One month as Intel CEO, Pat Gelsinger unveils $20 billion turnaround plan chip so giant can build two new chip factories in Arizona
New CEO Pat Gelsinger has signaled the way forward for Intel, that will see the chip giant doubling down on its inhouse chip manufacturing capabilities.
At a time when some analysts have been questioning Intel’s decision not to outsource most of its chip manufacturing to third-party specialists, Gelsinger has said Intel will spend $20 billion to build two new fabs in Arizona.
Intel’s announcement on Tuesday that it will build two factories in Arizona and open its plants to outside customers, challenges two other companies in the world that can make the most advanced chips, namely TSMC and Samsung Electronics.
Taiwan Semiconductor Manufacturing Co Ltd (TSMC) it should be remembered is the world’s biggest contract chipmaker, and in November it said it would invest $3.5 billion to set up a wholly-owned subsidiary in Arizona, as part of its plan to build a $12 billion factory in Arizona.
Intel for its part has been suffering from intense competition from AMD and others.
This caused activist hedge fund Third Point LLC to recently urge Intel to explore its strategic alternatives going forward, and in January it was announced that CEO Bob Swan was to step down, to be replaced by VMware CEO Pat Gelsinger in February 2021.
One of the questions Intel had been facing from investors is whether the firm should keep chip design and production under one roof.
TSMC is understood to have a dramatic technological lead over Intel when it comes to chip fabrication, demonstrated in the 5nm A14 chips the company makes for Apple.
It comes after Intel has experienced some well documented setbacks in the development of 10nm and 7nm processes, which in turn greatly hindered its competitiveness in the market.
AMD has outsourced its CPU production to TSMC, and that firm is progressively threatening Intel’s PC CPU market share.
Yet Intel does use others to make some of its chips.
In January this year it was revealed that TSMC already makes 15-20 percent of Intel’s non-CPU chips, with most of the wafer starts for these products assigned to TSMC and UMC.
But this week Gelsinger has unveiled Intel’s new strategy, dubbed “IDM 2.0” because of its transformation of Intel’s integrated device manufacturing model (wherein it both designs and manufactures chips).
The move comes amid a global semiconductor shortage that is hurting many industries, most notably car makers, as well as significant pressure from US authorities to expand chip production in the United States.
Gelsinger announced significant manufacturing expansion plans, starting with an estimated $20 billion investment to build two new factories (or “fabs”) in Arizona, located at the company’s Ocotillo campus.
This $20 billion investment is also expected to create over 3,000 permanent high-tech jobs; over 3,000 construction jobs; and approximately 15,000 local long-term jobs.
He also announced Intel’s plans to become a major provider of foundry capacity in the US and Europe to serve customers globally and is creating a new unit called Intel Foundry Services.
“We are setting a course for a new era of innovation and product leadership at Intel,” said Gelsinger. “Intel is the only company with the depth and breadth of software, silicon and platforms, packaging, and process with at-scale manufacturing customers can depend on for their next-generation innovations.”
“IDM 2.0 is an elegant strategy that only Intel can deliver – and it’s a winning formula,” said Gelsinger. “We will use it to design the best products and manufacture them in the best way possible for every category we compete in.”
Intel also plans to expand its use of third-party chipmakers such as TSMC. Intel has, up until now, refrained from doing for its most advanced chips.
But starting in 2023, Intel will also work with third-party foundries to produce products at “the core of Intel’s computing offerings for both client and data centre segments,” the company said in a statement.
In the meantime, Intel said its 7-nanometer technology is “progressing well.”
Intel said that in order to deliver on its IDM 2.0, it will work with others and to this end has announced plans for an important research collaboration with IBM, focused on creating next–generation logic and packaging technologies.
Clear strategy needed
One analyst said that Intel needs to deliver on this strategy, after years of talks about these options.
“Critics would argue that elements of this strategy aren’t new,” noted Geoff Blaber, CEO CCS Insight. “Intel has talked about opening its manufacturing capability to customers for years but failed to make any considerable progress. Mr Gelsinger needs to prove that this time its different, that it fulfills a customer need and that it can sit comfortably alongside Intel’s own manufacturing requirements.”
“Intel needed a clear strategy for manufacturing and innovation leadership,” Blaber added. “IDM 2.0 and $20 billion is the statement they needed but execution is now critical to close the gap with TSMC and bring customers to its foundry business at scale.”
“TSMC has become the clear leader in advanced semiconductor manufacturing built off the vast scale and growth of the smartphone industry,” Blaber concluded. “Intel is adapting its model and acknowledging competitors strengths yet doubling down on the areas where it leads in scale and innovation, such as its 3d packaging technology. This is a new pragmatic Intel born of necessity.”