Intel Foundry Strategy and Future Scenarios Feb 2024

 

In December 2023, we published the Intel Revenue forecast for external wafer sales, gave a breakdown on how customers plan to ramp the foundry. The forecast is still valid (it assumes Intel executes perfectly on all plans) but since then we have a better understanding of Intel's strategy and scenarios that could unfold. The scenarios are based on Intel's strengths and weaknesses which are quite different than TSMC and quite different than what we expected 2-3 years ago.

Background:

In 2019-2021, it became clear that Intel was a distant follower to TSMC in technology and that they needed to catch up or just outsource everything to TSMC/Samsung/others. Intel BUs complained about technology delay and cost and wanted to work with TSMC.

• It seemed like Intel would move to outsource, but Pat changed the plans based on discussions in 2021. Intel would allow BUs to choose Internal or TSMC. They would (and still do) come up with dual sourcing options  until final decision later in the product development lifecycle

• Intel cannot lead in tech with the small scale of current Intel  (Times change, Intel is the third priority for equipment companies). Equipment vendors do much of the process and all of the tool development. You need scale to get their support. So Intel needs to offer foundry services to roughly double the scale of Intel wafer output. Intel needed to go “all in” on being a leading foundry.

• Pat [hypothetically] said:  …Business units say manufacturing is the problem. Manufacturing say BU is the problem. Fine …. Each of you can do what you want…. BUT we will make major decisions based on your execution.

Hence, where we are today: Intel is ramping TSMC on chips for processors of all types. Some leading products are 100% TSMC. And Intel is promoting foundry for others at the same time. 5 nodes in 4 years (not really, but that is a different report).

The BUs are extremely happy with this. So far multiple products have been moved to TSMC and the flexibility in using N5,N3,N2 is something they love. TSMC price is about the same as Intel's cost, so BU margins will increase.

** But how does Intel compete cost effectively with TSMC and ramp foundry and pay for all these fabs? **

We overlooked a some things until our IEDM discussions with various people in December 2023.

• Intel still wants to win and be better than TSMC. It seems unlikely… but it might not matter.

• The US government buys chips for internal products and DoD items. No strategic DoD product has TSMC parts in it. TSMC does not meet the criteria. As a result, those products have technologies that are not close to leading edge. IBM (past), GF and other defense approved companies make chips for those products but they are nowhere near leading edge. They would love to use leading edge but they need a DoD approved US company. While DoD parts are relatively low volume, the government could expand this to any Government supply chain (they track detailed supply chain and factories for all parts). IRS, Social Security, etc. TSMC cannot fill this today and it would require massive regulation to even have Samsung US or TSMC US support it. Trust me, I have done the audits with government products before, it can be extremely painful.

 Also, While Intel is not set up from a scale or from a cultural perspective to be a leader in cost,  US Government pays cost plus and incredibly high prices for products. Intel could have half filled fabs and still have great margins. You can see this at some government suppliers today

• One more thing could have been predicted but was missed. Leading edge is too expensive and complex. So many foundries…. GF, UMC, SMIC, Grace, Tower have no ability to provide leading edge or even 2 generations behind technology. Intel can partner with them, provide “more modern” technologies, provide scale etc. All companies not named TSMC or Samsung could GREATLY benefit from partnering with Intel and this allows them to compete with Samsung and TSMC.

Based on the above strategies. Intel could outsource most of its silicon to TSMC to keep the BUs happy and STILL be a leader in foundry just based on being the “US Fab company” and “advanced fabs to other foundries”. These customers are much more compatible with Intel than selling to Apple, AMD, Nvidia, Broadcom.

This is a different foundry model but one where Intel has a strength and can potentially dominate. This all may or may not work. We have quantitative milestones you can track to see if Intel is successful. 

The Three Potential Foundry Scenarios are:

• *Intel Foundry Success*: Intel has competitive processes at competitive prices and ramps up to be another dominant leading edge foundry. Intel is leader and Intel BUs use Intel processes. Revenue and profits grow dramatically

• *Intel fills TSMC gaps*: Intel supplies all other foundries, Intel supplies government. Both have few other options so they pay the price needed. Intel is 2nd source to TSMC. Revenue grows steadily over then next 10-15 years.

