There are no more blank checks. Every investment must have economic feasibility.
Pat Gelsinger's successor, CEO Lip Boo Tan, who was brought in to rebuild Intel, declared on the 25th (local time) that he would significantly reduce investments in semiconductor fab construction. He pointed out that the investments made during the tenure of the previous CEO, Pat Gelsinger, were excessive and unwise, and he unveiled plans to consider withdrawing from the foundry business if core clients are not secured. During the earnings conference call, he said, "The belief that customers will come just because we build a factory will not be followed."
◇ Falling into the deficit swamp and sluggish main business
This intensive reform plan stemmed from Intel's poor performance. Intel failed to adequately respond to the explosive demand for AI semiconductors amid the rapid growth of the artificial intelligence (AI) market, ceding market share to competitors like NVIDIA and AMD. In the second quarter of this year (April-June), Intel recorded a revenue of $12.9 billion (approximately 17.7 trillion won) and a net loss of $2.9 billion (approximately 4 trillion won), increasing its deficit compared to the same period last year (net loss of $1.61 billion). The foundry business incurred an operating loss of $3.17 billion (approximately 4.3 trillion won).
Looking at the performance of Intel's main business units, the sense of crisis is clear. The sales of the PC central processing unit (CPU) business (Client Computing Group), which accounts for half of the company's revenue, totaled $7.9 billion (approximately 10.8 trillion won), a 3% decrease from the same period last year. Sales of the data center group, which includes AI chips, were $3.9 billion (approximately 5.3 trillion won), up 4% compared to the same period last year; however, competitor AMD is quickly securing cloud customers while taking market share from Intel. CEO Tan stated, "We will regain market share in the data center chip market," and noted that he is looking for someone to lead this business unit.
CEO Tan emphasized in a memo sent to employees on the same day that Intel plans to build factories only when there is semiconductor demand. Previously, factories were built ahead of demand, but CEO Tan pointed out that "over the past few years, the company has invested too much too quickly without sufficient demand, resulting in a dispersion of company factory sites and reduced utilization."
◇ We will overhaul everything: Foundry business surgery and organization streamlining
CEO Tan has also begun a major overhaul of the foundry business. Intel is currently focusing on transitioning to mass production of the 1.8-nanometer (18A) process, which has almost no external customers, and plans to only execute investments in the next-generation 1.4-nanometer (14A) process when customer orders are secured. Intel stated in its filed securities report that, "If we cannot secure major external customers for the 14A process, we may withdraw from the foundry business." Furthermore, CEO Tan hinted at the possibility of halting the foundry business aimed at external customers, saying during the conference call, "Even if the 18A technology is used only for Intel's internal products, it can yield reasonable revenue."
Plans for factory construction have also entered efficiency measures. Intel has already completely canceled the suspended factory projects in Germany and Poland, and has decided to slow down the construction pace of the new factory in Ohio. Additionally, in order to stabilize the supply chain, it has broken the practice of maintaining production bases in several regions and decided to consolidate the semiconductor packaging process in Costa Rica with Vietnam and Malaysia. CEO Tan indicated, "I will review and approve all major chip designs directly," showing his commitment to overseeing even the smallest details going forward.
Additionally, CEO Tan, who diagnosed that bureaucratism is rampant at Intel, is accelerating efforts to break down unnecessary management structures and improve high-cost structures. Aiming to reduce operational costs to around $17 billion (approximately 23.36 trillion won), he is currently undergoing a restructuring that will cut more than 15% of global employees. He has decided to eliminate 50% of middle management positions to streamline the enlarged organization. CEO Tan said in a memo to employees that, "The first few months after taking office in March were not easy," but added, "Most of the planned layoffs have been completed, and we will create an organization of 75,000 by the end of the year."