As part of this transformation, Intel secured a multibillion-dollar settlement Amazon Web Services to produce a AI Chip Using your Advanced 18A Manufacturing ProcessHowever, the company also announced plans to halt the construction of new chip plants in Europe and reduce its global real estate footprint. Gelsinger described these changes as “Intel’s most significant transformation in four decades”, stressing that “all eyes will be on us” as the company works to regain its position. semiconductor industry,
Read the full memo sent to employees by Intel CEO Pat Gelsinger.
“Team,
All eyes have been on Intel since we announced second quarter earnings. There has been no shortage of rumors and speculation about the company, including last week’s board of directors meeting, so I’m writing today to provide some updates and outline what’s coming next.
I would like to start by saying that our board meeting was very productive and supportive. We have a strong board made up of independent directors whose job is to challenge us and push us to do our best. And we had in-depth discussions about our strategy, our portfolio, and the immediate progress we are making on the plan we announced on August 1.
The Board and I agreed that we still have work to do to drive greater efficiency, improve our profitability and enhance our market competitiveness – and there are three key takeaways from last week’s meeting that I want to focus on:
- We need to maintain our momentum in the foundry as we get closer to the launch of Intel 18a and achieve greater capital efficiency in this part of our business.
- We must continue to work diligently to create a more competitive cost structure and achieve the $10 billion savings target announced last month.
- We are refocusing on our strong x86 franchise as we advance our AI strategy while streamlining our product portfolio in service of Intel customers and partners.
We have a lot of news to share that supports these priorities.
Amazon Web Services Selects Intel Foundry
Today we announced that we will expand our strategic collaboration with Amazon Web Services (AWS). This includes co-investments in custom chip design, and we announced a multi-year, multi-billion-dollar framework covering Intel’s products and wafers.
Specifically, Intel Foundry will produce an AI Fabric chip for AWS on Intel 18A. We will also produce a custom Xeon 3 chip on Intel 6 that builds on our existing partnership under which Intel produces Xeon Scalable processors for AWS. More broadly, we expect deeper engagement with AWS on additional designs spanning Intel 18A, Intel 18AP, and Intel 14A.
This framework reflects the power of our “Better Together” strategy, which is based on our integrated portfolio across foundry services, infrastructure, and x86 products. And looking toward the 5N4Y finish line, we’re starting to see meaningful growth in foundry customer interest. This includes continued momentum in advanced packaging, which remains a meaningful differentiator for Intel Foundry as we’ve tripled our deal pipeline since the beginning of the year.
US Secure Enclave Award
Earlier today we also announced that Intel was awarded up to $3 billion in direct funding for the U.S. government’s Secure Enclave program under the CHIPS and Science Act. This program is designed to expand trusted manufacturing of leading semiconductors. US GovernmentAs the only U.S. company to design and manufacture leading logic chips, we will help secure the domestic chip supply chain.
This news, combined with our AWS announcement, shows that we’re making continued progress toward building a world-class foundry business.
More freedom for Intel foundries
To further our progress, we plan to establish Intel Foundry as an independent subsidiary within Intel. This governance structure will complete the process we began earlier this year when we separated the P&L and financial reporting for Intel Foundry and Intel Products.
The subsidiary structure will deliver significant benefits. It provides our external foundry customers and suppliers with clear separation and independence from the rest of Intel. Importantly, it also gives us the flexibility to evaluate independent sources of funding in the future and optimize the capital structure of each business to maximize growth and shareholder value creation.
There are no changes to our Intel Foundry leadership team, which will continue to report to me. We will also establish an operating board comprised of independent directors to govern the subsidiary. This supports our continued focus on driving greater transparency, optimization, and accountability across the business.
A more focused and efficient Intel Foundry will further enhance synergies with Intel products. And our capabilities in design and manufacturing will continue to be a source of competitive differentiation and strength.
A more efficient Intel foundry manufacturing buildout
A key priority for Intel Foundry is to increase our capital efficiency. Our manufacturing investments across three continents have laid the foundation for a world-class foundry for the AI era. Now that we have completed our transition to EUV, it is time to move from a period of accelerated investment to a more normal pace of node development and more flexible and efficient capital planning.
We will maintain our smart capital approach to maximize financial flexibility as we complete our manufacturing build-out, and will make some adjustments to the near-term scope and pace of our manufacturing expansion.
- We have recently added capacity in Europe through our fab in Ireland, which will remain our major European hub in the near future. We will pause our projects in Poland and Germany for approximately two years, depending on projected market demand.
- Malaysia remains an active design and manufacturing hub through our existing operations. We plan to complete the construction of our new advanced packaging factory in Malaysia, but we will align the startup with market conditions and increase utilization of our existing capacity.
- There are no changes to our other manufacturing locations. We remain committed to our US manufacturing investments and are moving forward with our projects in Arizona, Oregon, New Mexico and Ohio. We are well positioned to grow our foundry business as well as increase production around the world based on market demand.
A strong Intel product portfolio focused on x86
We’re also taking steps to strengthen and streamline our Intel product portfolio, where we’ve identified clear opportunities to bring greater focus, speed and efficiency.
Our top priority is to maximize the value of our x86 franchise across the client, edge, and data center markets, including a broad range of custom chiplets and other optimized offerings that meet emerging customer needs, as demonstrated by today’s AWS announcement.
Our AI investments – including our continued leadership of the AI PC category, our strong position with AI in the data center, and our accelerator portfolio – will leverage and complement our x86 franchise with a focus on enterprise, cost-efficient inferencing.
At the same time, we are taking steps to simplify our portfolio to increase efficiency, accelerate innovation and deliver more integrated solutions.
This includes moving our edge and automotive businesses to CCG, where we have a great opportunity to leverage our core client business and extend our leadership in the AI PC category to a broader range of vertical edge solutions. At NEX, we will focus the business on networking and telco. And we are moving integrated photonics solutions to DCAI as we focus on pursuing a more focused R&D plan that is fully aligned with our top business priorities.
Additionally, we are integrating our software and incubation businesses into our core business units to create a more integrated roadmap, enhance efficiency and create value.
The engine of financial performance
Collectively, these changes are important steps as we build a smarter, simpler and more efficient Intel. And these changes build on the immediate progress we’ve made since announcing our plan to create a more competitive cost structure on August 1.
Through our voluntary early retirement and separation offerings, we have reached more than half of our goal of reducing approximately 15,000 employees by the end of the year. We still have difficult decisions to make and will notify impacted employees in mid-October. Additionally, we are implementing plans to reduce or exit approximately two-thirds of our real estate assets globally by the end of the year.
We are working diligently to execute on the plan we announced last month, while also working to carefully manage our cash as we meaningfully improve our balance sheet and liquidity. This includes selling a portion of our stake in Altera – which we have talked about publicly several times and has long been part of our strategy to generate proceeds for Intel on the path to Altera’s IPO.
All eyes will be on us. We have to fight for every inch and perform better than ever before. Because that is the only way we can silence our critics and deliver the results we are capable of achieving.
We must maintain our focus on innovation, while also becoming the engine of operational efficiency and financial performance designed to win in the marketplace.
As I’ve said before, this is Intel’s most important transformation in four decades. Never have we tried to do something so important since the shift from memory to microprocessors. We succeeded then – and we will meet this moment and build a stronger Intel for decades to come.
On behalf of the entire ELT and our Board of Directors, thank you for all you are doing. I greatly appreciate your patience, perseverance, and flexibility as we do the hard work necessary to execute our plan and prepare our company for the future.
Pat”
