Putting the company’s business of making chips for other companies into a subsidiary feels like a hedge. Intel should get out of the business.
Intel’s Foundry Restructure: A Hedge or a Solution?
Intel’s recent decision to spin off its foundry division into an independent subsidiary has raised eyebrows. This move is a strategy to reassure clients that Intel’s primary chip production will not overshadow their manufacturing needs. Yet, it feels more like a hedge than a concrete solution. Critics argue that the foundry business, which has been bleeding money—$5.3 billion in the first half of this year alone—might continue to underperform, complicating Intel’s ambitious goal to become the world’s second-largest foundry by 2030. Despite a promising deal with Amazon’s cloud-computing arm, the road ahead remains uncertain, and some analysts believe Intel might be better off exiting the foundry business entirely.
Balancing Public Policy and Profitability
Intel’s role in bolstering U.S. domestic semiconductor manufacturing is pivotal, supported by significant government funding, such as $3 billion under the Chips and Science Act. However, this mission, driven by national security and competitiveness, is at odds with investors’ expectations for immediate profitability, particularly as Intel struggles to regain leadership in advanced chip design for AI. CEO Pat Gelsinger insists that the foundry and products divisions are “better together,” citing co-development and scale benefits. Nonetheless, the pressure to deliver short-term results while contributing to long-term national goals poses a significant challenge for the company.
My Take
Divesting the foundry business is a prudent move for Intel. The continued losses and internal distractions are draining resources that could be better allocated to their core competency: designing cutting-edge chips. By shedding the foundry, Intel could improve its profitability and regain its competitive edge in high-margin areas like AI and advanced chip technology while letting more specialized companies tackle the complex and capital-intensive foundry market. The most likely buyers would be TSMC and Samsung, due to their established presence in the foundry market and strategic interest in expanding their U.S. footprint, and GlobalFoundries, which could see the acquisition as an opportunity to bolster its competitive position.
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Credit: Wall Street Journal