Intel changes foundry strategy under new CEO Pat Gelsinger

Intel CEO Pat Gelsinger speaks on March 9, 2017 in Santa Monica, California, in a photo he took when he was CEO of VMware.

Patrick T. Fallon | Bloomberg | Getty Images

In his first extensive public remarks since he became Intel’s CEO, Pat Gelsinger delivered an underlying message: Intel, the American chip-making giant, is returning.

Contrary to some industry expectations, Intel said on Tuesday that it would not change its decades-old strategy of becoming a disk design firm outsourcing production. Instead, production will double and invest $ 20 billion in two new chip factories in Arizona.

“Intel is back. The old Intel is now the new Intel,” Gelsinger said.

Investors hoped Gelsinger, who began his career at Intel for more than thirty years, could fix the ship after years of challenges in which the most advanced disk development halted and succeeded by Asian competitors such as TSMC, which can now manufacture smaller transistors. . and thus superior chips.

Gelsinger was energetic on Tuesday when he talked about esoteric semiconductor technologies, and many of his talks seem to be aimed at fueling Intel’s workforce.

“We bring back the execution discipline of Intel. What I call the Grove-ian culture, that we do what we say to do,” Gelsinger said, referring to legendary CEO Andy Grove, who built Intel. in the American technological juggernaut during the 1980s and 90s.

“We have the confidence in our execution. That our teams will be fired. You know, if we said we were going to do X, we would do 1.1 times every time we make a commitment,” Gelsinger said.

Investors loved it – the stock rose more than 6% on Tuesday.

The biggest change

Gelsinger showed on Tuesday that he is not wasting any time making major changes. The most important change in strategy is a new division called Intel Foundry Services which is one of the biggest trends in the semiconductor world.

Many technology companies and chip makers have moved to a model where they design chips, but turn to Asian factories run by companies like TSMC and Samsung to manufacture them.

Intel has only started manufacturing chips for other companies, but prefers to design and manufacture its own high-performance chips as well.

It will manufacture most of its high-quality chips, but now Intel will also operate the factories for other companies – and they are based in the US and Europe, for customers such as governments for whom it is important.

“I believe this is the first time Intel is doing what it needs to create a ‘real’ foundry,” said Patrick Moorhead, an analyst at Moor Insights and Strategy.

The foundry strategy also highlights Intel’s position as a major U.S. manufacturer, trying to protect many lawmakers with incentives, as supply chain problems and disc shortages have led to problems producing many of the fastest chips in places like Taiwan and Korea.

Intel’s announcement and $ 20 billion investment in new US-based factories suggest that companies that might be forced to go to Asia to make semiconductors could get similar performance from chips made in places like Arizona. .

“Intel’s announcement today is proof that our semiconductor manufacturing legislation is helping to grow Arizona’s economy, create well – paying jobs across our country, improve our national security and ensure that we country continues to lead to innovation, “Arizona Senator Kyrsten Sinema said in a statement.

Gelsinger said government incentives are not the only reason Intel is taking this step.

“This is the Intel strategy, point, point. It does not depend on a cent of government support, or state support, or any other investment to make it successful,” Gelsinger said. Intel said on Tuesday that it believes the foundry market could be worth $ 100 billion by 2025.

Intel suggested that there was a huge demand for its foundry services, especially from major US technology companies. It is said to have received enthusiasm for its foundry services from among others Amazon, Cisco, Google, IBM and Qualcomm. Microsoft CEO Satya Nadella even appeared in a short video to endorse the plan.

Not on the list was Apple, which replaced Intel chips with its own chips in its latest range of laptops, sparking the most recent round of handwriting about Intel’s technical future. Intel currently has ads comparing its chips to Apple’s.

But Gelsinger struggled so much on Tuesday that he believes Intel may be able to recoup the business with its new foundry unit.

“We will also pursue customers like Apple and say, ‘You know, is it possible to expand and expand your foundry capabilities as well?'” Gelsinger said.

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