Intel Shares Details Of Multi Billion Dollar Plan To Battle With Taiwan’s TSMC

The information provided is not intended to be investment advice. The author does not hold any positions in the stocks mentioned.

Earlier today, Intel Corporation, a leading semiconductor manufacturer, released details about its Intel Foundry business division as part of a change in its financial reporting format. This new format now includes a separate line item for the contract manufacturing chip division. The release was accompanied by a talk from Intel CEO Patrick Gelsinger, who shared that chip manufacturers, including Intel and TSMC, are in a race to produce high-end chips for companies like NVIDIA and Apple. Gelsinger also mentioned that in 2024, these manufacturers will be utilizing advanced technologies, such as artificial intelligence, to improve margins and enhance the quality of their chips.

Intel Announces Major Investments and Grants to Expand Foundry Business Division

The main focus of Intel’s recent announcement was its intention to utilize its Foundry business division in order to increase cost-efficiency and profitability for its own products. The company stated that Intel Foundry will enhance crucial aspects of chip production, including expedited processes and testing times, in order to strengthen margins and regain control of orders that were previously outsourced to third-party contract chip manufacturers.

As a result of this change, the company has shifted its focus to a new category called Intel Foundry on the income statement, which separates the cost of manufacturing products from other expenses. This new strategy, which is also reflected in the recently refiled financial statements with the SEC, is aimed at providing investors with a clearer understanding of how production costs are accounted for separately from the total costs of product development.

Intel’s recent announcement is in line with their goal to reclaim their status as a leader in semiconductor technology, which they lost to Taiwan’s TSMC. The two companies are currently competing to provide customers with the most advanced manufacturing technologies, and Intel’s CEO Patrick Gelsinger has stated that there is high demand for their 18A technologies.

Currently, TSMC is in the process of mass producing chips made with the 3-nanometer node. In response, Intel has developed their own next generation node, known as the 2-nanometer. Intel’s CEO, Gelsinger, announced that they have received commitments from five customers and have collaborated on over a dozen test chips for this advanced manufacturing technology. Gelsinger has previously stated that he has taken a significant risk by investing in the 18A node, and he has emphasized the importance of beating TSMC. He also revealed that the first 18A test chip will begin production later this year.

The CEO of Intel explained that the new model establishes a connection between investment in foundry and product groups in order to accurately reflect the market value of wafers as a cost for Intel’s products. As part of their strategy for technological dominance, Intel has also announced plans to swiftly release five new semiconductor process nodes within a four-year timeframe.

Despite facing challenges such as rising business expenses and a struggling consumer chip market in recent years, Intel’s leadership remains hopeful that 2024 will mark a turning point for their foundry business. They are confident that Intel Foundry will rise to become the second largest foundry in the world by 2030, driven by the adoption of advanced extreme ultraviolet (EUV) chip manufacturing methods that will improve operating margins.

The current value of the contracts signed by Intel for its Foundry business division is $15 billion. With the implementation of a new cost framework and the advantages of EUV, the company is confident that it will maintain a 40% operating margin for its Products division by the end of the decade.