By Aaron Tilley
Intel Corp.'s chief executive is fast-tracking efforts to revive
the semiconductor giant with a broad plan that mixes increased
outsourcing with a commitment to spend $20 billion on new factories
that could help address a chip shortage.
New CEO Pat Gelsinger said Tuesday that Intel would rely more
heavily on third-party chip-making partners, including for some of
its most cutting-edge processors, starting in 2023.
But Mr. Gelsinger, on the job a little more than a month, said
Intel wasn't abandoning its historic roots of being both a designer
and manufacturer of chips and would retain most production
in-house. The company, he said, also is renewing efforts to make
chips for others and targeting customers such as Apple Inc. and
chip rival Qualcomm Inc.
To underpin those manufacturing ambitions, Intel plans to build
two new chip factories, commonly referred to as fabs -- short for
fabrication -- at existing facilities in Arizona, Mr. Gelsinger
said, with production due to start there in 2024. Intel also said
that within the year it would detail further expansion plans in the
U.S., Europe and elsewhere.
"We are back with a vengeance," Mr. Gelsinger said in an
interview. Over the past year, Intel has lost market share and seen
its stock price slide amid increased competition, the loss of key
customers, and stumbles in producing next-generation chips.
Concerns about the robustness of the U.S. chip industry have
grown in Washington over the past couple of years as semiconductor
production shifted to Asia. Those worries intensified in recent
months amid a global component shortage. Car makers, in particular,
have felt the impact of the semiconductor shortage, causing them to
idle some of their production capacity.
President Biden last month pledged to fix the chip shortages and
ordered a review to identify ways to strengthen supply chains in
critical fields such as semiconductors. Chip makers broadly
welcomed the president's move, though warned there was no quick fix
to current supply bottlenecks. The U.S. semiconductor industry has
argued for years that the federal government hasn't sufficiently
supported what it says are critical chip-building capacities,
including financial inducements to build plants.
The U.S. now accounts for about 12% of global
semiconductor-manufacturing capacity, down from 37% in 1990 as
other countries have subsidized growth of their chip makers,
according to the Semiconductor Industry Association, a trade group.
"Every industry needs more semi capabilities," Mr. Gelsinger said.
Demand for chips has been strong as almost all parts of the global
economy become more digital, he said, with the trend only
accelerated by the Covid-19 pandemic.
Intel, he said, is bidding on a Pentagon contract to build a
commercial fab to meet U.S. government security needs.
Under its enhanced outsourcing plan, Intel would ask others --
including Taiwan Semiconductor Manufacturing Co. and Samsung
Electronics Co. -- to make crucial components of its chips. The
move takes advantage of a design approach Intel and others have
embraced: making semiconductors in a Lego-brick-like manner. Mr.
Gelsinger said the company would, in some cases, outsource the core
components of its central processors, the brain of a computer.
Mr. Gelsinger, who rejoined Intel after serving as the company's
chief technology officer during a prior stint, signaled even before
formally taking the reins at Intel that he would rely more on
third-party vendors to make the company's chips.
The company also said it would combine its chip-production
activities in the U.S. and Europe into a stand-alone division
called Intel Foundry Services, to be run by industry veteran
Randhir Thakur, who had led Intel's supply-chain operations. IFS
will produce Intel-designed chips and those using other
architectures.
Intel has pushed to build chips for others before, but failed to
attract significant business. Mr. Gelsinger said Intel was more
focused this time and had already attracted "extraordinary
interest" from companies and governments in what it was
offering.
Intel, the largest U.S. chip maker by sales, had fallen out of
favor with investors after a series of missteps. Graphics-chip
maker Nvidia Corp. last year overtook Intel as the largest U.S.
chip company by market valuation. Nvidia's stock more than doubled
last year amid pandemic-fueled sales of laptops and videogames.
Intel's shares retreated 17%, though the stock has rallied roughly
20% since Intel in January said Mr. Gelsinger would become CEO.
The stock slipped 3.3% to $63.48 on Tuesday before the company
disclosed its new strategy. Shares rose more than 7% in after-hours
trading.
Intel's woes date back several years. The company has fallen
behind Asian rivals after repeated manufacturing missteps. Apple
Inc. also dropped Intel as a chip supplier for some Mac computers,
and the chip maker has suffered market-share losses and faced a
push by activist investor Third Point LLC for strategic changes.
The company in January said it was parting ways with CEO Bob Swan
and hiring Mr. Gelsinger as his successor.
Intel's latest stumbles were tied to its so called 7-nanometer
semiconductors, a term that loosely describes performance and
refers to how densely transistors are packed on a chip. Mr.
Gelsinger said development of that chip was progressing well after
the company modified its production process. The company aims to
enter the final design stage for the chip this year, with chips
available to customers in 2023.
"We feel good about how we righted the ship," Mr. Gelsinger
said, as he pledged that Intel would return to a more rapid pace of
introducing cutting-edge chips.
Intel also said it had struck a research-collaboration agreement
with International Business Machines Corp. around elements of chip
design in a bid to speed innovation in semiconductor
manufacturing.
Mr. Gelsinger also said Tuesday that the company would top its
first-quarter guidance issued earlier this year for sales and
earnings. The company said sales are likely to reach $76.6 billion
this year, down from a record $77.9 billion in 2020. Wall Street
had been expecting sales of roughly $72.7 billion, according to
analysts surveyed by FactSet. The company expects earnings per
share of $4, it said, with $19 billion to $20 billion in capital
spending.
"2021 is a transitional year as we accelerate Intel's
trajectory," Mr. Gelsinger said.
Write to Aaron Tilley at aaron.tilley@wsj.com
(END) Dow Jones Newswires
March 23, 2021 18:46 ET (22:46 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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