how and why
How do you mean, divide?
Intel is one of the largest developers and suppliers of chips. To overcome the crisis, the company is considering the option of separating these two areas and forming autonomous organizations.
Why all this? For the first time in many years, Intel has fallen out of the top 10 largest chip makers. The corporation's market value has fallen to 86 billion US dollars. The loss in the second quarter was 1.6 billion US dollars on revenue of 12.8 billion. The forecast for the third quarter is lower than investors expected. In addition, Intel stated about the intention to immediately cut 15% of the staff and suspend dividend payments. The management is consulting with investors; problems need to be resolved quickly.
As mentioned above, one of the solutions is to separate the two areas into separate companies – chip development and microcircuit creation. The main one will be contract chip manufacturing. We are talking about Intel Foundry – a division that is barely developing and losing long-standing clients.
Intel CEO Patrick Gelsinger believes that Intel Foundry will be a lifeline for the entire business. But for the plan to be implemented, the company needs effective management that would allow it to quickly develop the existing business and plan something new. Now this division brings in a small share of revenue, no more than a couple of percent, but large investments need to be made in development. Significant efforts are required to establish a sales and customer service system. In 2023, Intel ordered processors from other contract manufacturers, including the Taiwanese company TSMC.
The second important area of work that is planned to be separated into a separate company will be chip design. How this will be implemented and who will manage the different companies is still unknown. The project is only being discussed within Intel.
Safety margin
Despite all the difficulties, Intel has a solid reserve of strength. Yes, the company is gradually losing ground, but it is happening slowly. Therefore, before deciding to split the business, the management will most likely try something else. This could be a freeze or simply a slowdown in the construction of new factories.
The construction of factories is already being suspended. Back in the spring, Intel froze a project in Israel, the cost of which is 25 billion US dollars. In order not to drop the shares too much, the company did not announce this decision – it became known from contractors.
Intel also sold its ARM shares. The deal brought in about $147 billion, and this is “fresh” money that will be used to finance priority areas of work.
Decisions that led to the crisis
There are quite a few of them, but the most unsuccessful ones were the sale of assets related to the ARM processor Xscale, back in 2006. As a result, the company was unable to enter a new direction for itself – the emerging smartphone market. Now its volume is estimated at many tens of billions of US dollars. And if not for the sale of shares, Intel could have been, if not one of the main, then still an important player in this market.
The company's previous CEO was Robert Swan. sold Apple part of Intel's modem business. The deal was worth $1 billion. Using the purchased technologies and production facilities, Apple was able to launch its own communication modules, while Intel was left with nothing. According to the corporation's own assessment, this deal subsequently brought it multi-billion dollar losses.
In 2020, Apple announced that it would stop using Intel processors in its gadgets. Now it produces all its PCs exclusively on its own chips built on the ARM architecture. Then Intel announced that it would take two years to master the 7-nm process technology. Now it has already mastered it, but competitors are working with newer technologies. Swan is blamed for Intel losing its largest client.
The company also refused to purchase extreme ultraviolet lithography (EUV) equipment from the Dutch company ASML for a long time. As a result, it was unable to meet its own chip needs, so it had to order processors from TSMC and other partners. To rectify the situation, Intel will bought 6 of 10 newest ASML lithography machinesbut their integration into chip manufacturing processes will take time.
Intel has been focusing on internal processes for a long time, missing changes in the market. This also affected the slowdown in business development and ultimately led to the loss of its leadership status and financial losses. So, dividing the business is not the worst way out. Intel is not yet ready for this scenario, but if the situation worsens, the management may have to go for it.
Interestingly, 15 years ago, Intel's competitor AMD resorted to the division into chip production and fabless design. And now it is on top. Let's see what Intel will get if it follows the same scenario.
