By Aaron Tilley 

Intel Corp. will more aggressively outsource some chip production while doubling down on its own manufacturing with a roughly $20 billion spending commitment for new plants, as Chief Executive Pat Gelsinger fast-tracks efforts to revitalize America's most iconic semiconductor company.

Mr. 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 the new CEO, 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.

To underpin those ambitions, Intel plans to build two new chip factories, commonly referred to as fabs, at existing facilities in Arizona, Mr. Gelsinger said, with production due to start there in 2024. The company 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.

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, 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 said under its enhanced outsourcing plan, it 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 in Tuesday trading before it disclosed its new strategy.

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.

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 semiconductor-manufacturing innovation.

Write to Aaron Tilley at aaron.tilley@wsj.com

 

(END) Dow Jones Newswires

March 23, 2021 17:22 ET (21:22 GMT)

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