Intel’s Current Manufacturing Capacity for External Customers
(Reuters) – According to Intel’s finance chief, David Zinsner, the company’s production volume for external customers utilizing its upcoming manufacturing technology is currently considered “not significant.” This comment was made during the J.P. Morgan Global Technology, Media and Communications conference held in Boston, Massachusetts.
When discussing the committed volumes, which refer to the quantity of chips designated for external customers that Intel plans to manufacture using its new technologies, Zinsner emphasized that these figures are not substantial at this time. The company’s struggles in this area underscore its ongoing challenges in the competitive semiconductor landscape.
Challenges in Contract Manufacturing
Based in Santa Clara, California, Intel is aiming to position itself as a major player in the contract manufacturing sector for chips. However, the company has encountered difficulties in advancing its 18A and the latest 14A chip manufacturing technologies. These setbacks have implications for Intel’s ambitions to expand its foundry services and take on external clients.
Despite these challenges, last month, Intel reported that several customers expressed interest in developing test chips with its forthcoming manufacturing process. This development indicates a willingness among external clients to engage with Intel’s new technologies, although the transition to significant production volumes remains a hurdle.
Customer Relations and Test Chips
Zinsner elaborated on the situation regarding test chips, stating, “We get test chips, and then some customers fall out of the test chips… So committed volume is not significant right now, for sure.” This statement highlights the volatility in customer engagement and the inherent uncertainties in moving from initial testing to large-scale manufacturing commitments.
High-profile players in the semiconductor industry, including AI chip frontrunner Nvidia and custom chipmaker Broadcom, have been reported to be conducting manufacturing tests with Intel. These relationships indicate potential future growth, but the realization of significant sales volumes remains a distant goal.
Financial Outlook for Foundry Business
The foundry division of Intel is on a path to break-even anticipated by 2027. To achieve this financial goal, the unit would require revenue generation in the low to mid-single-digit billions from external customers. Zinsner noted that this level of income is essential for the foundry business’s sustainability and growth, emphasizing the importance of attracting and retaining major clients.
In its financial results for the March quarter, the foundry unit reported sales of $4.7 billion, reflecting a 7% increase compared to the same period last year. However, a substantial portion of these sales stemmed from chips manufactured for Intel’s own product lines, indicating that external sales have yet to play a dominant role in the company’s revenue streams.
Leadership Changes and Strategic Direction
New CEO Lip-Bu Tan is tasked with the complex challenge of reversing years of mismanagement and operational inefficiencies that have plagued the chipmaker. Tan has chosen to maintain Intel’s commitment to manufacturing its own chips while also striving to produce processors for the wider market. This dual approach represents a strategic attempt to reclaim competitiveness in the semiconductor sector.
Zinsner commented on the leadership changes, stating, “It’s a fair assessment that Lip-Bu isn’t thinking about massive changes.” This suggests that while Tan may implement refinements, he is not likely to undertake a radical overhaul of Intel’s existing practices. Instead, the focus will remain on improving and optimizing current processes to enhance productivity and performance.
Organizational Restructuring and Asset Divestment
So far, Tan has initiated a flattening of the organizational structure, aiming for greater efficiency and clarity within the company. This includes efforts to streamline operations by divesting from non-core assets, such as Intel’s stake in Altera. Such moves are designed to sharpen Intel’s focus on its primary business objectives and reduce distractions that could hinder growth and innovation.
Through these strategic adjustments, Intel aims to improve its operational effectiveness and align its resources more closely with its goals in the competitive landscape of semiconductor manufacturing.
The Path Forward for Intel
As Intel navigates these changes and challenges, the road ahead will require balancing innovation in manufacturing technology with the practical realities of market demand and customer relationships. The company’s ability to successfully introduce its upcoming chip technologies will be crucial in determining its position within the industry and its viability as a contract manufacturer.
Moreover, establishing firm and profitable relationships with external customers will be vital for Intel to realize its ambitions in the foundry business. While the journey is fraught with challenges, Intel’s longstanding reputation and commitment to technology innovation provide a foundation upon which it can build and adapt in the ever-evolving semiconductor market.
