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Chipzilla must slice off its Fab business

by on28 October 2024


Former directors say

Four former Intel directors have published an article in Fortune, urging the company to spin off its fab business.

Reed Hundt, a one-time Federal Communications Commission chair; Charlene Barshefsky, former US Trade Representative; James Plummer, Stanford University’s dean of engineering for over a decade, and David Yoffie, a Harvard Business School professor and longtime Intel director, signed off on the article.

Their argument centres on two main points. They claim that potential buyers would likely prioritise cost-cutting if Intel were to be acquired and see little value in the money-losing manufacturing fab. This concern arises from Intel’s recent significant drop in stock price. Its fab business operates at a substantial loss, making it a prime target for cost-cutting measures.

The article notes that since Intel operates its foundry within its corporate structure, it struggles to attract business as other chip design companies see it as a competitor. Companies like Nvidia, Qualcomm, and Broadcom are all seeking a second manufacturing option besides TSMC but remain cautious about Intel as long as it retains its direct competitor status. Spinning off the fab business would make this problem go away.

The authors argue that while the U.S. government has promised Intel up to USD 8.5 billion in grants and USD 11.5 billion in low-cost loans, it should further demand that Intel split its design and manufacturing operations into two completely independent companies. 

Intel’s former CEO, Craig Barrett, has a different perspective. In an article published in Fortune, Barrett argues that separating Intel into two distinct companies is not the answer. He believes this approach would hinder the foundry business’s ability to keep pace with the latest technology, leaving the US government dependent on foreign suppliers like TSMC for cutting-edge advancements.

Intel recently announced it would transform its foundry business into a wholly-owned subsidiary with its own board of directors.

According to its press release, this new structure aims to provide greater separation and independence for Intel’s external foundry customers and suppliers from its other divisions. Importantly, it offers the flexibility to evaluate independent funding sources in the future and optimise the capital structure of each business to maximise growth and create shareholder value.

 

Last modified on 28 October 2024
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