Intel Doubles Down on Foundry Ambitions

The recent departure of Intel's CEO, Pat Gelsinger, has sparked considerable attention in the tech industry, particularly regarding the company's future direction and financial stabilityIn an interview held on Wednesday during UBS's Global Technology and AI Conference, Intel's executives, including the interim CEO and CFO Dave Zinsner, reaffirmed their financial projections and emphasized a commitment to controlling capital expendituresNotably, despite the challenges that Intel is currently facing, Zinsner expressed optimism about the company’s performance and reiterated a long-term vision focused on its foundry services, indicating an anticipated peak in operational losses by 2024 and a projected break-even condition by 2030.

"We are committed to the positive guidance provided during our earnings release," Zinsner stated, reinforcing the idea that substantial changes in leadership would not distract Intel from its core strategic objectives

While some might argue that management shifts could lead to instability, Zinsner was quick to point out that the company’s foundational strategy remains intact.

Zinsner, alongside well-respected executive Naga Chandrasekaran, who has deep experience from his time at Micron Technology, presented a new vision that calls for a more conservative approach to capital spending in the near termThis shift comes after growing pressure from investors who have been urging the company to scale back its expenditures for some time, particularly during Gelsinger's tenureThe intention is to trim costs at Intel's fabrication plants while focusing on producing a more profitable portfolio of semiconductors, a move seen as critical to stabilizing Intel's financial health.

Chandrasekaran emphasized the need for a cultural transformation within Intel, stating that the company has historically produced chips solely for its products, resulting in an oversupply

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He called for a mentality shift towards not leaving "any wafers unutilized,” promoting the idea that Intel ought to maintain a “no capital left behind" philosophy and fully embrace its role within the foundry business.

The necessity of this new attitude is underscored by recent developments and media reports indicating that Intel may consider external candidates for its next CEO—an unprecedented move for a company that has traditionally groomed its executives from withinThe Intel board is reportedly in talks with top executive search firms to help identify a potential successor to Gelsinger, with a keen eye on candidates with foundry experience, especially in advanced manufacturing processes.

Matt Murphy, the CEO of Marvell Technology, has emerged as a leading candidate for the role, according to insidersMarvell has established a strong foothold in the data center chip market, a space where Intel finds itself at a competitive disadvantage against firms like AMD and Nvidia

If Murphy were to succeed in assuming the top role at Intel, it could potentially invigorate investor confidence and reverse the stock market's downturn for the company in recent years.

Murphy's leadership at Marvell has seen the company capitalize on rising demand for customized AI chips, with projections indicating a doubling of AI-related revenue to over $1.5 billion within the year, potentially soaring to $2.5 billion the following fiscal yearWith analysts estimating that Marvell's revenue from AI chips could reach as high as $2.5 billion to $3 billion by 2025, his expertise could be vital in addressing Intel’s current challenges.

Furthermore, reports indicated that Intel's board has approached their former director, Lip-Bu Tan, to gauge his interest in taking on the challenging leadership role at the beleaguered semiconductor giantThis indicates an urgency for Intel to find a leader who can guide the company through its present struggles.

Despite the upheavals at the executive level, Intel maintains its optimistic outlook, projecting revenues for the current quarter to fall between $13.3 billion and $14.3 billion, exceeding the expectations set forth by Wall Street analysts

This confidence was echoed during the significant technology event hosted by UBS, where executives reiterated the company's resolve to execute Gelsinger’s vision of evolving Intel from a self-sufficient Integrated Device Manufacturer (IDM) into a world-class foundry capable of competing with the likes of Taiwan Semiconductor Manufacturing Company (TSMC).

The implication here is clear: even amid dire operational setbacks, there’s a consensus among Intel's leadership to pursue the ambitious goal of becoming a premier foundry service providerAccording to Gelsinger’s blueprint, the operational losses in the foundry segment are expected to peak in 2024, with a roadmap aiming toward a 40% gross margin and a 30% operating margin by 2030, ultimately evolving into a break-even operational state for the business.

This vision includes not only catering to external clients but also potentially providing services to military competitors like Nvidia and AMD, establishing Intel as a formidable entity in the foundry market

The ambition is to attain the world's second-largest chip foundry by 2030, trailing only TSMCGelsinger had previously promised that Intel would outpace its competition in advancing to cutting-edge manufacturing nodes, namely the 18A processing node, thus regaining competitive edge on costs.

As for the progress on the 18A technology, Chandrasekaran reported that, despite facing some technical and execution challenges, the project has reached several key milestonesHe expressed confidence that the primary obstacles remaining relate to yield improvement and defect density, stating that Intel plans to deliver samples made with this new process in the first half of the upcoming year, with expectations to scale production in Oregon later in the year.

Intel’s management seems unconcerned about the funding they are set to receive from the US CHIPS Act, viewing this as an essential support mechanism for their foundry aspirations