Monday, September 16th 2024
Pat Gelsinger Writes to Employees on Foundry Momentum, Progress on Plan
All eyes have been on Intel since we announced Q2 earnings. There has been no shortage of rumors and speculation about the company, including last week's Board of Directors meeting, so I'm writing today to provide some updates and outline what comes next. Let me start by saying we had a highly productive and supportive Board meeting. We have a strong Board comprised of independent directors whose job it is to challenge and push us to perform at our best. And we had deep discussions about our strategy, our portfolio and the immediate progress we are making against the plan we announced on August 1.
The Board and I agreed that we have a lot of work ahead to drive greater efficiency, improve our profitability and enhance our market competitiveness—and there are three key takeaways from last week's meeting that I want to focus on:
Amazon Web Services selects Intel Foundry
Today we announced that we will expand our strategic collaboration with Amazon Web Services (AWS). This includes a co-investment in custom chip designs, and we have announced a multi-year, multi-billion-dollar framework covering product and wafers from Intel.
Specifically, Intel Foundry will produce an AI fabric chip for AWS on Intel 18A. We will also produce a custom Xeon 6 chip on Intel 3 that builds on our existing partnership, under which Intel produces Xeon Scalable processors for AWS. More broadly, we expect to have deep engagement with AWS on additional designs spanning Intel 18A, Intel 18AP and Intel 14A.
This framework reflects the power of our "better together" strategy, anchored on our integrated portfolio across foundry services, infrastructure and x86 products. And with the 5N4Y finish line in sight, we are beginning to see a meaningful uptick in interest from foundry customers. This includes continued momentum in advanced packaging, which remains a meaningful differentiator for Intel Foundry as we have tripled our deal pipeline since the beginning of the year.
U.S. Secure Enclave award
Earlier today, we also announced that Intel has been awarded up to $3B in direct funding under the CHIPS and Science Act for the U.S. government's Secure Enclave program. This program is designed to expand the trusted manufacturing of leading-edge semiconductors for the U.S. government. As the only American company that both designs and manufactures leading-edge logic chips, we will help secure the domestic chip supply chain.
This news, combined with our AWS announcement, demonstrates the continued progress we are making to build a world-class foundry business.
Greater independence for Intel Foundry
To build on our progress, we plan to establish Intel Foundry as an independent subsidiary inside of Intel. This governance structure will complete the process we initiated earlier this year when we separated the P&L and financial reporting for Intel Foundry and Intel Products.
A subsidiary structure will unlock important benefits. It provides our external foundry customers and suppliers with clearer separation and independence from the rest of Intel. Importantly, it also gives us future flexibility to evaluate independent sources of funding and optimize the capital structure of each business to maximize growth and shareholder value creation.
There is no change to our Intel Foundry leadership team, which continues to report to me. We will also establish an operating board that includes independent directors to govern the subsidiary. This supports our continued focus on driving greater transparency, optimization and accountability across the business.
A more focused and efficient Intel Foundry will further enhance collaboration with Intel Products. And our capabilities across design and manufacturing will remain a source of competitive differentiation and strength.
A more efficient Intel Foundry manufacturing buildout
A key priority for Intel Foundry is to increase our capital efficiency. Our manufacturing investments across three continents have laid the foundation for a world-class foundry for the AI era. Now that we have completed our transition to EUV, it's time to shift from a period of accelerated investment to a more normalized cadence of node development and a more flexible and efficient capital plan.
We will maintain our Smart Capital approach to maximize financial flexibility as we complete our manufacturing buildout, making some adjustments to the near-term scope and pace of our manufacturing expansion.
We are also taking actions to strengthen and streamline our Intel Products portfolio, where we have identified clear opportunities to drive greater focus, speed and efficiency.
Our top priority is to maximize the value of our x86 franchise across client, edge and data center markets, including with a broader range of custom chiplets and other customized offerings that meet emerging customer needs, as demonstrated by today's AWS announcement.