• *Intel is IDM2.0  …. IBM2.0*: Intel struggles to ramp government work and factories. Intel’s foundry partners decide it’s not worth it to work with them and the processes are unsuccessful. The fabs are given away, or cancelled, or underloaded. Eventually Intel foundry is absorbed.

We have more details on each and in the next few years, the probability of each scenario will change. We have updates on the probability and what tactics, models, and strategies Intel is using. More importantly we provide milestones so others can track progress.... and we track the impact to P&L and Capex

Foundry Day Update (BREAKING NEWS):  All of the presentations and commitments support the background we show, the strategies, and the scenarios. 

Mark Webb

www.mkwventures.com

Chips Act 18 Months Later: The Bad, The Good... maybe Ugly

 

 

I have advocated for a Chips act like program for 20 years. The reasons are simple:

1)  Fabs require tons of capital, Only the massive companies can afford it. help needed

2)   Fabs are an amazingly positive addition to any community or country. High paying jobs, tons of ecosystem and construction jobs. If I started a city from scratch, I would start with a Fab and we would be wildly successful city in 10 years.

       3)      Other countries subsidize large fabs for this reason. Nearly all Asia countries have great incentives. The US is behind on this as a nation. Some States (like New York) subsidize.

       4)   Fabs do not use up all the water, do not cause massive pollution, and they can recruit employees from all over the world. This downsides are not as real as feared (we can discuss)

        5)     Oh ya, The world needs chips!

When the Chips Act passed, I was instantly disappointed. Tons of money and yet no one was sure who would get the money, when, and why. All the discussion was on “requirements from those receiving money and government oversight”

18 months later:

1)     The Bad: Minimal grant money has been awarded. Politicians and semi companies make speeches about plans for a program and committees forming and new sites announced. There may or may not be limitations on the companies that can receive funds. Should TSMC get more money than Intel? Should Skywater get more than Samsung? Do they have daycare and pay prevailing wage? Should we promote growth in that state or this state. Recent announcement of R&D programs and training programs (Programs, not factories or products). I don’t expect much out of the Grants activity other than for university and start up companies and consortiums (none of these will make leading edge chips in large fabs). I hope I am wrong.

 

2)     The Good: Years ago, I was asked what makes people locate fabs in other countries. My answer was government support, subsidies, simple clear requirements. Cheap labor is minor compared to subsidies.  An oversimplified contract from other countries states:

a.      We will reimburse 25-30% of all spending on the fab. Show us receipts, we send you  check for 30%.

b.      Hire at least 2000 people, 1400 have to be local citizens. Pay a fine of 500M per year if you do not do this.

 

This is perfect, simple and companies jump at this. After looking at the “Bad Items” listed above, I wanted to say the Chips act is useless for getting fabs into the US. I was wrong. When I told a leader at a major company of my disappointment in the Chips act awards, he said “We don’t care about those awards, and we will STILL see billions in subsidies on our projects”.

Turns out, the investment tax credit is everything I dreamed of in a subsidy. You buy qualifying equipment, you get a check from the government for ~25%.... And what companies are doing today is spending on qualified equipment. No approval from the “house oversight committee for blah blah blah”. No “let us see your programs” needed. No debates on whether Intel should get a subsidy when they make tons of money. No debates on whether building in New York is better than building in Arizona. Buy equipment? get a check. Thank you !

I assume the Ugly will come when congress tries to update the act to achieve new goals and requirements based on inputs from both sides of the political aisle. And we will probably end up with too many fabs in the world at some point. But for right now, the ITC of the Chips act is making a difference in bringing fabs back to the US.

We can discuss more on how this is working and how companies are timing their new fabs based on their strategy and some numbers we can expect to see. Contact us

 

Mark Webb

www.mkwventures.com