Pat Gelsinger, the CEO of Intel, has only been on the job for about a month. However, the semiconductor behemoth has been in desperate need of a daring, new strategy for some time, Gelsinger stated on Tuesday.
Intel (INTC) announced several major initiatives, including a $20 billion investment in two new US chipmaking facilities, aimed at re-establishing the company’s position as the undisputed leader of the semiconductor industry, which many analysts believe,has lost in recent years.
“At Intel, we are charting a new course for a new era of innovation and product leadership,” Gelsinger said in a statement. In after-hours trading Tuesday, the company’s stock jumped more than 6%. Following the announcement, shares of rival AMD (AMD) slipped more than 2%.
Gelsinger took over a firm facing a slew of challenges, including unprecedented competition from Apple (AAPL) and other former partners, as well as an activist shareholder demanding change.
Intel has also encountered significant delays in the production of next-generation chips, allowing Taiwan Semiconductor Manufacturing Company (TSM) and Samsung (SSNLF) to gain a competitive advantage. Intel is still working to perfect its next-generation 7-nanometer chip; in the meantime, Asian rivals are producing even smaller, more powerful processors.
Intel’s rivals have recently beaten it on Wall Street as well. Over the last two years, Intel’s stock has increased by slightly more than 19%, while the PHLX semiconductor index has increased by nearly 114 percent (SOX).
The new strategy called “IDM 2.0″, due to its transformation of Intel’s integrated device manufacturing model (in which it both designs and manufactures chips), could aid in the resolution of many of these issues.
To address its manufacturing problems and avoid future delays, Intel intends to increase its use of third-party chipmakers such as TSMC, a strategy that many of its rivals have taken but that Intel has avoided for its most advanced chips until now. “Beginning in 2023, Intel will collaborate with third-party foundries to produce products at the core of Intel’s computing offerings for both clients and data centre segments,” according to a company statement.
Meanwhile, Intel stated that its 7-nanometer technology is “advancing well.” Intel also intends to launch a new business unit called Intel Foundry Services, which will be dedicated to manufacturing chips developed by other semiconductor companies.
Some of these outside customers will be served by the new Arizona facilities, and Gelsinger said he plans to announce further expansions in the United States, Europe, and elsewhere later this year.
After losing market share in its core PC business in recent years, the new unit could provide the company with a critical new revenue stream.
Overall, the approach is likely to boost Intel investors’ confidence, and it comes “just in time,” according to Futurum Research founding partner and chief analyst Daniel Newman in an emailed commentary.
