Intel’s downsizing efforts underscore surging cost issue in chip sector

A decision by Intel to sell or split its foundry and manufacturing business will enable TSMC to cement its lead in contract chipmaking as the industry tries to cope with rising costs.

Intel CEO Pat Gelsinger delivers a speech at the Computex forum in Taipei, Taiwan June 4, 2024. [REUTERS]

Intel’s possible decision to sell or split its foundry and manufacturing businesses will likely reinforce TSMC’s dominance in the contract-chipmaking sector, highlighting industry troubles associated with rising costs.

Intel vied to become one of the few foundry service providers along with the Taiwanese company, the undisputed market leader, and Samsung Electronics, the second-largest player with a far smaller market share of 11.5 percent in the second quarter.

The board of the Santa Clara, California-based chipmaker is scheduled to determine the possible downsizing options and suspension of overseas factory construction by the end of this month, according to multiple media reports.

A more radical option is selling the foundry business, while the sale of Intel’s programmable chip unit Altera will also be taken into account.

The chipmaker decided to return to the foundry business three years ago as a key initiative under CEO Pat Gelsinger.

At the time, the CEO was confident because of the orders that could come from manufacturing its own central processing units (CPUs), which boasted a 70 percent market share.

U.S. President Joe Biden looks at a wafer, as he tours the Intel Ocotillo Campus, in Chandler, Arizona, U.S., March 20, 2024. [REUTERS]

Market experts predict that chipmaking orders from the U.S. government alone could generate a handsome profit.

But the capital expenditure required to build factories has snowballed due primarily to inflation, while its standing in the processor market has been overshadowed by Nvidia’s near-monopolistic status.

Intel stock plummeted around 60 percent from the beginning of this year, with a net loss of $1.61 billion in the second quarter.

In the latest conference call, it announced a plan to cut over 15 percent of its workforce, which could impact about 15,000 people, according to the CEO.

TSMC and Samsung Electronics are facing higher-than-expected investments in the United States because of surging labor and raw material costs. Samsung initially estimated its second U.S. chip plant in Taylor, Texas, to cost $17 billion, but the figure was revised up to $47 billion earlier this year. TSMC’s project in Arizona has been stalled due to costs and friction among laborers.

“Chip manufacturing is considered an outdated business in the U.S., so it would not be easy to operate a chip-manufacturing business in the country,” said Yang Guang-Lei, a professor at the National University of Taiwan who formerly served as an R&D director at TSMC.

If Intel’s comeback in chip manufacturing for third party companies is canceled, TSMC will likely continue to hold its lead.

Samsung Electronics has been slowing investments for its foundry business as it reorients its focus to the memory chip segment.

The Korean chip giant is expected to build production lines for memory chips at the P4 factory in Pyeongtaek, Gyeonggi, reversing from the previous plan to produce chips designed by third party clients.

At the same time, TSMC is pushing ahead with its advanced manufacturing process by starting trial production of 2-nanometer chips within this year ahead of mass production planned for next year.

“It became tougher for Samsung to compete with TSMC in the most advanced manufacturing process,” said a source in the local chip industry.

“A more realistic strategy will be targeting older manufacturing processes to find demand,” the source said.

BY LEE HEE-KWON, PARK EUN-JEE [park.eunjee@joongang.co.kr]