Intel Aims To Reinvent Itself As Foundry Focus Sharpens Amid Leadership Shake-up

Intel wants to be "the western provider of leading-edge silicon," according to interim co-chief executive David Zinsner, but needs a successful products division for this to be possible.

Zinsner, one of the Intel execs appointed to take temporary charge following the departure of Pat Gelsinger, was speaking at the UBS Global Technology Conference this week, alongside Naga Chandrasekaran, EVP and Chief Global Operations Officer at Intel Foundry.

Amid speculation around what direction the Santa Clara giant might take, Zinsner said that the company's board was "pretty clear that the core strategy remains intact. We still want to be a world-class foundry, but we also understand that it's important for the number-one customer of foundry to be successful in order for foundry to be successful."

The number-one customer of foundry is, of course, Intel's own products division, with the seemingly implied suggestion that the company may have neglected its product focus while Gelsinger was working to turn its chip manufacturing arm into an operation that can successfully fulfill orders from other designers.

Zinsner said that the board "wants to put emphasis on execution around the product side of the business," but also noted that "we intend to continue to focus on adding customers to our long-lifetime deal value for the foundry side."

The host, UBS analyst Tim Arcuri, questioned how things would work after Gelsinger's departure, noting: "If the product business is what's important to the board now, Pat knew the products better than anybody. So there is some confusion, I think, among some investors that if that's the emphasis for the board, Pat will seem like the perfect guy."

Zinsner deflected this, saying: "I wouldn't read into the fact that the board wants to make sure we build out the products business and continue to execute while standing up a foundry business as something related to Pat and the board deciding that now is the right time. That was for personal reasons specific to Pat and the board."

Chandrasekaran, who was poached by Intel from memory chipmaker Micron this year to head up the foundry biz, said: "There's a significant cultural change that needs to happen within Intel for us to transition from being an IDM 1.0 to becoming a foundry."

The key is how technology development and manufacturing work together, Chandrasekaran said. "It doesn't matter what happens in technology development, what's in manufacturing. It's the continuity all the way to how we deliver to our customers and that's a change that we want to drive."

Part of the problem, it seems, is that technology development has been driving forward, but manufacturing "doesn't have the mindset of continuous improvement, year-over-year changes, constant innovation," he told the audience. "Innovation doesn't mean it's only backside power, but small changes in process and equipment that drives cost reduction, performance improvement, that mindset is not there."

We wonder how staffers in Intel's foundry unit might feel about that description.

Another change in mindset is needed for the switch to being a contract manufacturer, Chandrasekaran explained.

"When we were IDM 1.0, we were building to inventory, but now we have to change ourselves to build-to-order. That's a very different mindset. The other mindset that I'm seeing is we are very driven towards no wafer left behind. That means you cannot miss any demand," he claimed.

"You're OK to have built out extra capacity believing that there is going to be some demand. And in a monopoly, that's OK. But now you have to go to no capital left behind where you're eking out every wafer out of a tool and trying to drive efficiency further. That's a cultural change that needs to happen."

Speaking of Intel's upcoming 18A process node, upon which much store has been set by the company and industry watchers alike, Chandrasekaran insisted progress continues to be made.

"There are several milestones that we have met and there are still many milestones ahead for the technology development. But what I would say is there's nothing fundamentally challenging on this node," he stated.

"Now it is about going through the remaining yield challenges, defect density challenges, continuing to improve it, improving process margin and getting it ramped."

In fact, much is riding on the success of 18A after the Santa Clara giant announced it was binning the 20A process node and using external partners (TSMC) to manufacture its Arrow Lake processor family instead.

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Chandrasekaran said that the plan for 2025 is firstly to get engineering samples into the hands of customers and obtain the feedback to help start a ramp in its Oregon fab. For the second half of 2025, "our milestone is certifying the node, getting it ramped in Arizona, and getting the product on the shelves so that customers can buy it," he added.

When asked whether 18A is more geared towards high-performance compute (HPC) applications than anything else, Chandrasekaran said this was "absolutely right."

"There are certain aspects of 18A that's extremely powerful for compute applications, especially the backside power. It's going to be very beneficial for compute applications."

But he added that all the "learning" from implementing that process node will go into its successor technology, 14A.

"So as 14A comes in, there will be a broader market that 14A will address, including compute and mobile and other applications and also how the PDKs (process design kits) are done so that it's not just for with Intel, but it's also focused on the broader ecosystem taking 14A and applying it to their designs," Chandrasekaran said.

On questions related to the impending change of government in the US, Zinsner hinted that Intel wasn't too worried about what might happen to the CHIPS Act subsidy it has just been granted.

"We signed an agreement. It's an ironclad agreement. It lays out all the milestones and when the payments come. We're already actually a third of the way probably through the milestones, quite honestly, so as soon as we can get the payments processed, we'll start receiving them," he said. "There's always potential for some adjustment in thinking from the administration and if that's the case, we'll work with them."

When it comes to potential tariffs on imports, Zinsner seemed to suggest that Intel is able to "move things around based on what we need" thanks to its global footprint.

However, he acknowledged that bringing in components produced elsewhere as part of its strategy of building processors out of chiplets is a potential risk to the company's balance sheet.

"I think the big thing that's influencing margins next year is Lunar Lake. We have Lunar Lake, which is largely fabbed outside. There is a component of it that is fabbed inside. It's got memory in the package and we're just a pass through, couldn't get good deal on memory. So that suppresses the margins. And depending on how that product goes, it's kind of a headwind to us on the gross margin front," he explained.

Looking ahead, Zinsner said this will change. "Panther Lake is an 18A, or has an 18A component in it. So we start to see wafers come back. So we'll see this memory thing go away. We'll see more wafers going internal. We'll do better in terms of our cash cost per wafer. So that should be a nice tailwind for gross margins for us," he claimed. ®