Intel's New CEO Lip-Bu Tan Explores Aggressive Overhaul of Chip Manufacturing Business

Under the leadership of its new CEO, Lip-Bu Tan, Intel is reportedly embarking on a profound strategic overhaul of its crucial chip manufacturing (foundry) division. Taking the helm in March 2025, Tan, a seasoned veteran and former CEO of Cadence, aims to aggressively reposition Intel in the cutthroat semiconductor market, with a focus on attracting major external customers and tackling persistent financial and operational challenges.

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Revisiting Foundry Ambitions: The 18A Conundrum

A core component of Tan's strategy involves a critical reassessment of Intel's advanced manufacturing processes, particularly the 18A node. While former CEO Pat Gelsinger had heavily invested in 18A as a flagship technology for Intel's foundry services, reports indicate that it has struggled to gain traction with new external customers.

• Limited External Adoption: Despite its intended prominence, only a few external clients, including Amazon, Microsoft, and the U.S. Department of Defense, have formally committed to using 18A for their products, and these represent relatively small volumes. Notably, Broadcom reportedly found 18A insufficient for its large-scale production quality standards.
• Internal Focus for 18A: Intel will continue to utilize 18A for its own internal chip designs, such as the upcoming Panther Lake CPUs, and fulfill existing external commitments. However, the company may cease actively marketing 18A to new external clients.

Shifting Focus to 14A: A New Competitive Edge

Intel's strategic pivot now centers on the next-generation 14A process node. Tan and his team believe that 14A holds greater promise for attracting major clients due to its competitive advantages, potentially including Intel's early adoption of High-NA EUV (Extreme Ultraviolet) lithography technology.

• Performance and Efficiency Gains: The 14A process is projected to deliver significant improvements, including 15-20% performance gains and 25-35% lower power consumption compared to 18A.
• Path to Break-Even: Intel aims for its foundry business to achieve break-even operating margins by 2027, coinciding with the rollout of 14A technology and the start of its risk production. This target requires substantial external adoption of 14A.

Financial Realities and Tough Decisions

Intel's foundry division has been a significant financial drain, losing billions of dollars every quarter due to heavy investments in new process technologies and production capacities. The company reported a net loss of $18.8 billion in 2024, its first unprofitable year since 1986.

• Potential Write-Offs: A decision to discontinue external marketing for 18A could result in multi-billion dollar write-offs related to its development costs.
• Cost-Cutting and Restructuring: Tan has openly communicated to employees about the need for "tough decisions," including rigorous cost-cutting, streamlining leadership and middle management, and potentially reassessing the company's workforce, which was reduced to nearly 109,000 by the end of 2024.

Intense Competition with TSMC

Intel faces an uphill battle against Taiwan Semiconductor Manufacturing Co. (TSMC), which dominates the global foundry market. In Q3 2024, TSMC held a commanding 64.9% market share, with superior R&D efficiency and advanced nodes like N2 (2nm), which is slated for volume production in late 2025.

• Technological Gap: TSMC's N2 node is reported to offer superior SRAM density and overall performance compared to Intel's offerings. Intel's historical vertical integration model and past execution delays have put it at a disadvantage in serving diverse external customers.
• Attracting Key Clients: Intel's aggressive shift is aimed squarely at winning major customers like Apple and Nvidia, who are currently reliant on TSMC for their cutting-edge chips.

The Road Ahead

Lip-Bu Tan's strategy is comprehensive, extending beyond manufacturing processes to include restructuring AI operations and exploring new areas like AI servers, software, robotics, and AI foundation models. He is committed to restoring Intel's position as a "world-class foundry" by enhancing efficiency and competitive offerings.

Proposals detailing this strategic shift are expected to be presented to Intel's board as early as this month, with a final decision potentially coming in the fall. The outcome of these discussions will be crucial for Intel's future trajectory in the global semiconductor industry.