Intel CEO Pat Gelsinger said in his first major announcement that the company will invest $20 billion in two new factories in Arizona and will start Intel Foundry Services to manufacture chips for external chip designers.

Intel will remain a major manufacturer of its own silicon chips, as well as using factories owned by other companies as needed, and now it will also make chips for others. Intel is moving to a plan dubbed “IDM 2.0,” (for integrated device manufacturer), where it will make use of third-party foundry capacity across its portfolio of chip designs, according to need. In other words, Intel is adopting a flexible strategy of making or buying chips or selling its manufacturing capacity as required.

“It’s a strategic use of our foundries,” Gelsinger said.

Gelsinger was appointed CEO earlier this year as a replacement for Bob Swan, who oversaw Intel during a time when it lost manufacturing leadership to rival foundries like TSMC and chip design leadership to rival Advanced Micro Devices. Gelsinger said the new moves will help put Intel on a path back to manufacturing leadership. In after-hours trading, Intel’s stock is up 6% to $67.45 a share, with a market capitalization of $257.9 billion.

Intel will work with Globalfoundries, TSMC, UMC, and Samsung and will also become a foundry itself. By 2025, this could be a $100 billion opportunity, Gelsinger said. Intel will grow its global operations, including in the U.S., to meet the demand for commercial customers, as well as government and security needs in the country. Gelsinger said that under this plan, it won’t be unusual for Intel to ask Qualcomm if it can make its chips, or have the same conversation with Apple.

Above: Pat Gelsinger is CEO of Intel

Image Credit: Intel

Intel Foundry Services will be a new business unit, headed by Randhir Thakur, who will report to Gelsinger. The two new factories to service the foundry business will be built in Arizona, creating an estimated 3,000 tech jobs, 3,000 construction jobs, and 15,000 other jobs. Intel will put as much as $20 billion into the two factories. The foundry will primarily serve customers in the U.S. and European markets. In response to a question from VentureBeat, Gelsinger said Intel isn’t yet saying which manufacturing node the Arizona plants will start with.

From 2019 to 2021, Intel is spending $33.5 billion on capital expenditures and $27 billion in research and development, resulting in the creation of 25,000 jobs. Intel is competing now to become a domestic foundry for the U.S. government and has a new research collaboration with IBM.

“We are setting a course for a new era of innovation and product leadership at Intel,” Gelsinger said in a livestream event. “Intel is the only company with the depth and breadth of software, silicon and platforms, packaging, and process with at-scale manufacturing customers can depend on for their next-generation innovations. IDM 2.0 is an elegant strategy that only Intel can deliver — and it’s a winning formula. We will use it to design the best products and manufacture them in the best way possible for every category we compete in.”

Pat Gelsinger is invest $20 billion in new factories in Arizona.

Above: Intel CEO Pat Gelsinger plans to invest $20 billion in new factories in Arizona.

Image Credit: Intel

Gelsinger said the company’s 7nm development (where the distance between circuits is seven billionths of a meter) is progressing well, driven by increased use of extreme ultraviolet lithography (EUV) in a rearchitected, simplified process flow.

Intel expects to start making its first 7nm client central processing unit (CPU, code-named Meteor Lake) in the second quarter of this year. Gelsinger said the new moves will provide the increased flexibility and scale needed to optimize Intel’s roadmaps for cost, performance, schedule, and supply. Intel will try to move to a yearly cadence of manufacturing updates to be more competitive, Gelsinger said.

On top of that, Intel will benefit from a longer life for its factories, which tend to become obsolete quickly. But with a foundry business, Intel can generate revenues by having foundry customers buy chips from Intel’s older factories, Gelsinger said.

Intel will also bring back the Intel Developer Forum as a live event in San Francisco in October. The company will make chips based on a variety of architectures, including x86, Arm, and RISC-V designs. For the first quarter, Gelsinger said Intel expects to exceed its earnings and revenue targets. For the full year, Intel expects to earn $4.55 a share in net income on revenues of $75 billion for the year.

Intel has tried to launch a foundry business before, but Gelsinger believes conditions are better now.

“There are strong winds for expanding and accelerating the role of semiconductors,” Gelsinger said.

Patrick Moorhead, an analyst at Moor Insights & Strategy, said in a message, “Overall, Intel CEO Pat Gelsinger’s disclosure gave me many reasons to believe Intel is ‘back’ if the company can execute its plans. First off, I appreciated the honest self-deprecation related to previously missing 10nm schedules and having to push out 7nm recently. I have become more confident with Intel’s 7nm plans, given its increased use of EUV, which simplifies manufacturing simplicity and efficiency when it is released. I especially like the use of Samsung and TSMC as what I consider gap fillers for some of the highest-performance CPU tiles, an area of intense competitive pressure, until the company gets its process house more density and power competitive.”

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