Intel’s quarterly revenue hit “three consecutive declines”, is the IDM2.0 foundry plan working?

On October 18, Intel announced its results for the third quarter of 2022. Data show that Intel’s third-quarter revenue was $15.3 billion, down 20% year-on-year; net profit was $1 billion, down 85% year-on-year; Non-GAAP earnings per share were $0.59, compared with $1.45 in the same period last year.

It is worth noting that Intel’s revenue in the second quarter was $15.321 billion, down 22% year-on-year; in the first quarter, revenue was $18.4 billion, down 7% year-on-year. Combined with the third quarter data, Intel’s revenue in the first three quarters of 2022 hit a “three consecutive declines” year-on-year.

Regarding Intel’s recent revenue, Chai Daixuan, director of CIC Consulting, told that on the one hand, it was due to the sudden shrinking of demand in the personal computer market. Cannibalize Intel’s chip market.

Recognizing the declining trend of the PC market, Intel CEO Pat Kissinger pointed out in the earnings conference call, “Despite the economic downturn, we still achieved solid performance this quarter, and we have a strong performance in product and process. Significant progress has been made in the execution of our IDM 2.0. In response to business cycle impacts, we are aggressively cutting costs and driving performance improvements across the business to accelerate turning our IDM2.0 flywheel towards a digital future.

OEM business attracts attention

As early as March last year, the “IDM2.0” strategy was proposed by Henry Kissinger, Intel’s new CEO. The main contents include three aspects: a global internal factory network for mass manufacturing; expanding the use of third-party foundry capacity; building a world-class foundry business (IFS).

After the “IDM2.0” was proposed, Intel continued to show its actions to the outside world to prove and defend the feasibility of “IDM2.0”. Including the release of a new “system-level foundry” plan at the “Intel On Technology Innovation Summit” this year, and the establishment of foundry relations with MediaTek.

Compared with the first two aspects of the “IDM2.0” strategy, Intel’s IFS foundry business seems to be more concerned by the industry. Chai Daixuan said that Intel’s foundry business, Intel Foundry Services (IFS), is currently the fastest-growing business. On the one hand, foundries can pursue advanced processes to produce the most advanced chips, and on the other hand, they can use relatively old but lower-cost processes to produce chips such as MCU, CIS, FR, and PMIC. Intel can revitalize the company’s assets through external foundry services, which is expected to improve the company’s asset turnover rate.

In terms of news, in July, Intel and MediaTek announced the establishment of a strategic partnership, and MediaTek will use the 22nm process chips provided by Intel’s foundry services.

Intel’s chief financial officer, George Davis, has publicly stated that Intel’s 10nm process node will not be as profitable as 22nm. In terms of foundry costs, the 20/16nm node’s wafer foundry gross profit is $3,910.

Chai Daixuan told reporters that Intel will not be affected by TSMC’s overly strong influence in the foundry field until it really enters the head-to-head competition with TSMC and Samsung with its advanced manufacturing process. Instead, subsidies will drive its pace of factory building, which will be a positive sign for Intel’s foundry business.

“With the signing of the “Chip and Science Act” by US President Biden on August 9, Intel has more bullets to expand its new capacity in US wafer manufacturing,” said Chai Daixuan.

OEM is not easy to do

It is worth noting that ten years ago, Intel was the foundry for Altera, one of the FPGA giants, but the cooperation between the two parties was ineffective due to inefficiency and production capacity competition. The cooperation finally ended in Intel’s acquisition of Altera. Today, the foundry (IFS) business, which is responsible for Intel’s transformation, had revenue of $171 million in the quarter, down 2% year-on-year.

Counterpoint analyst Dale told reporters that at present, the foundry business of Intel and MediaTek’s cooperation mainly focuses on Intel’s 5G modems, and the chip process is mainly 22nm. At present, it seems that MediaTek will not consider IFS foundry products below 10nm .

“Until it proves the yield and deliverability of its sub-10nm technology, it will be difficult for Intel to overtake MediaTek in TSMC’s favor,” Dale said.

Industry insiders told reporters that at present Intel dares to enter the foundry field, partly because of its confidence in Chiplet technology. Chiplet is a new solution that starts from the overall system efficiency and takes into account cost and process manufacturing. This is also one of the core starting points of Intel’s previous battle with AMD around “Moore’s Law”.

Intel claims that the limit of transistors integrated on a single chip by the existing process is about 100 billion, and through system-level foundry, trillion-level transistor chips in the future are feasible, and this is the solution behind it.

However, Counterpoint analyst Brady told reporters, “The biggest question now is the growth in demand, whether there will still be demand for so many small and fast products in the future, and whether automobiles and IoT devices can become new technologies when demand for mobile phones declines. This is the most pressing issue and the biggest driving force for enterprises to invest in advanced technology.”

On the other hand, there are also voices saying that OEM and packaging do not mean that everything will be fine if the technology is strong. Transforming from IDM to foundry, for Intel, the biggest challenge is still the foundry culture. It is necessary to learn to communicate with customers, learn to listen to customer demands, and to provide customers with the required services from the perspective of customers, and finally meet customers’ differentiated requirements. need.