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Intel Unleashed: A 180-Degree Turn

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In the Intel Unleashed: Engineering the Future event in late March, Intel Corporation's (NASDAQ: INTC) new CEO Pat Gelsinger introduced his plan for Intel, the IDM 2.0 strategy. The three critical elements of the strategy are:

  • Committing to the IDM business model and manufacturing the majority of the product internally.
  • Expanding the use of third-party foundries across the entire product portfolio to improve flexibility.
  • Introducing the Intel Foundry Services business to compete in the foundry market directly. 

The first two points were not surprising. The management had communicated their plan to increase the use of third-party foundries like Taiwan Semiconductor (NYSE: TSM) a few months ago.TSMC was the "backup" plan in case Intel's effort to fix its manufacturing process fails.

The third point was a surprise for many people, considering Intel's current struggle in leading-edge manufacturing. Not only does the plan require a massive amount of additional investment for capacity, but Intel is also effectively competing with TSMC, the backup plan Intel is counting on.

We understand the enthusiasm for Intel's plan. Not only does it remind people of Intel's root of semiconductor manufacturing, but it is also a patriotic move since Intel is the best chance to have leading-edge semiconductor manufacturing on U.S. soil. However, the move is a 180-degree turn for many Intel shareholders. Intel's bull case only a few weeks ago was for them to fully adopt the fabless model, focusing on process design and outsourcing the manufacturing to the third-party foundries. Intel's latest plan of aggressively going after the foundry market puts them in a very awkward position:

  • Intel does not only have to compete with many of the foundry customers, but
  • it also has to compete with other foundries like TSMC, on which they increasingly rely.

Well, this doesn't sound like a very comfortable plan to us. We will see.

 

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