Special Report: Inside Intel, CEO Pat Gelsinger fumbled the revival of an American icon

[Brady]

Gelsinger's comments offended TSMC, which did not honor discount
Revenue and stock price have declined sharply under Gelsinger
Intel's 18A chip process faces delays and technical issues

Oct 29 (Reuters) - Pat Gelsinger took the reins as Intel CEO three years ago with hopes of reviving the American industrial icon. He soon made a big mistake.

Intel had a sweet deal going with Taiwan’s TSMC the giant manufacturer of semiconductors for other companies. TSMC would make chips that Intel designed but could not produce. And it was offering deep discounts to Intel, say four people with knowledge of the agreement.

Reuters: Special Report: Inside Intel, CEO Pat Gelsinger fumbled the revival of an American icon

Intel said it won’t let merger speculation distract it from executing its five-year turnaround plan. Under Gelsinger, Intel said, it has revamped its operations, secured up to $45 billion in U.S. support, led the market for AI PC chips, and “achieved a historic pace” of innovation.

Intel told Reuters its 18A fabrication technologies are yielding good-quality chips and that it “expects to return to process leadership in 2025” with their formal launch. The company said it objects to the “usage of rumors, leaked materials, half-truths and interviews based on the widest net that can be cast for ‘sources’ to gain negative commentary on Intel.”

 

[samwilde]

I think it is still too early to tell. Pat is still fixing lingering issues with underinvestment at Intel. You don't stop building fabs for a decade, with continual tweaks to your now outdated equipment, and then expect turnaround to happen even in four years alone.

The board should give Pat at least two more years. And if the recovery still hasn't happened then yes they should change the CEO.

It is in the interest of the US government, and I would say the West even, that not all the semi industry is concentrated near China in places like Taiwan, South Korea. So there definitively needs to be a leading edge logic fab in the US and Intel is the best candidate. So the US government better protect Intel.

Talks about divesting the fab operations are a bad idea in my opinion. Intel will lose a lot of its value without the fab operations. For people who thought it was the fabs that were the millstone at Intel you need to look no further than the Arrow Lake debacle to be proved otherwise. Their chip design team couldn't design a better CPU than AMD's despite a full node advantage.

 

[DepthFirst]

In public, TSMC downplayed the comments, with its founder calling Gelsinger“a bit rude.” Privately, TSMC said it would no longer honor the discount, the sources said: about 40% off the $23,000, 3-nanometer wafers on which TSMC would print chips for Intel. Intel had to pay full price, shrinking its profit margin on the deal.

Am I the only one who finds this hard to believe? Offering a 40% discount and then rescinding it over pretty not outrageous comments.

 

[Brady]

Am I the only one who finds this hard to believe? Offering a 40% discount and then rescinding it over pretty not outrageous comments.

I’ve heard some strong rebuttals of this Max Chereny reported before…

 

[blueone]

Am I the only one who finds this hard to believe? Offering a 40% discount and then rescinding it over pretty not outrageous comments.

No, you're not. Unless the discount TSMC offered was before the contract was signed, and TSMC removed it from the final version. I'm also skeptical of a 40% discount, since TSMC's gross margin is in the range of 50-55%. It seems odd to offer Intel a 40% discount... why would TSMC do that? It's not as if Intel had a reliable second source.

 

[VCT]

just guessing:

Former Intel CEO Bob Swan committed to a large quantity to 3nm to secure a special discount from TSMC. However, after Pat Gelsinger took over as CEO, he reduced the committed quantity significantly.

Later, Intel faced more challenges than Pat thought, and Pat returned to TSMC to request more 3nm capacity. This time, TSMC offered Intel at MSRP, and also a good lesson to Pat.

 

[delong.height]

that 40% discount, if it really happened, happened before Pat was appointed as CEO. If that's the case, ditching foundry in order to be a pure fabless really is a good strategy for Bob Swan and for the board. The question is how did Bob Swan abruptly and violently got fired after two years of CEO.

If they really do get 40% discount, it means that TSMC is doing Intel a favor as Apple. I don't understand how the board want to ask Pat for help, and in unanimous support of Pat's strategy to build fab and declare TSMC as competitors. Don't they know if they do this, TSMC will no longer give them that discount, and will sell to them with no favor. And they are choosing a courageous but dangerous route?

I mean it doesn't make too much of sense. Is that 40% real, or a lie from reuter?

 

[delong.height]

No, you're not. Unless the discount TSMC offered was before the contract was signed, and TSMC removed it from the final version. I'm also skeptical of a 40% discount, since TSMC's gross margin is in the range of 50-55%. It seems odd to offer Intel a 40% discount... why would TSMC do that? It's not as if Intel had a reliable second source.