Our AI investments—including continued leadership of the AI PC category, our strong position with AI in data center, and our accelerator portfolio—will leverage and complement our x86 franchise with a focus on enterprise, cost-efficient inferencing.
Alongside this, we are taking steps toward simplifying our portfolio to unlock efficiency, accelerate innovation and deliver more integrated solutions.
This includes moving our Edge and Automotive businesses into CCG, where we have a big opportunity to leverage our core client business and extend our leadership in the AI PC category to a wide range of vertical edge solutions. In NEX, we will be focusing the business on networking and telco. And we are moving Integrated Photonics Solutions into DCAI as we focus on driving a more focused R&D plan that's fully aligned with our top business priorities.
In addition, we are integrating our Software and Incubation business into our core business units to foster more integrated roadmaps, unlock efficiencies and create value.
An engine of financial performance
Collectively, these changes are critical steps forward as we build a leaner, simpler and more efficient Intel. And they build on the immediate progress we have made since announcing our plan on August 1 to create a more competitive cost structure.
Through our voluntary early retirement and separation offerings, we are more than halfway to our workforce reduction target of approximately 15,000 by the end of the year. We still have difficult decisions to make and will notify impacted employees in the middle of October. Additionally, we are implementing plans to reduce or exit about two-thirds of our real estate globally by the end of the year.
As we continue acting with urgency to execute the plan we announced last month, we are also working to carefully manage our cash as we meaningfully improve our balance sheet and liquidity. This includes through selling part of our stake in Altera—which is something we have talked about publicly several times and has long been part of our strategy to generate proceeds for Intel on Altera's path to an IPO.
All eyes will remain on us. We need to fight for every inch and execute better than ever before. Because that's the only way to quiet our critics and deliver the results we know we're capable of achieving.
We must maintain our focus on innovation while also becoming an engine of operational efficiency and financial performance that's built to win in the market.
As I've said before, this is the most significant transformation of Intel in over four decades. Not since the memory to microprocessor transition have we attempted something so essential. We succeeded then—and we will meet this moment and build a stronger Intel for decades to come.
On behalf of the entire ELT and our Board of Directors, thank you for all you're doing. I greatly appreciate your patience, grit and resilience as we do the hard work needed to deliver on our plan and position our company for the future.
Pat
The Board and I agreed that we have a lot of work ahead to drive greater efficiency, improve our profitability and enhance our market competitiveness—and there are three key takeaways from last week's meeting that I want to focus on:
- We must build on our momentum in Foundry as we near the launch of Intel 18A and drive greater capital efficiency across this part of our business.
- We must continue acting with urgency to create a more competitive cost structure and deliver the $10B in savings target we announced last month.
- We must refocus on our strong x86 franchise as we drive our AI strategy while streamlining our product portfolio in service to Intel customers and partners.
Today we announced that we will expand our strategic collaboration with Amazon Web Services (AWS). This includes a co-investment in custom chip designs, and we have announced a multi-year, multi-billion-dollar framework covering product and wafers from Intel.
Specifically, Intel Foundry will produce an AI fabric chip for AWS on Intel 18A. We will also produce a custom Xeon 6 chip on Intel 3 that builds on our existing partnership, under which Intel produces Xeon Scalable processors for AWS. More broadly, we expect to have deep engagement with AWS on additional designs spanning Intel 18A, Intel 18AP and Intel 14A.
This framework reflects the power of our "better together" strategy, anchored on our integrated portfolio across foundry services, infrastructure and x86 products. And with the 5N4Y finish line in sight, we are beginning to see a meaningful uptick in interest from foundry customers. This includes continued momentum in advanced packaging, which remains a meaningful differentiator for Intel Foundry as we have tripled our deal pipeline since the beginning of the year.
U.S. Secure Enclave award
Earlier today, we also announced that Intel has been awarded up to $3B in direct funding under the CHIPS and Science Act for the U.S. government's Secure Enclave program. This program is designed to expand the trusted manufacturing of leading-edge semiconductors for the U.S. government. As the only American company that both designs and manufactures leading-edge logic chips, we will help secure the domestic chip supply chain.
