Ahead of Intel’s upcoming Q3 financial announcement on October 31st, the market has speculated that it may suffer another quarter of revenue decline, while the company might reportedly incur a loss over USD 3 billion this year.

However, the struggling giant might have made a significant misstep as early as three years ago, when Pat Gelsinger took over as Intel’s CEO, and soon damaged the relationship with TSMC by offending the foundry leader, according to an in-depth report by Reuters.

Sweet Deal Canceled upon Bold Remarks

According to the report, Intel used to enjoy a favorable arrangement with TSMC, as the latter was producing chips that Intel could not manufacture in-house. Citing several people familiar with the deal, TSMC was offering Intel substantial discounts.

However, rather than carefully fostering the relationship, Gelsinger made controversial statements, one after another, and strained ties with TSMC by highlighting Taiwan’s delicate situation with China, the report notes.

According to Reuters, TSMC decided to revoke Intel’s discount as a counterattack. Citing sources familiar with the situation, instead of offering approximately 40% off on the $23,000, 3nm wafers used to manufacture Intel’s chips, TSMC now asked Intel to pay the full price. The move significantly shrink Intel’s margins.

To recap, Reuters states that in May 2021, just months after Gelsinger took the throne of Intel’s CEO, he highlighted the ongoing US-China conflict and warned that the industry shouldn’t become too reliant on TSMC. “You don’t want all of your eggs in the basket of a Taiwan fab,” he said, implying that companies need to look for other supplier alternatives.

TSMC certainly does not like the comments. According to a previous report by Wccftech, TSMC founder Morris Chang responded by saying that he was taken aback by Gelsinger’s rudeness towards TSMC when they met back in 2015.

Later that December, Gelsinger further advocated for U.S. investment in domestic chipmakers, stating at a tech conference that Taiwan is not a stable place, according to Reuters.

When asked by Reuters about this previously undisclosed incident, Intel stated that TSMC remains an important partner and that they maintain a “healthy business relationship today.” TSMC also told Reuters that Intel is a valued customer.

Still Lagging behind as 18A Challenges Remain

TSMC founder Morris Chang used to say that Gelsinger’s previous remarks were made from an emotional standpoint, which failed to clarify how Intel intends to surpass TSMC technologically in the years ahead. Now, Intel’s push to reclaim its manufacturing edge through a new chip-production process, known as 18A, has encountered delays and technical hurdles, with some potential clients hesitating to adopt it.

According a previous report by Reuters, Broadcom’s initial tests with Intel’s 18A (1.8nm-class) process did not meet expectations, creating additional pressure on the semiconductor giant’s efforts to catch up with TSMC in the foundry sector.

The report noted that Broadcom tested Intel’s 18A by producing wafers with typical design patterns. However, its engineers and executives were said to be disappointed with the results, regarding the process as “not ready for high-volume production.”

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(Photo credit: Intel)

According to a report from MoneyDJ, citing the Reuters, Intel’s share price has plummeted this year as the company falls behind in the AI race and faces substantial losses in its foundry business.

Intel is set to release its third quarter 2024 earnings report after the U.S. stock market closes on October 31. According to the report from the Reuters, Intel is expected to announce its largest quarterly revenue drop in five quarters, with Wall Street expecting an 8% decline in revenue to USD 13.02 billion, according to data from LSEG compiled as of Oct. 26.

The Reuters indicated that shareholders are now looking to CEO Pat Gelsinger for detailed plans to help the company navigate this crisis, as the company reports significant losses in its foundry business and struggles to capitalize on the generative AI-driven chip boom.

The report from the Reuters highlighted that Intel’s losses in its foundry business are substantial, driven by the high construction costs of fabs. The foundry’s operating loss for the third quarter is estimated to reach USD 2.55 billion, significantly impacting the company’s overall profit.

According to the report from the Reuters, based on estimates compiled by LSEG, Intel is expected to see a decline of more than 7 percentage points in its adjusted gross margin, dropping to 37.9%.

On the other hand, Intel’s revenue from producing chips for AI-powered PCs is also expected to see an annual decline of more than 6% in the third quarter, as its rival AMD expands its AI PC product lineup, according to the Reuters.

Furthermore, the report noted that Intel’s Data Center and AI business group is also losing market share to AMD, with third-quarter revenue expected to decline by 17%, marking ten consecutive quarters of annual declines.

While Intel still holds a significant share of the server CPU market, demand is increasingly shifting toward AI graphics processors, an area where the company has limited presence, as the report from the Reuters pointed out.

Since taking office in 2021, Gelsinger has aimed to restore Intel to its former glory. He made ambitious promises to bring chip manufacturing back to the U.S. and to compete with TSMC in the foundry market. However, according to MoneyDJ, the second-quarter financial report released in August revealed a significant loss of USD 2.8 billion in the foundry business. On that day, the stock price dropped by 26%, marking its worst single-day decline in 50 years.

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(Photo credit: Intel)

According to a report from Globes, amid significant layoffs at Intel, many former employees from the company in Israel have made the move to NVIDIA, including veteran staff who have worked at Intel for a decade or more.

The report noted that updates on LinkedIn indicate that at least 30 employees left Intel in 2024 to join NVIDIA’s offices in Yokneam and Tel Aviv. This group includes core processor development engineers, hardware architecture professionals, electric power management staff, and chip design software developers.

Currently, NVIDIA is undergoing a major expansion in Israel, having hired hundreds of employees from other companies and recent college graduates since the beginning of the year, as the report mentioned.

