© IE Online Media Services Pvt Ltd
Tags:
Journalism of Courage
Intel is spinning off its chipmaking business as part of a long-term plan to reduce losses and convince potential customers that it remains a leader in chip design, capable of manufacturing cutting-edge chips. Monday’s announcement that Intel Foundry will become an independent subsidiary with “clearer separation and independence” from Intel signals that the troubled chipmaker is taking the necessary steps to become profitable and is on the path to delivering on its promised turnaround.
As part of the plan, Intel Foundry will have its own operating board and will report its financial earnings separately from Intel. CEO Pat Gelsinger said the restructuring would allow the foundry business to “evaluate independent sources of funding.” Intel also announced it will halt work on factories in Poland and Germany for two years “based on anticipated market demand.” However, the company will continue with its plants in Arizona, Oregon, New Mexico, and Ohio. Additionally, Intel plans to sell part of its stake in Altera, the programmable chip company it acquired in 2015, and will reduce its global real estate footprint by around two-thirds.
“It provides our external foundry customers and suppliers with clearer separation and independence from the rest of Intel,” Gelsinger said in a statement about the new subsidiary structure. “Importantly, it also gives us future flexibility to evaluate independent sources of funding and optimize the capital structure of each business to maximize growth and shareholder value creation.”
Since Gelsinger became Intel’s CEO three years ago, he has been working to improve the company’s financials and to establish Intel as a manufacturer of chips for other customers. The company has spent roughly $25 billion on these efforts in the last two years, with its biggest customer so far being Microsoft Corp. However, prospects are looking up, with Intel signing a multibillion-dollar, multiyear agreement with Amazon Web Services (AWS) to make some of its chips for artificial intelligence data centers. AWS’s AI fabric chip will be made using Intel’s latest manufacturing process, 18A. Additionally, Intel is developing a custom Xeon 6 server chip for AWS. Intel shares jumped 6 per cent in after-hours trading after the announcement.
Experts, however, note that there has been hesitation from competitors to partner with Intel for manufacturing due to concerns over intellectual property, as Intel is both a competitor and a manufacturing partner. By spinning off its foundry business into an independent unit with its own board, Intel aims to address these concerns.
Over the past few years, Intel, once the world’s most dominant chipmaker, has struggled to respond to market trends and move quickly enough to compete with rivals. By missing some key technology shifts, several new competitors have emerged, including Apple Inc. and Qualcomm in the PC chip market, while Nvidia Corp. has taken control of the critical artificial intelligence chip market. Intel also faced a series of manufacturing stumbles, causing both investors and clients to question the company’s future. Although Intel remains a dominant player for enterprise customers in the PC and laptop space, its long-term prospects are now in doubt.
Intel has lost 60 per cent of its value this year. The company reported a loss of $1.6 billion for the second quarter, which led to its sharpest sell-off in 50 years. It also announced plans to lay off about 15,000 people, most by the end of this year, and pause dividend payments in a cost-saving effort.
With Intel struggling and the turnaround plan taking longer, the company is receiving significant support from the Biden administration, which has awarded the troubled chipmaker up to $3 billion from the CHIPS and Science Act, an initiative aimed at bringing chipmaking back to the U.S.
