Intel Takes Another Shot at the Enticing Foundry Market

Intel made a big splash on March 23, 2021 by doubling down on manufacturing with the creation of Intel Foundry Services (IFS). The big announcement was supported by potential customers such as Qualcomm, Cisco, Ericsson, Google, Amazon, Microsoft, and IBM. With an accompanying $20B investment, the EDA and equipment industries, policymakers and governors were highly supportive.

Financial and industry analysts were a bit more skeptical. Pundits acknowledged new leadership in CEO Pat Gelsinger but recalled that Intel has tried this play before and failed. They pointed to the moat that TSMC has created in this space with its maniacal customer focus and execution excellence.

The strategy for an IDM to offer its capability to external customers as a Foundry is not without precedent. IBM made a similar move in the early 1990s and competed for almost 25 years prior to its acquisition by GLOBALFOUNDRIES. Samsung leveraged a big win with Apple into the Foundry model, and prior to the Intel announcement was alone in competing with TSMC on the leading edge.

Intel has substantial capabilities to bring to market, is establishing IFS as an “independent organization” with a separate P&L and says it will leverage three key pillars that it views as underpinning a world-class Foundry: Committed Capacity, Advanced Technology and Design Enablement. It asserts that it will differentiate on Service, Solutions and Scale. Fair enough.

But announcements are one thing; execution is another. The Foundry space is hyper-competitive, and despite Intel’s legacy IDM assets, it faces an uphill battle. One hopes that Intel has combined some deep introspection from its prior efforts with extensive benchmarking in the Foundry segment. Here are some lessons learned from a battle-scarred veteran of both IBM’s experience and that of GLOBALFOUNDRIES as a start-up in the pure-play Foundry industry – call it a preview of a day in the life of IFS.

“You can’t live with them and you can’t live without them.” Here we are talking about customers. They are the reason for your business existence, the source of income for innovation, investment, and shareholder return. They must be highly valued, the focal point for your company. On the other hand, they are demanding, but understandably so. After months designing products central to their market competitiveness and business success, they want their baby instantiated in hardware – ASAP – with cycle times faster than the raw process time of your factory. Top priority! IFS will have been an integral part of that creation, providing the design environment, IP, and perhaps some design services.

They expect “first time right” with high yields out of the chute – after all, they designed into your flow and used your design tools and IP blocks. They expect a seamless relationship with the OSAT partner, both in logistics and yield; you marketed a pre-qualified combination of silicon and packaging. They want immediate burst capacity to scale production and get their product into the marketplace – at benchmark yield. They will only pay for known good die; yield shortfalls to commit are on you. They want the ability to turn volumes on and off like a faucet. You have a lot of customers, so fab utilization is your problem.

And that was just your first customer. Then there is a dozen, then 50, then 100 – developed in pursuit of full fab utilization. Should you be more selective? The high-volume customers set an extremely high bar for execution – they tell stories of how life is so much better with TSMC. They have strong negotiating leverage. The small volume customers are similarly challenging. They all have a great growth story, but many are competing for the same end market. Are you double booking demand? The same work is required to qualify their parts, yet the demand is small and frequently moves to the right. Pricing is higher, but are these small accounts profitable? Can you afford to be more selective, or will you risk missing out on the next Qualcomm? You can only enable a certain number of expedites without slowing everything down in the line and risking supply commitments (that must be made “to the piece to the day”) to all customers. Allocating precious capacity is a challenge – every customer expects to be #1.

And then comes the call from the Intel mother ship. The Intel product team has finally finished its landmark design and needs everything cleared out of the way to qualify and ramp (notwithstanding that independent, separate P&L thing). No excuses. Go manage any necessary re-commits to your external customers; the future of Intel rests on getting this product to the marketplace. What? But you have contractual commitments to these customers. A solution is going to be painful but essential.

Next the Head of IFS R&D comes in the door, furious about the lack of tool and line priority for the qualification of the base Intel technologies and all the new technology platforms just committed to the marketplace. Remember that ultra-low power version? And the one that integrates embedded memory, RF, and the other features for the IoT customers just signed up? She needs priority over everything else to qualify these processes and the new ecosystem partner IP per IFS commitments.

Yikes. And the Intel Corporate COO and CFO are clamoring for improvements in your deteriorating operational and cost metrics driven by all this complexity. Then your lead fab manager calls with news of a new excursion that will impact supply commits. Seriously? When are those experienced Foundry hires from TSMC and GLOBALFOUNDRIES coming on board? Will they fit into the Intel culture? Will the Intel culture open itself to them? Can you accelerate the transformations needed to win? What a day!

Well, you get the idea. But Intel probably knows all this and has it figured out. Or do they? TSMC certainly makes it all appear effortless. But beneath their execution is brutally hard work. Perhaps a checklist for the refrigerators of Pat Gelsinger and Randhir Thakur will be of use for the journey ahead.

Critical Success Factors for Intel’s new Foundry business:

– Focus on initial target markets and customers, with a phased roadmap to expand over time.

– Competitive offerings tuned to those markets, including technology platforms, design enablement (PDKs, IP, services), and early access for lead customers to drive product-process co-optimization.

– Passion for the customer. Customer-centricity backed by organizational and business process re-design to translate passion to execution, including Product Management, Product Development, New Product Introduction, Supply Chain Management, and Customer Relationship Management.

– World class execution. Be the benchmark in manufacturing cycle times, yield (process and product); transparency (lot status, in-line parametric performance), quality and delivery commitments.

– Multi-tasking. Balancing the needs of internal and external customers and managing value chain conflicts, as Intel may be simultaneously competing with customers and outsourcing to other foundries.

– Scale. Establishing and maintaining scale to afford large annual R&D and capital investments.

– Consistently high factory utilization. There is nothing worse in chip manufacturing than an underloaded fab. Full utilization is required for profitability in this capital-intensive industry.

– Cost competitiveness across the board: Capex/$k (beware built-in costs on tool acquisition, install and hook-up), process complexity (beware designed-in cost), wafers, chemicals, gases, raw materials and operating supplies, labor, power, water, and other infrastructure support (exercise Intel VPA leverage).

Intel will have the benefit of depreciated fabs in mature technologies, but not on the leading edge.

This will be a transformation challenge of the highest order: from single customer (Intel) to multiple customers; from few high-volume parts to many high/medium/low volume parts; from a focused process technology menu (supporting only Intel products) to a diverse menu. And Intel is taking this challenge while struggling to “regain the recipe” on R&D execution. The toughest challenge may well be transforming culture, from “Intel knows best” to “the customer is central to our success and survival”.

In the end this will be a leadership challenge.

Many are pulling for Intel’s success. Why? The US needs a healthy Intel for national security and strengthening the US semiconductor manufacturing base (see The CHIPS ACT). The global semiconductor industry needs Intel to be successful in process leadership and manufacturing to broaden geographic and supplier diversification beyond TSMC and Samsung, as great as they are. And competition is always a good thing – for innovation, for customers, and ultimately for shareholders.

Wishing Intel all the success! It will be the run of a lifetime!

Terry Daly is a retired semiconductor industry executive, independent consultant, and senior fellow at The Council on Emerging Market Enterprises, The Fletcher School of Law & Diplomacy, Tufts University

 

Intel Will Again Compete With TSMC by Daniel Nenni 

Intel’s IDM 2.0 by Scotten Jones 

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