Intel chief executive Pat Gelsinger revealed the company’s next steps this week in the form of three main goals that might turn around the struggling technology company. But tech enthusiasts worry: Will it be enough?
In a recent meeting, Intel leadership discussed how to pursue their long-term strategy. The Board, comprised of independent directors, emphasized the importance of Intel’s efficiency, profitability, and market competitiveness. In the end, they agreed upon three core objectives: enhancing Intel’s foundry operations, optimizing costs to hit the $10 billion savings target, and refocusing on its core x86 technology while driving forward its AI initiatives.
Notable announcements include a multi-billion-dollar partnership with Amazon Web Services (AWS) and the decision to put fab and packaging facility projects in Germany and Poland on hold for the next two years while continuing to build capacity in the U.S.
Foundry business remains key to Intel's future success
Intel's internal manufacturing remains crucial to the company's long-term success. However, the company plans to make Intel Foundry an independent subsidiary, completing the separation of profit and financial reporting from Intel Products started earlier this year.
This new structure will offer more apparent distinctions for customers and suppliers while allowing Intel to explore external funding and optimize capital strategy for the Foundry and Products units. The leadership team remains unchanged, reporting to the CEO, with an independent board providing oversight to ensure transparency and accountability.
A more focused Intel Foundry will enhance collaboration with Intel Products, while Intel's design and manufacturing capabilities will remain a competitive advantage.
Intel says that its Foundry unit has seen increased customer interest, with a significant uptick in demand for its advanced packaging technologies. Intel has tripled its deal pipeline since the start of the year, and the collaboration with AWS (more on this in a while) is a testament to this growth.
Germany and Poland facilities are on hold; U.S. projects to continue
Intel is also enhancing its capital efficiency within the foundry business. After a period of significant investment in manufacturing, the company is shifting toward a more balanced development pace.
Intel remains committed to its manufacturing projects in the U.S., so the fabs and packaging facilities in Arizona, Oregon, New Mexico, and Ohio will be built according to Intel's plans. It may not be particularly surprising that Intel received billions of dollars from the U.S. government to expand its production capacity in America.
Given the current demand outlook, Intel will pause its fab and packaging facility projects in Germany and Poland for two years as part of the overall business optimization. Intel recently expanded the capacity of its fab near Leixlip in Ireland and expected this facility to remain its lead European hub. The company did not reveal whether demand expectations concern foundry or internal products, but it is obvious that Intel limits the growth of its production capacity in general.
Also, Intel will build the shell for its advanced packaging facility in Malaysia but will not equip it before demand picks up.
Amazon Web Services to use custom Intel Xeon processors
One significant development is Intel's expanded partnership with Amazon Web Services (AWS). Under this multi-year agreement, Intel will produce custom AI fabric chips for AWS using its Intel 18A technology and a custom version of the Xeon 6 CPU based on Intel 3, as planned. In the future, Intel will produce AWS designs using Intel 18A, Intel 18AP, and Intel 14A process technologies. AWS has become Intel Foundry's long-term client, which is a big deal.
The manufacturing and packaging contribute to Intel's ongoing collaboration with AWS, which already uses Intel Xeon Scalable processors (many of which are the so-called off-roadmap semi-custom processors). Intel calls this collaboration a 'better together' strategy, integrating foundry services, infrastructure, and x86 products.
Streamline product portfolio
Intel’s x86 instruction set architecture (ISA) and expertise in its enhancement have been its core strengths for decades, so Intel is certainly not giving up on x86.
Instead, Intel is streamlining its portfolio, including developing competitive x86 offerings across its client, edge, and data center lineups. Intel’s collaboration with AWS exemplifies its commitment to providing customized x86 solutions for customers to better compete against Arm and RISC-V.
The company also sees opportunities to simplify its portfolio to increase efficiency and innovation. To that end, it integrates its Edge and Automotive businesses into its Client Computing Group (CCG), allowing it to expand its leadership in AI PCs and vertical edge solutions. Networking and telco will remain the focus of Intel’s Network and Edge (NEX) group, while its Integrated Photonics Solutions division will merge into the Data Center and AI (DCAI) group.
Building a leaner Intel
These changes are vital to creating a leaner, more streamlined, and efficient Intel by making internal changes and reducing the company's workforce by 15,000.
With efforts underway to cut around 15,000 jobs by year-end, the company has already reached more than half of this target through voluntary retirements and separation packages. In addition, Intel plans to reduce or exit two-thirds of its global real estate by the end of the year as part of its cost-saving initiatives. To bolster its financial position, Intel is also preparing to sell part of its stake in Altera, generating funds ahead of Altera's anticipated IPO.
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