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After Intel's former CEO Patrick Gelsinger left the company earlier this month, the firm's two co-CEOs have shared additional details about separating its chip manufacturing and design divisions. Intel is the only firm in the x86 chip industry that is an integrated company, meaning that it designs and manufactures its chips. However, the recent slowdown in the PC market, along with its manufacturing struggles, has forced the firm on the back foot as it rushes to regain process node leadership with the 18A process due next year.
At a Barclays conference earlier today, Intel's CEOs shared that its product and foundry businesses are already separate in a lot of aspects but left open the question of a complete question.
Intel co-CEO Michelle Johnston Holthaus Does Not See The Logic Behind Completely Separate Foundry & Product Business
When asked about whether Intel's next-generation 18A manufacturing process's success is tied to the integration of Intel's foundry and product business, the two executives highlighted how the two businesses were already pretty separate but refrained from commenting on a full separation.
Intel's co-CEO Michelle Johnstone Holthaus outlined that the businesses already run "fairly independently" as "Product co makes their decisions. Foundry makes their decisions." A key differentiator for both these businesses over the long-term is making "great products with the great process technology that we have first access to," believes Holthaus.
However, she doesn't think it makes pragmatic sense if the businesses are "completely separated and there's no tie." On the topic of 18A, the new Intel CEO shared that her firm's goal right now is "getting back the process leadership and bringing our foundries back to the historical strength that we've had."
Intel's co-CEO David Zinser outlined how the foundry and product businesses are run separately. He started out by sharing that Intel is already "on the path of creating a subsidiary for Intel foundry as part of the overall Intel company." This process includes having "a separate operational board for Intel foundry which is getting stood up today," along with the foundry business having "its own ERP system and so forth. So that's already in play." However, whether the two businesses will be fully separated, Zisner shared that it's "an open question for you know another day."
Intel's shares jumped by more than 2% once the two executives' comments were publicly reported. The stock also moved upwards following Gelsinger's ouster, as investors are eager for the firm to reduce its operating costs and run on a lean business model. A separation and a divestiture of its manufacturing business will fundamentally transform Intel into a company similar to NVIDIA and AMD - both of which do not operate their manufacturing facilities.
In AMD's case, the firm manufactured its chips up until 2008, when it decided to spin off the manufacturing division into what is now GlobalFoundries. The spin-off enabled the firm to generate cash and focus attention on chip design. Manufacturing chips is one of the most capitally intensive businesses in the world, with chip manufacturers depending on high utilization rates to balance out equipment depreciation and other costs on their income statement.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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