This news, combined with our AWS announcement, demonstrates the continued progress we are making to build a world-class foundry business.
Greater independence for Intel Foundry
To build on our progress, we plan to establish Intel Foundry as an independent subsidiary inside of Intel. This governance structure will complete the process we initiated earlier this year when we separated the P&L and financial reporting for Intel Foundry and Intel Products.
A subsidiary structure will unlock important benefits. It provides our external foundry customers and suppliers with clearer separation and independence from the rest of Intel. Importantly, it also gives us future flexibility to evaluate independent sources of funding and optimize the capital structure of each business to maximize growth and shareholder value creation.
There is no change to our Intel Foundry leadership team, which continues to report to me. We will also establish an operating board that includes independent directors to govern the subsidiary. This supports our continued focus on driving greater transparency, optimization and accountability across the business.
A more focused and efficient Intel Foundry will further enhance collaboration with Intel Products. And our capabilities across design and manufacturing will remain a source of competitive differentiation and strength.
A more efficient Intel Foundry manufacturing buildout
A key priority for Intel Foundry is to increase our capital efficiency. Our manufacturing investments across three continents have laid the foundation for a world-class foundry for the AI era. Now that we have completed our transition to EUV, it's time to shift from a period of accelerated investment to a more normalized cadence of node development and a more flexible and efficient capital plan.
We will maintain our Smart Capital approach to maximize financial flexibility as we complete our manufacturing buildout, making some adjustments to the near-term scope and pace of our manufacturing expansion.
- We recently increased capacity in Europe through our fab in Ireland, which will remain our lead European hub for the foreseeable future. We will pause our projects in Poland and Germany by approximately two years based on anticipated market demand.
- Malaysia remains an active design and manufacturing hub through our existing operations. We plan to complete the construction of our new advanced packaging factory in Malaysia but will align the startup with market conditions and increased utilization of our existing capacity.
- There are no changes to our other manufacturing locations. We remain committed to our U.S. manufacturing investments and are moving forward with our projects in Arizona, Oregon, New Mexico and Ohio. We remain well-positioned to scale up production around the world based on market demand as we grow our foundry business.
We are also taking actions to strengthen and streamline our Intel Products portfolio, where we have identified clear opportunities to drive greater focus, speed and efficiency.
Our top priority is to maximize the value of our x86 franchise across client, edge and data center markets, including with a broader range of custom chiplets and other customized offerings that meet emerging customer needs, as demonstrated by today's AWS announcement.
Our AI investments—including continued leadership of the AI PC category, our strong position with AI in data center, and our accelerator portfolio—will leverage and complement our x86 franchise with a focus on enterprise, cost-efficient inferencing.
Alongside this, we are taking steps toward simplifying our portfolio to unlock efficiency, accelerate innovation and deliver more integrated solutions.
This includes moving our Edge and Automotive businesses into CCG, where we have a big opportunity to leverage our core client business and extend our leadership in the AI PC category to a wide range of vertical edge solutions. In NEX, we will be focusing the business on networking and telco. And we are moving Integrated Photonics Solutions into DCAI as we focus on driving a more focused R&D plan that's fully aligned with our top business priorities.
In addition, we are integrating our Software and Incubation business into our core business units to foster more integrated roadmaps, unlock efficiencies and create value.
An engine of financial performance
Collectively, these changes are critical steps forward as we build a leaner, simpler and more efficient Intel. And they build on the immediate progress we have made since announcing our plan on August 1 to create a more competitive cost structure.
Through our voluntary early retirement and separation offerings, we are more than halfway to our workforce reduction target of approximately 15,000 by the end of the year. We still have difficult decisions to make and will notify impacted employees in the middle of October. Additionally, we are implementing plans to reduce or exit about two-thirds of our real estate globally by the end of the year.