That is not the only thing. The board should know how dangerous Pat strategy was. They were not naive. They understood how Capex works. I mean that's the case, why don't they choose a more reliable route?

 

[delong.height]

just guessing:

Former Intel CEO Bob Swan committed to a large quantity to 3nm to secure a special discount from TSMC. However, after Pat Gelsinger took over as CEO, he reduced the committed quantity significantly.

Later, Intel faced more challenges than Pat thought, and Pat returned to TSMC to request more 3nm capacity. This time, TSMC offered Intel at MSRP, and also a good lesson to Pat.

But the board fired Bob Swan, and if this is real, it was a good deal for Intel and not something they can turned down with.

The board should know how the fab economy 101 works, right?

If it's real, I want to ask why they're doing it, what's the reason?

 

[siliconbruh999]

Does someone from the article even have fab experience or are they writing blindly if only fab was as easy as design many people would have done it

 

[Daniel Nenni]

There is a lot of truth in this article but also some fiction. It is hard to believe that so many people were involved in writing it:

Reporting by Jeffrey Dastin, Max Cherney and Stephen Nellis in San Francisco, Dawn Chmielewski in Los Angeles, and Fanny Potkin in Singapore; additional reporting by Milana Vinn in New York and Noel Randewich in San Francisco; Editing by Kenneth Li and Claudia Parsons

I remember having too many drinks with some Intel people at a GSA event after they signed the TSMC contract. They were shocked at the prepay and I can assure you the Intel discount was not as deep as Apple. Intel did renegotiate down the contract and the pricing did go up but it was not list price. That is ridiculous.

Pat did insult TSMC on multiple occasions and Morris Chang did take note of it but more importantly CC Wei took it personally and CC is not one to forgive and forget. Pat's comments were a great motivator for TSMC to be an even stronger competitor. I have also noticed more complimentary langue towards TSMC from Nvidia and other top TSMC customers. That has not always been the case. CC Wei has changed the competitive culture of TSMC and Pat G is one of the reasons.

Even worse, Pat's comment that "Taiwan is not a safe place" insulted an entire country. Do you really think MediaTek and other Taiwan companies are going to use Intel Foundry after that?

"Customers have little incentive to bet on Intel’s manufacturing when TSMC continues to serve them well, said Goldman Sachs analyst Toshiya Hari. “If you care about performance today, tomorrow, next year, over the next couple of years, you are not making that bet,” Hari said."

This is an understatement. As I have said before, you can fly first class on EVA Airlines with TSMC or middle seat coach on Spirit Airlines with Intel Foundry. Hopefully that will change but to facilitate that change Pat needs to own the problem and stop setting unrealistic expectations. Intel Foundry will never compete head-to-head with TSMC. It is time for an Intel Foundry pivot to something that can actually be achieved.

"Still, Commerce Secretary Gina Raimondo said in September U.S. manufacturing represents a supply-chain “insurance policy” that major chip designers would pay for. “They should want U.S.-made leading-edge chips,” she said."

Of course US customers want a US based semiconductor supply chain. Every country wants that. US customers would always prefer US made products but our shelves are still filled with products made by China. Cost is everything especially in these inflationary times. What an ignorant thing to say.

I also found it ignorant for Pat G to complain about not getting CHIPs Act money yet. Intel has a performance based contract with the DOC. If they are not getting money then they are not performing, simple as that. Is TSMC complaining? How about Samsung? Has any other company complained? Read the contract Pat.

It will be interesting to compare AMD's Q3 numbers versus Intel's. This could be the undoing of Pat G and his "AMD is in the rearview mirror" mentality.

"A recent planning document produced by an Intel supplier indicates delays, however. The document, seen by Reuters, noted the supplier is still waiting to receive another digital design kit it needs to push ahead. It also lacked access to Intel factories, a person with knowledge of the situation said. Customers have little prospect of making chips in high volume with the 18A process until 2026, two people said."

They are talking about the process design kit (PDK). 9 people were involved in the article and not one knows what a PDK is?

Intel said it expects to reclaim leadership in chip-manufacturing processes in 2025 by launching 18A.Gelsinger said in mid-September Intel had a “lot of work ahead,” but he continues to project confidence in his turnaround plan. “I'm very confident that we're going to pull it off,” Gelsinger told Reuters in August. “Three years in, yeah. This one's going to happen, baby.”



