Intel chalks out big turnaround plans to woo customers

• AWS brings work to new Intel’s plants under construction in the US and boosts efforts to turn around embattled chipmaker.
• Intel plans to establish its foundry operations as an independent subsidiary with its own board of directors.
• To receive as much as $3b in US government funding to manufacture chips for the military.

Pat Gelsinger took the helm at Intel in 2021 with the ambitious vision of reviving a company that had long been synonymous with semiconductor innovation.

However, as the last two years have unfolded, it has become apparent that Gelsinger’s journey has been punctuated by a series of formidable challenges.

The significant downsizing of the workforce, the suspension of dividends, and an overarching need for cost efficiencies encapsulate a bold yet prudent response to one of the most severe crises in Intel’s five-decade history.

The urgency of the situation was underscored by a landscape that saw sales contracting and losses accumulating at an alarming rate. In a decisive move, Intel announced plans to reduce its workforce by 15,000 employees, seeking to realise $10 billion in cost savings.

Despite Gelsinger’s earlier aspirations for expansive growth, especially in overseas markets, the economic fallout prompted a recalibration of his approach, prioritizing operational efficiency over ambitious global expansion.

Attracting capital

A cornerstone of Gelsinger’s strategic reassessment is the transformation of Intel’s foundry operations, now designated as Intel Foundry Services (IFS).

By creating IFS as a wholly owned subsidiary, Gelsinger intends to grant it the independence necessary to attract outside capital and build trust with potential customers, some of whom are direct competitors of Intel.

The structural change, marked by the establishment of an operating board dedicated to overseeing IFS, signifies a fundamental shift towards positioning Intel as a credible independent supplier in the semiconductor market.

Such autonomy, Gelsinger hopes, will facilitate partnerships with marquee clients, a goal that has historically proven elusive for the company.

Commitment to innovation

Intel’s partnership with Amazon Web Services (AWS) represents a significant breakthrough in this endeavour. The co-investment in a custom semiconductor for artificial intelligence computing, encapsulated in a multiyear, multibillion-dollar framework, indicates a strategic pivot towards high-growth segments of the technology sector.

The collaboration also leverages Intel’s advanced 18A process technology, reinforcing its commitment to innovation in chip manufacturing. Gelsinger’s acknowledgment of needing “lots of customers” underscores the critical nature of such partnerships in stabilizing and revitalizing Intel’s market presence.

Beyond private-sector engagement, Intel’s eligibility for up to $3 billion in US government funding for military chip manufacturing through the Secure Enclave initiative illustrates the company’s strategic alignment with national interests.

By ensuring a steady supply of cutting-edge chips for defense and intelligence purposes, Intel not only meets government demands but also affirms its role as a key player in crucial technological domains.

Despite these strategic initiatives, Intel finds itself at a crossroads. The company’s diminished market capitalisation—in stark contrast to competitors like Nvidia—reflects the substantial work still ahead to regain Wall Street’s confidence.

Pausing factory projects

Once esteemed as a leader in semiconductor technology, Intel’s current valuation of less than $90 billion serves as a stark reminder of its declining competitive edge.

Gelsinger’s candid admission of needing to learn and adapt within the foundry space echoes the critical nature of reinvention in the face of intensified competition.

To further streamline operations amid market turbulence, Intel has elected to pause factory projects in Germany and Poland for an interim period of two years.

Gelsinger’s decision to delay manufacturing projects in Malaysia until demand rebounds exemplifies a calculated approach to resource allocation in a rapidly evolving landscape.

Additionally, the company’s focus on refining the core technologies behind its central processing units (CPUs) and reorganising its divisions reflects an unambiguous prioritization of its foundational competencies.