It seems increasingly likely that Intel's indigenous resources will not be able to support the magnitude of capital expenditure required to advance and sustain its cutting-edge production nodes (sub-3nm), based on unconfirmed reports and the conclusion drawn by a well-regarded industry analyst.
A Taiwan newspaper reports that Intel plans to outsource all 3nm and below process manufacturing to TSMC and that Intel’s plan to layoff 15% of staff will focus on the foundry business, although Intel’s Taiwan branch will not be affected. The report cites unnamed industry sources…
— Dan Nystedt (@dnystedt) September 9, 2024
To wit, an unconfirmed report published today in a Taiwan newspaper has asserted that Intel is gearing up to offload its sub-3nm production nodes on TSMC as losses in its foundry division continue to mount, with margins further pressured by the ongoing production capacity expansion for the Intel 3 and Intel 4 processes at the company's sprawling facility in Ireland.
At the same time, Intel is trying to aggressively cut costs by slashing dividends, implementing a mass layoff plan equivalent to around 15 percent of its workforce strength recorded at the start of 2024, and pare or outright sell its majority stakes in ancillary businesses such as the FPGA unit Altera and the autonomous mobility-focused company Mobileye. Intel intends to present its board with an array of strategic options at an upcoming meeting in September.
Meanwhile, as per a number of recent reports, Broadcom was left unimpressed by the yield on Intel's cutting-edge 18A process node, with some of the engineers going so far as to doubt the node's ability to move into high-volume production. Of course, Intel might still be able to iron out all of the kinks before the node moves into the proverbial high gear in 2025.
Concurrently, Lu Xingzhi or Andrew Lu, a well-regarded industry analyst, recently penned an interesting Facebook post, arguing that Intel's inflows were now insufficient to support a CapEx of between $5 billion and $6 billion that is needed to sustain the R&D activities and the eventual mass production cadence of the company's advanced production nodes. Critically, the analyst now believes that Intel's technology lag vis-a-vis its other peers in the industry will continue to increase.
Interestingly, Andrew Lu also believes that TSMC will likely pick up a lot more orders as Intel continues to flounder, with the CapEx of the Taiwan-based giant expected to soar to around $40 billion by next year.
Of course, if Intel does end up punting on orders related to its advanced production nodes, it will have to severely modify or even jettison its current overarching strategy to deliver margin expansion, one that sees the company doubling down on its foundry division to drive aggressive growth and, concurrently, eke out cost savings of "more than $8 billion to $10 billion exiting 2025," which would allow for a non-GAAP gross margin of around 60 percent and non-GAAP operating margins of around 40 percent by 2030.
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
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