Intel to slash outsourcing to below 20% amid $7Bn loss
CALIFORNIA, UNITED STATES — Semiconductor giant Intel is aiming to reduce its reliance on outsourcing, bringing down the current 30% of its production outsourced to third-party manufacturers like Taiwan Semiconductor Manufacturing Company (TSMC) to below 20%.
This strategic shift comes after the company’s foundry unit reported a $7 billion loss in 2023, as it invested heavily in new capacity and advanced process technologies.
The company disclosed that about one-third of its products are currently manufactured by its foundry partners, primarily TSMC, which has adversely affected its margins due to the premiums paid to these contract chip makers.
In response, Intel is reorganizing its operational model to integrate its manufacturing and product divisions better, thereby improving cost efficiency and margins.
Intel CEO Pat Gelsinger highlighted the company’s future direction, stating, “It is in the order of 30% of our wafers today that we bring in externally, will be in-sourcing some level, as I said, [when] a couple of fab modules we expect over this period of time [come online].”
This move is expected to significantly enhance Intel’s profitability by reducing outsourcing expenses and leveraging its own manufacturing capabilities.
Starting in the first quarter of 2024, Intel will adopt a new operating model that clearly delineates the relationship between Intel Foundry, the company’s manufacturing organization, and Intel Products, which includes the company’s business units.
This restructuring is expected to provide greater transparency and accountability, with the foundry and product units reporting their results separately.
Despite the foundry unit’s $7 billion loss last year, Intel remains optimistic about its long-term prospects. The company is investing in multiple fabs (microchip fabrication plants) in the United States and is set to commence construction of a semiconductor manufacturing facility near Magdeburg, Germany.
With these new fabs expected to start operations between 2024 and 2026, Intel anticipates a significant improvement in its foundry and product margins as more production is brought in-house.
Gelsinger further elaborated on the company’s strategy, emphasizing the importance of reducing outsourcing to enhance cost efficiency and extend the life of factory nodes.
“External foundries [will continue to be] an important part of our business strategy, but we will be bringing more of those wafers home,” he added.