This is another ignorant statement. Define leadership in chip-manufacturing processes? Is that performance? Power? Density? Yield? Or is it the ability for a foundry customer to actually use the process? TSMC will dominate the foundry business once again with N2 and what is Pat going to say when he claims the "leading chip-manufacturing process" with no leading chip manufacturing customers?

The AMD vs Intel saga took an interesting turn when AMD switched to TSMC and Intel started using the same TSMC N3 process. From what I have heard thus far AMD is beating Intel in all regards which means it is not just process but the ability to design to it and more importantly the relationship between design and manufacturing. AMD has been working closely with TSMC for years on design co optimization and packaging while Intel is just starting. And how close is Intel with TSMC? Not as close as AMD, baby.

Just my opinion of course.

 

[BruceA]

Pat and his ELT and likely also the BoD have no clue to what their competitor is doing behind the curtain.

Lots of talk about “leadership” but even with their recent leadership changes and announcements they have made little headway on what goes on behind the TSMC curtain.

1) Integrity: many of the local fab 21 locals complained about lack of integrity but maybe because they hold Intel view of integrity.

2) Customer trust, similar comment to the first value

3) Innovation: TSMC has perfected the most delicate and complicated thing od making many changes and making innovations that still meet 1 and 2

4). There is no more committed workforce, the Taiwanese at least. They make and hold commitments to their customers and their employees are the most committed to deliver it and they hold their suppliers to insane expectations to hold to their commitment

Pat, BoD, and ELT need to figure out the things internal or end up quickly line IBM in relevance.

18A hopefully isn’t a repeat of 10nm, is it Boeing’s. 737MAX and 787 and 777x ….

 

[samwilde]

Even worse, Pat's comment that "Taiwan is not a safe place" insulted an entire country. Do you really think MediaTek and other Taiwan companies are going to use Intel Foundry after that?

Pat was blunt but he said something which needed to be said. And this was not an insult to Taiwan itself. It is just because of who their neighbors are. Nothing to do with Taiwan personally.

Of course then CC Wei is perfectly reasonable in taking that statement as an assault on the viability of his own foundry business in Taiwan, since Pat's comments are meant to scare customers away from foundries in Asia. As is the case for TSMC.

Hopefully that will change but to facilitate that change Pat needs to own the problem and stop setting unrealistic expectations. Intel Foundry will never compete head-to-head with TSMC. It is time for an Intel Foundry pivot to something that can actually be achieved.

You have to set goals higher than people think they can achieve and then adjust to the reality. Otherwise Intel will never catch up to its competitors. They have to work harder than everyone else to catch up.

I also found it ignorant for Pat G to complain about not getting CHIPs Act money yet. Intel has a performance based contract with the DOC. If they are not getting money then they are not performing, simple as that. Is TSMC complaining? How about Samsung? Has any other company complained? Read the contract Pat.

Making fabs is all about huge capex spends and the government's way of doing things isn't helping. TSMC has the largest profit margins in the industry right now because they command the leading edge, and Samsung has the electronics business to fund the foundry. If the foundry business at Samsung had to stand on its own merits they would have gone bankrupt a long time ago.

The AMD vs Intel saga took an interesting turn when AMD switched to TSMC and Intel started using the same TSMC N3 process. From what I have heard thus far AMD is beating Intel in all regards which means it is not just process but the ability to design to it and more importantly the relationship between design and manufacturing.

No. The thing is Intel is using N3, and AMD is using the older N4. And yet Intel has worse performance than AMD...

 

[delong.height]

The AMD vs Intel saga took an interesting turn when AMD switched to TSMC and Intel started using the same TSMC N3 process. From what I have heard thus far AMD is beating Intel in all regards which means it is not just process but the ability to design to it and more importantly the relationship between design and manufacturing. AMD has been working closely with TSMC for years on design co optimization and packaging while Intel is just starting. And how close is Intel with TSMC? Not as close as AMD, baby.

Which is why Intel shouldn't rely on TSMC as they are already late in doing co-optimization with TSMC compared to AMD, the strategy has been pivoted, it will be for Intel foundry still in the future. The problem become how to make IFS excel at and beat TSMC to win back from AMD. This is hard, but something they need to do.

 

[tedc]

Pat was blunt but he said something which needed to be said. And this was not an insult to Taiwan itself. It is just because of who their neighbors are. Nothing to do with Taiwan personally.

Of course then CC Wei is perfectly reasonable in taking that statement as an assault on the viability of his own foundry business in Taiwan, since Pat's comments are meant to scare customers away from foundries in Asia. As is the case for TSMC.

Pat said the quiet part out loud. A CEO that goes around badmouthing partners and competitors isn't doing his company any favors. And trying to scare potential customers into working with you makes everyone question your motives.

