinger’s foundry bet will take years to repay. Intel said within the memo that it didn’t expect meaningful sales from external customers until 2027. And the corporate can even pause its fabrication efforts in Poland and Germany “by roughly two years based on anticipated market demand,” while pulling back on its plans for its Malaysian factory.
TSMC is the large within the chip fab world, manufacturing for firms including Nvidia, Apple and Qualcomm. Its technology allows fabless firms — those who outsource manufacturing — to make more powerful and efficient chips than what’s currently possible at volume inside Intel’s factories. Even Intel uses TSMC for a few of its high-end PC processors.
Intel hasn’t announced a big traditional American semiconductor customer for its foundry, but Gelsinger said to remain tuned.
“Some customers are reluctant to provide their names due to competitive dynamics,” Gelsinger told Fortt. “But we have seen a big uptick in the quantity of customer pipeline activity we’ve got underway.”
Prior to the Amazon announcement, Microsoft said earlier this yr it will use Intel Foundry to provide custom chips for its cloud services, an agreement that may very well be price $15 billion to Intel. Microsoft CEO Satya Nadella said in February that it will use Intel to provide a chip, but didn’t provide details. Intel has also signed up MediaTek, which primarily makes lower-end chips for mobile phones.
U.S. President Joe Biden listens to Intel CEO Pat Gelsinger as he attends the groundbreaking of the brand new Intel semiconductor manufacturing facility in Latest Albany, Ohio, U.S., September 9, 2022.
Joshua Roberts | Reuters
Backed by the federal government
Intel’s biggest champion in the intervening time is the U.S. government, whish is pushing hard to secure U.S.-based chip supply and limit the country’s reliance on Taiwan.
Intel said this week that it received $3 billion to construct chips for the military and intelligence agencies in a specialized facility called a “secure enclave.” This system is assessed, so Intel didn’t share specifics. Gelsinger also recently met with Commerce Secretary Gina Raimondo, who’s loudly promoting Intel’s future role in chip production.
Earlier this yr, Intel was awarded as much as $8.5 billion in CHIPS Act funding from the Biden administration and will receive a further $11 billion in loans from the laws, which was passed in 2022. Not one of the funds have been distributed yet.
“At the top of the day, I believe what policymakers want is for there to be a thriving American semiconductor industry in America,” said Anthony Rapa, a partner at law firm Blank Rome who focuses on international trade.
For now, Intel’s biggest foundry customer is itself. The corporate began reporting the division’s funds this yr. For the newest quarter, which resulted in June, it had an operating lack of $2.8 billion on revenue of $4.3 billion. Only $77 million in revenue got here from external customers.
Intel has a goal of $15 billion in external foundry revenue by 2030.
While this week’s announcement was viewed by some analysts as step one to a sale or spinoff, Gelsinger said that it was partially intended to assist win recent customers which may be concerned about their mental property leaking out of the foundry and into Intel’s other business.
“Intel believes that this can provide external foundry customers/suppliers with clearer separation,” JPMorgan Chase analysts, who’ve the equivalent of a sell rating on the stock, wrote in a report. “We consider this might ultimately result in a spin out of the business over the subsequent few years.”
Regardless of what happens on that side of the home, Intel has to seek out a fix for its fundamental business of Core PC chips and Xeon server chips.
Intel’s client computing group — the PC chip division — reported a couple of 25% drop in revenue from its peak in 2020 to last yr. The info center division is down 40% over that stretch. Server chip volume decreased 37% in 2023, while the associated fee to provide a server product rose.
Intel has added AI bits to its processors as a part of a push for brand spanking new PC sales. But it surely still lacks a robust AI chip competitor to Nvidia’s GPUs, that are dominating the information center market. The Futurum Group’s Daniel Newman estimates that Intel’s Gaudi 3 AI accelerator only contributed about $500 million to the corporate’s sales during the last yr, compared with Nvidia’s $47.5 billion in data center sales in its latest fiscal yr.
Newman is asking the identical query as many Intel investors about where the corporate goes from here.
“For those who pull these two things apart, you go, ‘Well, what are they best at anymore? Have they got the perfect process? Have they got the perfect design?'” he said. “I believe a part of what made them strong was that they did all of it.”
— CNBC’s Rohan Goswami contributed to this report
WATCH: CNBC’s full interview with Intel CEO Pat Gelsinger
