Entrepreneurship

Intel: Pat Gelsinger on the momentum in Foundry and further progress with Plan

September 16, 2024, a message from Intel CEO Pat Gelsinger to Intel employees regarding the next phase of Intel’s transformation.

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Team,

Since the second quarter results were announced, all eyes have been on Intel. There have been a lot of rumors and speculation about the company, including last week’s board meeting. So I’m writing to you today to provide some updates and explain where we go from here.

Let me start by saying that we had an extremely productive and supportive board meeting. We have a strong board made up of independent directors whose job it is to challenge and push us to excel. And we had in-depth discussions about our strategy, our portfolio and the immediate progress we are making against the plan we announced on August 1.

The Board and I agreed that there is still much work ahead of us to drive efficiencies, improve our profitability and increase our competitiveness in the marketplace. I want to highlight three key takeaways from last week’s meeting:

  1. We need to build on our momentum in Foundry as we approach the launch of Intel 18A and increase capital efficiency in that part of our business.
  2. We must continue to act with urgency to create a more competitive cost structure and achieve the $10 billion savings target we announced last month.
  3. We must refocus on our strong x86 franchise as we advance our AI strategy while optimizing our product portfolio to serve Intel customers and partners.

We have several pieces of news to report that support these priorities.

Amazon Web Services selects Intel Foundry

Today, we announced that we will expand our strategic collaboration with Amazon Web Services (AWS). This includes a joint investment in custom chip designs, and we announced a multi-year, multi-billion dollar framework agreement for Intel products and wafers.

In particular, Intel Foundry will produce an AI fabric chip for AWS on Intel 18A. We will also produce a customized Xeon 6 chip on Intel 3, building on our existing partnership under which Intel produces scalable Xeon processors for AWS. More broadly, we expect to work closely with AWS on additional designs that include Intel 18A, Intel 18AP and Intel 14A.

This framework reflects the strength of our “Better Together” strategy based on our integrated portfolio of foundry services, infrastructure and x86 products. And with the 5N4Y finish line in sight, we are starting to see a significant increase in interest from Foundry customers. This includes continued momentum in advanced packaging, which continues to be a significant differentiator for Intel Foundry as we have tripled our deal pipeline since the beginning of the year.

US “Secure Enclave” award

Today, we also announced that Intel has received up to $3 billion in direct funding under the CHIPS and Science Act for the US government’s “Secure Enclave” program. This program is designed to expand the trusted manufacture of advanced technology semiconductors for the U.S. government. As the only U.S. company that both designs and manufactures leading-edge technology logic chips, we will help secure the domestic chip supply chain.

This news, combined with our AWS announcement, demonstrates the continued progress we are making in building a world-class foundry business.

More independence for Intel Foundry

To build on our progress, we plan to establish Intel Foundry as an independent subsidiary within Intel. This governance structure will complete the process we initiated earlier this year with the separation of the income statement and financial reporting for Intel Foundry and Intel Products.

A subsidiary structure will bring important benefits. It provides our external Foundry customers and suppliers with clearer separation and independence from the rest of Intel. Importantly, it also gives us the flexibility going forward to evaluate independent funding sources and optimize each company’s capital structure to maximize growth and shareholder value creation.

Our Intel Foundry leadership team will not change and will continue to report to me. We will also establish an operating board of independent directors to lead the subsidiary. This supports our continued focus on greater transparency, optimization and accountability across the company.

A more focused and efficient Intel Foundry will further enhance collaboration with Intel Products. And our design and manufacturing capabilities will continue to be a source of competitive differentiation and strength.

More efficient Intel Foundry manufacturing expansion

One of the top priorities for Intel Foundry is to increase our capital efficiency. Our manufacturing investments on three continents have laid the foundation for a world-class foundry for the AI era. Now that we have completed our transition to EUV, it’s time to move from a period of accelerated investment to a more normalized pace of node development and a more flexible and efficient capital plan.

We will maintain our smart capital approach to maximize financial flexibility as we complete our manufacturing build-out, while making some adjustments to the near-term scale and pace of our manufacturing expansion.

  • We have recently increased capacity in Europe through our factory in Ireland, which will remain our leading European location for the foreseeable future. We will suspend our projects in Poland and Germany for approximately two years due to anticipated market demand.
  • Malaysia remains an active design and manufacturing center through our existing operations. We plan to complete the construction of our new advanced packaging factory in Malaysia, but will adjust the start-up to market conditions and increased utilization of our existing capacity.
  • There are no changes to our other production sites. We are maintaining our investments in manufacturing in the US and are moving forward with our projects in Arizona, Oregon, New Mexico and Ohio. We remain well positioned to increase production globally in line with market demand as we grow our foundry business.

A stronger Intel product portfolio with a focus on x86

We are also taking steps to strengthen and streamline our Intel product portfolio, where we have identified clear opportunities for greater focus, speed and efficiency.

Our top priority is to maximize the value of our x86 franchise in the consumer, edge and data center markets, including through a broader range of custom chiplets and other tailored offerings that meet emerging customer needs, as evidenced by today’s AWS announcement.

Our AI investments – including continued leadership in the AI PC category, our strong position in data center AI and our accelerator portfolio – will leverage and complement our x86 franchise focused on cost-effective enterprise inferencing.

We are also taking steps to simplify our portfolio to increase efficiency, accelerate innovation and deliver more integrated solutions.

This includes moving our Edge and Automotive businesses into the CCG, where we have a great opportunity to leverage our core customer business and extend our leadership in the AI PC category to a broad range of vertical edge solutions. In NEX, we will focus the business on networks and telecommunications. And we are moving Integrated Photonics Solutions into DCAI as we focus on driving a more focused R&E plan that is fully aligned with our key business priorities.

In addition, we are integrating our software and incubation businesses into our core business units to drive more integrated roadmaps, realize efficiencies and create value.

An engine for financial performance

Overall, these changes are critical steps forward as we build a leaner, simpler and more efficient Intel. And they build on the immediate progress we’ve made since announcing our plan on August 1 to create a more competitive cost structure.

Through our voluntary early retirement and severance offers, we’ve already achieved more than half of our goal to eliminate approximately 15,000 jobs by year-end. We still have some difficult decisions to make and will notify affected employees in mid-October. In addition, we are implementing plans to downsize or divest approximately two-thirds of our real estate globally by the end of the year.

While we continue to work with urgency to implement the plan announced last month, we are also working to carefully manage our cash to significantly improve our balance sheet and liquidity. This includes selling a portion of our stake in Altera – something we’ve talked about publicly several times and has long been part of our strategy to generate proceeds for Intel as Altera moves toward an IPO.

All eyes will remain on us. We have to fight for every inch and work better than ever before. Because only then can we silence our critics and deliver the results we know we can achieve.

We must continue to focus on innovation while becoming an engine of operational efficiency and financial performance designed to win in the marketplace.

As I’ve said before, this is Intel’s most significant transformation in over four decades. We haven’t attempted anything this significant since the transition from memory to microprocessors. We were successful then – and we will be successful this time, building a stronger Intel for decades to come.

On behalf of the entire ELT and our Board of Directors, thank you for all you do. I greatly appreciate your patience, courage and resilience as we do the hard work required to execute our plan and position our company for the future.

Pat

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Further links

👉 www.intel.com 

Photo: Intel

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