Intel Corp’s new Chief Executive Pat Gelsinger laid out some bold moves Tuesday to make the chip giant great again, a plan that includes using its manufacturing prowess to reduce some of the semiconductor industry’s reliance on Asian manufacturing.
One of the biggest surprises in his hour-long webcast with Wall Street and reporters was the news that Intel INTC, -3.28% will create a foundry business, as part of a three-pronged manufacturing strategy he called IDM (integrated Device Manufacturing) 2.0. Intel will continue to make its own chips, and has made big leaps in resolving its issues moving to the next-generation, 7-nanometer process. But it will also expand its use of third-party manufacturers, and it will now make chips for others.
Gelsinger said Intel will manufacture chips for other companies via a separate entity from Intel’s core business making chips for PCs, servers and data centers. The company also plans to spend $20 billion on two new fabrication facilities in Arizona, where it already has fabs, and that capacity will be both for Intel products and for foundry customers.
“The majority of leading-edge foundry capacity is concentrated in Asia, while the industry needs more geographically balanced manufacturing capacity,” said Gelsinger, who officially started as CEO on Feb. 15.
He also hinted that the company may build additional capacity in the European Union, as part of the plan to serve U.S. and European customers. Intel already has some manufacturing in Ireland. He said there are potential financial incentives from both the U.S. and the European Union governments, but that Intel is committed to this strategy, even without any government funding.
“We want investments because it is the right thing for them to accelerate manufacturing in this imbalance of the global supply chain,” Gelsinger said in response to a question. “But we’re making these commitments without any commitments from the governments to accelerate them but we’ve gotten such positive responses.”
“This is both a good business as well as a good political move,” said Jack Gold, principal analyst of J. Gold Associates, in a research note. “In fact, it’s likely that we’ll see more announcements related to this drive to make more chips in the U.S. and Europe.”
Intel has dabbled in foundry services in the past, but analysts said this time appears to be different. The company will be creating a separate subsidiary called Intel Foundry Services, headed up by Randhir Thakur, who most recently was corporate vice president of global supply management at Intel. The company will be offering industry-standard tools and equipment, so its potential customers won’t have to use Intel design rules or tools to make their chips.
“To be a foundry you have to be able to export from TSMC and Samsung and others,” said Pat Moorhead, principal analyst at Moor Insights and Strategy. He said the fact that Intel showed the corporate logos of Cadence Design Systems Inc. CDNS, +0.22% and Synopsys Inc. SNPS, +0.30% meant it was committed to industry standards.
Gold noted that Intel will have to convince its customers, some of whom will likely be competitors of the chip giant, that their intellectual property will be safe and that the priorities of Intel the chip maker will not preempt their production needs for its own. “Production planning is fine, but in the real world, things change quickly and Intel needs to be seen as both flexible and reliable,” he said.
Gelsinger is proving he is working fast to make big changes at the company where he had spent three decades, before leaving to join EMC Corp. and eventually becoming the CEO of VMware Inc. VMW, -0.88%. He said he is working to return Intel to a “Grovian culture,” a reference to Intel’s former Chief Executive Andy Grove, and “execute, execute, execute.”
“We’re bringing back the execution discipline of Intel,” he said. “You know what? I call it the Grovian culture, that we do what we say that we’ll do.”
Investors so far liked the news, pushing Intel shares up nearly 7% in after-hours trading. There are plenty of risks associated with the new strategy, including the fact that new capacity planned will take a few years to build and will not address the current global chip shortages. But when they are built, Intel is clearly hoping as part of its turnaround, it will play a big new role on the worldwide semiconductor-manufacturing stage, and lead a rebalancing of the global supply chain.