Intel is actually uncertain about whether it should spin out its foundry division into a new entity, but there is a lesson for the company from the past, particularly coming from its arch-rival AMD.
When you look at the recent developments at Intel, the foundry department is certainly under the massive influence of economic and political factors. More importantly, board members and several shareholders are reportedly inclining towards a foundry spin-off; however, Intel's CEO Lip-Bu Tan is actually against it, and this argument has created a lot of uncertainty within the company. Interestingly, in order to analyze how a spin-off might turn out, Intel has a great example coming from AMD and what happened when it turned into a fabless firm.
Background Context: AMD Becoming a Fabless Firm Following Huge Economic Troubles
When you see firms spin out divisions, there are economic causes attributed to it in most cases, and a similar situation was the one with AMD as well, back in 2008. The company was reportedly facing massive delays with product launches, particularly in the server CPU segment, as Team Red's quad-core Opteron server saw a multi-month delay, which negatively impacted shareholder value. Similarly, the firm's Phenom chips, which were a consumer-oriented offering, was also reporting similar setbacks.
The negative news massively impacted AMD's financial performance, and since its arch-rival Intel was thriving with its product portfolio, Team Red eventually came into a pretty tough spot, similar to where Intel is now. AMD had been experiencing a multi-YoY operating loss, and a huge chunk of it was attributed to costs related to semiconductor manufacturing, which, at that time, was the company's important division. However, the foundry division was struggling with high-end nodes back in 2008, and there were no signs of a breakthrough.
Operating losses, a slacking product portfolio, and, more importantly, diminishing market share forced AMD to decide whether it would opt for a fabless operating structure. Fortunately for them, this actually happened. AMD decided to spin off its foundry division, which was called "The Foundry Co." and later renamed GlobalFoundries. It was a deal with Abu Dhabi's Mubadala Investment Company, and the deal brought in Team Red $700 million in cash and $1.1 billion in debt relief, as well as a 34% stake in the firm.
AMD was desperate to switch to a fabless model, considering the node advancements being made by TSMC at that time. Since GF was delivering subpar chips, this ultimately resulted in a poor retail product, which was also affected by several delays. So, with the spin-out deal, Team Red got higher cash flow, no restriction on the foundry to opt for, and more importantly, a better chance to compete with Intel.
Was AMD's Decision to Sell Its Foundry Division Right? History Has Mixed Opinions & Lessons For Intel
When you look at the downsides to what AMD lost by selling GlobalFoundries, there aren't many, apart from the fact that GF is valued at around $16 billion right now, almost ten times higher than where it was back a decade ago. Team Red ultimately shifted towards sourcing semiconductors from TSMC, which became an integral part of the company's strategy. Another interesting disadvantage was that AMD divested its 34% stake in GlobalFoundries way too early, which cost the company billions.
Experts argue that AMD is too dependent on TSMC for its products right now, but that reliance has led to the company producing some of the best processors. So, were the trade-offs worthy? Well, my viewers will tell the answer to that, but let's take a look at what Intel has at stake right now.
Intel has to learn from AMD that operating a foundry, leading to massive losses, isn't sustainable at all, and more importantly, also compromises how retail products turn out. More importantly, it could generate cash flow that would help the firm get back on track when it comes to the product roadmap, since opting for the likes of TSMC can significantly benefit when it comes to more capable CPUs and even GPUs.
Intel's foundry division losses are estimated to be around $13 billion in 2024, and the figure is widening toward year-end. This means that in terms of market capitalization, this accounts for almost 10% of the company's valuation. We won't dive into how Intel came here in the first place, but it won't be wrong to say that the losses from the foundry department are leading to many financial troubles for Team Blue. So, a spin-off makes sense here. But, why are Intel's CEO Tan and other enthusiasts against it?
Intel Foundry Spin-Off: A Complex Debate Between Supporters & the Opposition
Intel Foundry is currently under the influence of not just political turmoil, but also the board members, who are reportedly in favor of a foundry spin-off. They are looking for a complete spin-off or the department operating in a U.S.-backed consortium, which looks like something that could happen, especially after reports of the USG taking up a stake in Team Blue. The idea here is that America's chip industry should be homegrown, and that a spin-off would lead to preservation of domestic chipmaking capabilities.
But, Intel's CEO Lip-Bu Tan reportedly has other plans, which are likely driven by the foundry division's progress towards processes like the 18A. It won't be wrong to say that the department is at a pivotal stage here with its cutting-edge chips, and given that a spin-off occurs in such a moment, Intel could suffer dramatically. Under former CEO Pat Gelsinger, the foundry division has seen 'tens of billions' being invested and years of R&D. A potential spinoff could ruin the momentum, and this is what CEO Tan would most likely fear about.
Team Blue needs to get out of its financial troubles, and it is working on it through widespread layoffs, which have generated cash flow, along with abandoning projects that have lesser prospects of becoming successful. However, the board members need shareholder value to be generated, and a spin-off is one of the more influential methods for this, but internal disagreements are currently holding up the decision, so for now, Intel Foundry looks safe.
Here's my opinion on this matter: Intel should allow 18A to reach into internal products, and if products like Panther Lake and Clearwater Forest manage to deliver, that will put the foundry division in a much better place. There are rumors that CEO Tan is looking for 18A yield rates to go around the 70% mark for a profitable HVM, meaning there is no tolerance for a subpar process. More importantly, Intel's 14A process is the 'cornerstone' for America's chip dominance, which relies on the success of Team Blue and its foundry division.
Intel has already declared that it will drop the race for cutting-edge nodes amid a lack of external volume, which means that the chances of operating losses increasing drastically are lower. For now, Intel has to refine the 18A process so it becomes a direct competitor to TSMC's N2, and since the former one is a homegrown node, there's undoubtedly going to be inclination, whether it is driven by political factors or the performance of the chip itself.
We have discussed in depth a potential Intel-TSMC deal for its foundry division here, but for a quick summary, that move won't do much in the longer term. Intel needs to ramp up the efforts around its chip technologies, and under CEO Tan, we are looking towards a brighter future, which could be led by the IFS.
| Factor | If Spin-Off Happens | If Spin-Off Doesn’t Happen |
|---|---|---|
| R&D Continuity | Could interrupt progress on 18A process and other cutting-edge chips; risk of losing momentum after “tens of billions” invested under former CEO Pat Gelsinger. | Keeps 18A and 14A development fully under Intel’s control, allowing Panther Lake and Clearwater Forest to benefit directly. |
| Political Risk | Fits board members’ and some shareholders’ vision for a U.S.-backed consortium; aligns with domestic chipmaking preservation goals. | Maintains Intel as a homegrown strategic manufacturer but keeps political and shareholder pressure high if foundry underperforms. |
| Cash Flow | Generates immediate capital for Intel, similar to AMD’s $700M cash + $1.1B debt relief from spinning off GlobalFoundries. | No instant cash infusion; Intel must rely on layoffs and project cuts to improve liquidity. |
| Competitive Position | Could free Intel to focus on product design like AMD did post-spin-off, but sacrifices in-house manufacturing control. | Keeps vertical integration, giving Intel potential manufacturing edge if 18A achieves ~70% yield target and competes with TSMC’s N2. |
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