2024.04.03 00:20
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Intel's "chip outsourcing dream" is about to survive the darkest moment! It aims to challenge TSMC's dominant position

Intel has announced the financial situation and development plan of its chip manufacturing business. The company plans to achieve breakeven for the entire business by 2030 and reach the peak of losses for the manufacturing business in 2024. Intel aims to improve transparency, reduce costs, and grow performance by transitioning to a chip manufacturing operating model. By 2030, Intel expects its chip manufacturing plants to become the world's second-largest in scale. This move has caused a sharp drop in NVIDIA's stock price. Intel's CEO stated that this transformation brings significant opportunities to the company

According to the financial news app Zhitong Finance, the US veteran chip giant Intel (INTC.US) announced on Tuesday afternoon Eastern Time a plan for its Intel "Foundry Business" tailored for the global entry into the era of Artificial Intelligence (AI). The plan aims to achieve the overall break-even of the business by 2030, while also expecting the operating losses of the foundry business to peak in 2024. However, after this announcement, Nvidia's stock price plummeted in after-hours trading on the US stock market, falling more than 4% to $41.950 at one point.

Intel disclosed the latest financial status of its products and chip foundries on Tuesday, showcasing profit expectations for their respective businesses to investors. Overall, the latest financial structure disclosed by Intel reflects a comprehensive transition to the chip foundry operating model to drive higher transparency, cost savings, and performance growth.

Intel expects the overall operating losses of its chip foundries to peak in 2024 and plans to achieve up to a 40% gross margin under Non-GAAP guidelines and up to a 30% operating profit margin under Non-GAAP guidelines by some time between now and 2030. By 2030, Intel expects its chip foundries to become the world's second-largest foundry, slightly behind the foundry king TSMC (TSM.US).

Intel CEO Pat Gelsinger stated in the latest report, "Intel's unique position as a world-class chip manufacturer and leader in non-fab technology creates significant opportunities for long-term sustainable growth in these two complementary businesses."

"The implementation of this new model marks a key achievement in our IDM 2.0 transformation, where we have honed our execution engine, established the industry's first and only system-level chip foundry with leading manufacturing capabilities in different global locations, and launched our mission to achieve 'AI everywhere,'" emphasized Gelsinger in the report.

Intel CEO Gelsinger also mentioned that the company's business transformation is progressing smoothly, aiming to achieve a more advanced 18A process node than competitors in the chip manufacturing field, putting Intel "ahead" by one step. The 18A advanced process will enable Intel to be on par with competitors in terms of costs. The "18A" chip manufacturing category refers to Intel's planned 1.8nm level chips and the 3D chiplet advanced packaging process roadmap.

Intel's chip foundry business includes chip foundry technology development, chip foundry manufacturing with advanced packaging and supply chain services, and foundry services. The foundry business is now an independent operating department under Intel, with its own profit and loss statement.

The company's report stated that the Intel chip foundries currently have "expected lifetime transaction value with external customers exceeding $15 billion." "This model aims to achieve significant cost savings, operational efficiency, and asset value," said Intel CFO David ZinsnerOn the same Tuesday, Intel announced the appointment of Lorenzo Flores as the Chief Financial Officer of Intel's chip foundry. He previously served as the CFO of Xilinx.

"The right time, the right place, and the right people" all in one, with analysts optimistic about Intel's stock price rising to $100

After the news of Intel receiving a huge amount of U.S. government subsidies was announced, the well-known investment firm Global Equities Research significantly raised Intel's target stock price for the next 12 months from $65 to $100 per share, stating that even this seemingly "sky-high" target may be conservative. After the U.S. stock market closed on Tuesday, Nvidia's stock price fell more than 4% to $41.950 at one point, hovering around $42.260 at the time of writing.

The U.S. Department of Commerce provided Intel with up to $8.5 billion in direct subsidies under the "Chip Act" to help it expand chip manufacturing capacity in Arizona, New Mexico, Ohio, and Oregon.

In a recent research report, Global Equities stated that the high subsidies from the U.S. government will fully support Intel in achieving its ambition to become a leader in high-end chip foundry services, and further help Intel become a global leader in the manufacturing of "next-generation AI chips." Global Equities mentioned that Intel's possession of the most advanced chip process technology routes such as 18A, 14A, and 10A is crucial for the future high-performance AI chip production plans of chip giants like Nvidia and AMD.

According to Global Equities, Intel has all the advantages of "the right time, the right place, and the right people." Intel catching the beginning of the global AI era is "the right time"; market demand, especially the strong demand for AI chip foundry services from U.S. chip giants focused on chip design like Nvidia and AMD, is "the right place." The incredibly strong global demand for AI chips has propelled Nvidia to the position of "the world's first trillion-dollar chip company," and Intel, aspiring to be a leader in AI chip foundry services, is poised to share the cake with Nvidia; "the right people" benefit from the U.S. government's initiative to bring back high-end manufacturing industries like chips to the U.S., with increasing support for Intel from the government.

Intel is confident in its plans to regain its position as a global leader in chip manufacturing in the near future, and now is perhaps the crucial moment to "spend big."

The $8.5 billion in high subsidies granted by the U.S. government to Intel also means that 16% of the $53 billion in government funds authorized by the 2022 "Chip Act" will flow to Intel. Global Equities Research analyst Trip Chowdhry believes that this news is very important for the bullish expectations for Intel, and on Thursday, he significantly raised the target price of Intel's stock to $100Considering Intel's current stock price is around $42, Global Equities has placed a significant vote of confidence. The target price given by Global Equities analyst Chowdhry implies that this chip company, with a current market value of around $180 billion, will double its market value in the next 12 months.

"The $8.5 billion in free government funding is a very optimistic start. But in addition, Intel has also planned to establish a chip manufacturing company capable of producing 'next-generation' AI chips based on 18A, 14A, and 10A process technologies, and Intel's high-end chip manufacturing technology is essential for driving the accelerated development of AI technology." Analyst Chowdhry wrote in the report.

Chowdhry stated that while chip manufacturers like TSMC and Samsung Electronics are actively exploring 3D stacking technology, Intel seems to be leading the pack. Chowdhry mentioned that with the support of government funding in the U.S., Intel has the ability to rapidly develop leading 3D advanced packaging processes and mass-produce chips based on 18A, 14A, and 10A advanced process technologies, which are core technologies for manufacturing higher-performance AI chips. Therefore, Chowdhry expects that with the support of the U.S. government, Intel is highly likely to stand out, and Intel may even turn losses into profits this year and surpass its competitors in the coming years.

Intel stated that its 3D advanced packaging technology called Foveros is an innovative chip stacking solution, with AI chips expected to be the largest-scale application of this technology; Intel's technology allows the vertical stacking of processor compute blocks, rather than side by side. Intel stated that by 2025, the capacity of 3D Foveros packaging will reach four times the current level.

From a technical standpoint, Foveros is ahead of TSMC's 2.5D CoWoS technology, with the key feature of Foveros 3D advanced packaging being face-to-face (F2F) connections between chips achieved through extremely small pitches (36-micron microbumps, mostly likely copper pillars). This type of connection is particularly important for high-performance applications such as AI training/inference, as it can significantly increase interconnect density and reduce line parasitic effects, thereby enhancing performance and efficiency.

The current demand for AI chips is incredibly strong, and it is likely to remain so for a long time to come. A recent AI chip market size forecast report released by the well-known market research firm Precedence Research shows that by 2032, the market size covering CPU, GPU, ASIC, and FPGA AI chips is expected to surge from around $21.9 billion in 2023 to $227.48 billion, with a compound annual growth rate of nearly 30% from 2023 to 2032