As we continue acting with urgency to execute the plan we announced last month, we are also working to carefully manage our cash as we meaningfully improve our balance sheet and liquidity. This includes through selling part of our stake in Altera—which is something we have talked about publicly several times and has long been part of our strategy to generate proceeds for Intel on Altera's path to an IPO.
All eyes will remain on us. We need to fight for every inch and execute better than ever before. Because that's the only way to quiet our critics and deliver the results we know we're capable of achieving.
We must maintain our focus on innovation while also becoming an engine of operational efficiency and financial performance that's built to win in the market.
As I've said before, this is the most significant transformation of Intel in over four decades. Not since the memory to microprocessor transition have we attempted something so essential. We succeeded then—and we will meet this moment and build a stronger Intel for decades to come.
On behalf of the entire ELT and our Board of Directors, thank you for all you're doing. I greatly appreciate your patience, grit and resilience as we do the hard work needed to deliver on our plan and position our company for the future.
Pat
37 Comments on Pat Gelsinger Writes to Employees on Foundry Momentum, Progress on Plan
Pat Gelsinger Writes to ‘Remaining’ Employees on Foundry Momentum, Progress on Plan
Fixed the title for you."... We will pause our other projects in Europe, so that nobody talks about their cancellation now.
Later when time passes and people forget enough, we announce their real cancellation (which was meant from the beginning)."
bribesinvestments.He had do this from the start... you did not need a crystal ball for that. Definition and prime example of arrogance at company level.
Need some new innovations that consumers and businesses will actually pay for. They're trying with "AI". Lots of hype without many decent use cases, so far.
Even reviewing games at 720p with a 4090 doesn't seem to be fooling people now.
Winter is probably coming for growth in the industry going forward.
It's not all doom and gloom though - to support this shift, we will see massive growth in telecommunications and network technology to increase bandwidth and decrease latencies, thus enabling the cloud experience to be almost as seamless as a fully local environment. For those sectors it will continue to be an eternal summer.
The energy cost in Germany is just way too high for advanced manufacturing anymore. And given their energy grid is run by clowns, that's not going to get better anytime soon.
Poland is more of a wild card, likely comes down to an additional casualty of intel cutting back. You'd still need management for the Euro side of things regardless, so 1 fab instead of 2 made little sense.
Can you comprehend that people dont like additional latency?
As for the whole "it's more expensive over time" argument, you don't know what your business is going to do over time and therefore there is no way to know whether you'll need to spend more or less on hardware and when, so this "argument" is a nonsensical fallacy. If you buy your own hardware to cover an increase in demand, then business dips for a year, you're left with overspecced machines that you effectively paid too much for and are now just depreciating and losing you money. In a cloud environment, you scale back the number of instances or the hardware tier they're running on to correspond to demand, and immediately you save money in the dry periods.So literally every cloud application that already exists is "insufficient"?They will if it's the only possible one.
Intel asked German government for funding and they approved 6.8 billion €. Intel wanted even more (10 billion) after and the government declined.
The whole facility had estimated costs of 17 billion, so Intel dared to ask German government to fund more than half of the costs. Ridiculous.
Later Intel extended plans for plant in Germany in terms of building two plants in for total costs of 30 billion €.
Germany approved funding of 9.9 billion €, that's roughly 33% of the whole investment. Is that not enough for Intel?
Who is/was the real investor here? Intel or Germany?
Now, this amount of money will be redirected somewhere else:
www.dw.com/en/germany-intel-delays-construction-of-magdeburg-factory/a-70235254
www.datacenterdynamics.com/en/news/intel-hits-pause-on-chip-fabs-in-germany-and-poland-amid-financial-crisis/
Poland plant was estimated to cost 4.6 billion €. It was meant to be an assembly and testing site, not chip manufacturing plant as was meant for Germany.
Anyway, postponing of plans in EU was more than expected after Intel lost 1.6 billion $ in Q2 2024. More layoffs are to be expected, I'm afraid.
Let's hope that upcoming Arrow Lake is a miracle and not will not really end like this.