According to the report, NVIDIA is estimated to have hired between 60 and 90 former Intel employees in recent months. With Intel’s ongoing wave of voluntary retirements and layoffs, NVIDIA is likely to hire a dozen more, potentially bringing the total to around 100.

The report indicated that, according to Levels.fyi, NVIDIA offers higher salaries and better compensation packages—approximately 33% higher on average than at Intel. Notably, the biggest difference between Intel and NVIDIA lies in their share options. The report pointed out that, according to Levels.fyi, the annual value of the share option package for a hardware engineer at Intel starts at NIS 19,300 (around USD 5,187), while at NVIDIA it begins at NIS 56,200 (approximately USD 15,105).

Intel announced in August that it would reduce 15% of its workforce, estimated to be between 15,000 and 17,000 employees, while 7,500 have already opted for voluntary retirement, which includes 19 additional monthly salary payments, according to the report.

Regarding Intel’s situation in Israel, the report indicated that after thousands of employees were laid off in the U.S., several hundred employees at Intel’s development centers in Haifa, Petah Tikva, and Jerusalem are reportedly set to be laid off this week.

The report highlighted that most of Intel’s layoffs in Israel are occurring in the development centers, rather than at the production facility in Kiryat Gat. This is due to the construction of the new Fab 38 plant, which, once completed, will need more production staff.

According to the report, most of former Intel employees who joined NVIDIA this year made the move in recent months, with a noticeable increase in departures occurring this month. As for other former Intel employees in Israel, many have joined other major tech companies, including Apple, Amazon, and Mobileye, which is a subsidiary of Intel. The report also noted that a smaller number have transitioned to Microsoft, Google, and the Chinese company Huawei, which has a development center in Haifa.

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(Photo credit: NVIDIA)

Intel announced today an expansion of its packaging and testing facility in Chengdu, China. In addition to packaging and testing for client products, the facility will now offer services for server chips and will establish a Customer Solutions Center aimed at boosting local supply chain efficiency, enhancing support for Chinese clients, and improving response times. Planning and construction for these enhancements are already underway.

Under Intel’s expansion plan for the Chengdu base, the added capacity will primarily focus on packaging and testing services for server chips to meet Chinese clients’ demands for high-efficiency, customized packaging solutions.

The soon-to-be-launched Intel Customer Solutions Center is designed as a one-stop platform to support enterprise digital transformation, offering industry clients tailored solutions based on Intel’s architecture and products.

The Santa Clara, California-based company is set to invest $300 million into its local entity, Intel Products (Chengdu), to support its expansion efforts, according to a WeChat post from the city’s Reform and Development Commission, as reported by the South China Morning Post.

According to Intel’s public information, the Chengdu packaging and testing base is one of the company’s largest globally. ESM China reports that the facility has become one of Intel’s three major wafer preprocessing sites worldwide, supplying half of Intel’s mobile device microprocessors.

Located in Chengdu’s High-Tech Comprehensive Bonded Zone, Intel’s packaging and testing facility began its journey in August 2003 when the company announced plans to build a semiconductor packaging and testing factory in the city’s High-Tech West Zone. Construction of the first phase started in February 2004, and by late 2005, the facility was operational, with products exported worldwide. The second phase broke ground in August 2005, and by October 2006, construction was completed, including the training center, while the microprocessor facility began production in 2007, packaging Intel’s most advanced multi-core microprocessors.

(Photo credit: Intel)

According to a report from Silicon Angle, four former Intel directors have published an article in Fortune, urging the company to spin off its fab business.

The authors include Reed Hundt, a onetime Federal Commission Communications chair, Charlene Barshefsky, former U.S. Trade Representative, James Plummer, Stanford University’s dean of engineering for over a decade, and David Yoffie, a Harvard Business School professor and longtime Intel director.

Their argument basically are based on two reasons. First, they argue that if Intel is going to be acquired by other companies, the potential buyers would likely prioritize cost-cutting and see little value in the money-losing manufacturing fab. They highlight this possibility due to Intel’s recent significant drop in stock price, and with its fab business operating at a substantial loss, it could become a target for cost-cutting initiatives.

Secondly, according to their article in Fortune, they noted that since Intel operates its own foundry within its corporate structure, it struggles to attract business, as other chip design companies see it as a potential competitor.

In their article in Fortune, they pointed out that Nvidia, Qualcomm, Broadcom, and others are all looking for a second manufacturing option other than TSMC, but will continue to be cautious about Intel as long as it remains a direct competitor. They indicate that spinning off the fab business would alleviate these concerns.

They argue that while the U.S. government has already promised up to USD 8.5 billion in grants and USD 11.5 billion in low-cost loans for Intel, the government should further demand Intel to split its design and manufacturing operations into two completely independent companies.

On the other hand, Intel’s former CEO Craig Barrett has a different perspective on whether Intel should split its foundry business. In an article published in Fortune, Barrett argues that separating Intel into two distinct companies is not the answer. He pointed out that this approach would hinder the foundry business’s ability to keep pace with the latest technology, leaving the U.S. government dependent on foreign suppliers like TSMC for cutting-edge advancements.

Previously on September 16th, Intel announced that it will transform its foundry business into a wholly-owned subsidiary with its own board of directors. According to its press release, this new structure will provide greater separation and independence for Intel’s external foundry customers and suppliers from Intel’s other divisions. Importantly, it also gives the company the flexibility to evaluate independent funding sources in the future and optimize the capital structure of each business to maximize growth and create shareholder value.

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(Photo credit: Intel)