As part of its recovery plan, Intel CEO Pat Gelsinger has embarked on one of the largest factory builds in the history of the chip industry, hoping to become the world’s second-largest chip foundry by 2030. But he’s missing a key ingredient: not enough paying customers.
Kissinger’s recovery plan hinges on his foundry program, which makes chips for other companies. He has promised Wall Street that he will start disclosing the names of those customers this year. Even just one big brand could help investors justify the 47% rise in Intel’s stock price over the past 12 months, as current Intel sales are slipping and the company’s once-touted profit margins are narrowing.
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The foundry program is Intel’s biggest strategic shift in decades. From the beginning, Intel’s business model has been to design and build its own chips, like the Pentium, Celeron, and Xeon, which power computers around the world. But today, Intel has lost its technological edge, leading some PC makers to switch to products from competitor AMD, while data center operators have even begun designing their own chips or turning to NVIDIA.
Entering the foundry market is a chance to show the industry that Intel has regained its manufacturing prowess,” said Kissinger, 62. “It seems to me that if we’re going to be big, we still have to be a foundry. Currently, we’re in the process of getting some customers.”
While Intel has not yet disclosed the list of customers for its foundry business, it has taken some initial steps. Ericsson has pledged to make some networking chips at Intel’s facilities. Amazon has also said it is considering using Intel’s factories to package chips. Qualcomm is also watching Intel’s chip-making technology.
Today, here’s what analysts and investors are waiting for a flagship customer willing to pay upfront to guarantee supply. If it’s true, as Kissinger says, that the list will be announced this year, then there are less than two months left. Kissinger said one customer had already paid in advance for future supply but did not name the customer.
Everyone is waiting,” said Stacy Rasgon, an analyst at research firm Sanford C. Bernstein. But even if Intel does announce the list, it will be a couple of years before it actually gets revenue. In short, there’s a long road ahead.”
As we all know, Intel has dominated the chip market for decades. Today, not only is its technology lagging behind, but its revenue is lower than TSMC and Samsung Electronics, and its market capitalization is only a fraction of NVIDIA’s.
Target 2025 to achieve technology leadership
Based on Kissinger’s plan, Intel wants to regain its technology leadership by 2025. As part of its comeback plan, Intel is building plants in Arizona, Ireland, Israel and Germany. Its biggest bet is a new plant in Ohio that is expected to be the largest in the industry.
Clearly, this is a costly operation. Upgrading and expanding factories wipes out Intel’s profits and depletes the cash reserves that once led the industry. Kissinger is also aware that it won’t be easy to outperform TSMC and convince potential customers of Intel’s manufacturing skills.
We’re well aware that TSMC and Samsung are really good at this,” he said. They’ve been doing it for 30 years, and we’re only two years in, and there’s still a lot to learn.” In 2021, Kissinger was appointed to return to the company as CEO after a 10-year absence, leading Intel to begin a new round of transformation.
But the positive side is that the demand for state-of-the-art chip production will only continue to grow. Also, customers want to diversify their suppliers and not concentrate too much.
Who will be Intel’s Foundry customers?
Gelsinger believes he is convincing the naysayers that Intel is making a comeback. The rebound in the company’s stock price this year has also verified this. But he also acknowledged that Intel still needs to win over a major customer.
“Ultimately, it will come down to whether Nvidia, Amazon, Google, Microsoft, Qualcomm or Apple believe they can build better products with Intel,” he said.
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