Making fabs is all about huge capex spends and the government's way of doing things isn't helping. TSMC has the largest profit margins in the industry right now because they command the leading edge, and Samsung has the electronics business to fund the foundry. If the foundry business at Samsung had to stand on its own merits they would have gone bankrupt a long time ago.

And Intel had their design business to fund the foundry. Unfortunately, it went to funding dividends and stock buybacks instead. I think we need to recognize that chipmaking is an industry the government is still wrapping their heads around. The CHIPS Act is a good first step, but it needs to continue to evolve.

 

[samwilde]

And Intel had their design business to fund the foundry. Unfortunately, it went to funding dividends and stock buybacks instead. I think we need to recognize that chipmaking is an industry the government is still wrapping their heads around. The CHIPS Act is a good first step, but it needs to continue to evolve.

Unfortunately this is a general case in the US economy. Lack of investment is killing not just Intel but also Boeing and other US majors. They are treating the company as a piggy bank they can continuously take money out of. But in the technology business without constant investments you will lose your customers.

I personally think they should just ban stock buybacks, as used to be the case.

 

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The Taiwanese analyst repeatedly mentioned that Taiwan is not a stable place. What PG said is accurate, but TSMC is displeased because those remarks affect their share price.

That said, PG has made several questionable comments, such as: "AMD is in the rear-view mirror," "all the division managers are the best in their class," and multiple overly optimistic forecasts.

He should learn from his mistakes:
1. Stay grounded in what Intel is currently achieving.
2. Respect the competition.
3. Let actions (such as product releases and factory expansions) speak for themselves.
4. Rebuild trust.

 

[Daniel Nenni]

Pat was blunt but he said something which needed to be said. And this was not an insult to Taiwan itself. It is just because of who their neighbors are. Nothing to do with Taiwan personally.

It is FUD, fear uncertainty and doubt, a tool used by companies that can't compete. Sales people use it, oldest trick in the book, but CEOs do not. Pat is under a lot of pressure and frustrated, I get it, but that is conduct unbecoming of a fortune 100 CEO, my opinion.

The Taiwan China thing has been front page news for years so why exactly is it something that needed to be said by a semiconductor CEO? How about Intel's 3 fabs in Israel? Israel is at war with Iran. Is that something that needs to be said? How about North and South Korea? South Korea controls 70%+ of the memory market and without memory there is no need for logic. Can we atleast agree that Kim Jong Un is more unpredictable than Xi?

What other US semiconductor CEO is using geopolitical FUD?

 

[DepthFirst]

Pat really needs to watch what he says when it comes to competitors and partners. Intel is both not in a position to be making such comments, and it’s just not helpful.

Taiwanese taking insult over his comments on the stability of Taiwan need only to look at the consistent PLA exercises taking place mere dozens of miles from their coast, in all directions. Iran and North Korea both are weaker than the states that they threaten. Yes America supports Israel, South Korea and Taiwan militarily. But Taiwan has the unenviable position of being overwhelmingly weaker than their adversary and having no chance at standing alone unlike the other two.

Should Pat be saying this publicly? No. Behind closed doors, it’s a valid point. But Pat really needs to stop saying things like “AMD is in the rear view mirror”. It reflects poorly on him.

 

[hist78]

Pat really needs to watch what he says when it comes to competitors and partners. Intel is both not in a position to be making such comments, and it’s just not helpful.

Taiwanese taking insult over his comments on the stability of Taiwan need only to look at the consistent PLA exercises taking place mere dozens of miles from their coast, in all directions. Iran and North Korea both are weaker than the states that they threaten. Yes America supports Israel, South Korea and Taiwan militarily. But Taiwan has the unenviable position of being overwhelmingly weaker than their adversary and having no chance at standing alone unlike the other two.

Should Pat be saying this publicly? No. Behind closed doors, it’s a valid point. But Pat really needs to stop saying things like “AMD is in the rear view mirror”. It reflects poorly on him.

In building trust and relationships, Pat Gelsinger and Intel are on a path that a typical American corporation, big or small, might not usually choose. Sometimes it feels like Pat is burning bridges even before crossing them.

Below is an interview with Senator Mark Kelly of Arizona at TSMC’s Phoenix campus from July 2024. I noticed how comfortable and confident Senator Kelly sounded when discussing the TSMC project.

Peek behind the gates at the TSMC plant in north Phoenix with Sen. Mark Kelly

The Arizona senator tours the factory in Phoenix with The Republic's host of The Briefing, Rafael Carranza, to discuss the importance of the semiconductor chips.

www.azcentral.com