Intel’s CEO shake-up puts foundry plans, CHIPS Act cash at risk

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Intel (INTC) is in crisis. The company forced out CEO Pat Gelsinger on Monday, its stock price is down more than 50% on the year, and the grand plan to add third-party semiconductor manufacturing to its repertoire is suddenly more unclear than ever.

Gelsinger’s gambit to transform Intel into a US-based version of Taiwan’s TSMC that builds chips for its rivals is one of the reasons the company received $7.8 billion in CHIPS Act funding. But the foundry business, which it plans to operate as an independent subsidiary, has been hemorrhaging money and its biggest customer is still Intel itself.

Yes, the company has picked up deals to build chips for Microsoft (MSFT) and Amazon (AMZN), but that hasn’t quelled calls for Intel to kill its third-party foundry plan. Bank of America Global Research analyst Vivek Arya wrote in an investor note that Intel could go as far as fully separating its design and manufacturing businesses.

But ditching its fabs, or fabrication facilities, is a lot easier said than done, especially if Intel wants to hold on to those CHIPS Act funds.

“They just got the CHIPS Acts money. And if you look very closely at the details, it basically says that Intel cannot sell more than a controlling share of the manufacturing footprint,” explained Mario Morales, group vice president of enabling technologies and semiconductors at IDC. “So that means that Intel will have to maintain manufacturing control of their capacity.”

In other words, there’s no easy path forward for the US’s largest homegrown chip builder.

CHIPS Act funding is tied to Intel’s foundry

The Commerce Department and Intel announced the chipmaker would be getting CHIPS Act funding just last week, with the DoC saying the cash would help Intel expand its manufacturing capacity in the US, a key part of Gelsinger’s plan to help the company compete with TSMC and Samsung, two of the largest chipmakers in the world.

Gelsinger initially unveiled the ambitious agenda, called IDM 2.0, or integrated device manufacturing 2.0, in 2021, the same year he took the reins as CEO. At the time, he said Intel would create a world-class foundry business. But Gelsinger took over an Intel beset by problems.

Lack of investment and missed opportunities over the years meant the company failed to catch the mobile wave and fell behind TSMC in design capabilities. And building out a global manufacturing footprint isn’t cheap, which, for a company that was already hurting, wasn’t ideal.

U.S. President Joe Biden walks with Intel CEO Pat Gelsinger as he attends the groundbreaking of the new Intel semiconductor manufacturing facility in New Albany, Ohio, U.S., September 9, 2022. REUTERS/Joshua Roberts
U.S. President Joe Biden walks with Intel CEO Pat Gelsinger as he attends the groundbreaking of the new Intel semiconductor manufacturing facility in New Albany, Ohio, U.S., September 9, 2022. REUTERS/Joshua Roberts · REUTERS / Reuters

Gelsinger had four years to make the turnaround happen, and while Intel’s chip design process is catching up, building chip manufacturing facilities takes time, more than Intel’s board seemed interested in giving Gelsinger.