Intel's biggest-ever restructuring: Read the complete memo sent by CEO Pat Gelsinger to employees

TOI Tech Desk / TIMESOFINDIA.COM / Updated: Sep 23, 2024, 10:48 IST

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Intel CEO Pat Gelsinger announced a significant restructuring of its foundry business into an independent subsidiary to enhance efficiency and competitiveness. Intel secured a multibillion-dollar agreement with Amazon Web Services for AI chip production and received substantial funding under the CHIPS Act. The company will pause construction of new chip plants in Europe.

Intel's biggest-ever restructuring: Read the complete memo sent by CEO Pat Gelsinger to employees

FILE PHOTO: Intel CEO Pat Gelsinger delivers a speech at the COMPUTEX forum in Taipei, Taiwan June 4, 2024. REUTERS/Ann Wang/File Photo

Intel CEO Pat Gelsinger sent a note to employees on September 16, 2024, announcing a major restructuring of the company's foundry business into an independent subsidiary. In the memo, Gelsinger emphasised the urgency of the situation, stating, "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." The restructuring is aimed to provide "clearer separation and independence" for Intel Foundry, including its own operating board and separate financial reporting.
As part of this transformation, Intel secured a multibillion-dollar agreement with Amazon Web Services to produce an AI chip using its advanced 18A manufacturing process.However, the company also announced plans to pause construction of new chip plants in Europe and reduce its global real estate footprint. Gelsinger described these changes as "the most significant transformation of Intel in over four decades," emphasising that "All eyes will remain on us" as the company works to regain its position in the semiconductor industry.

Read the complete memo sent by Intel CEO Pat Gelsinger to employees.

“Team,

All eyes have been on Intel since we announced Q2 earnings. There has been no shortage of rumours 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:

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.

We have several pieces of news to share that support these priorities.
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 maximise 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 normalised 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.

A stronger Intel Products portfolio focused on x86
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 maximise the value of our x86 franchise across client, edge and data centre markets, including with a broader range of custom chiplets and other customised 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 centre, 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”

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