Intel CEO Lip-Bu Tan, in comments delivered alongside his company’s second quarter earnings report, brought some clarity to Intel’s near-term manufacturing plans, but the big picture remains blurry regarding the future of Intel’s foundry business and its AI strategy.
Tan described the ramping up of Intel’s much-anticipated 18A process technology as a top priority, and suggested the company is committed to doing what it will take to attract external customers for 18A. But, he also said the company will take a more disciplined approach to its foundry business, pulling back on planned factories in Germany and Poland and slowing construction on a much-hyped site in Ohio, and basing its longer-term future investments in 14A process and manufacturing plans only on “confirmed customer commitments.”
Jack Gold, president and principal analyst at J. Gold Associates, observed, “Foundry has improved somewhat but is still a major drain on revenues and profits. They announced some additional cost cutting in foundry like not building in Germany and Poland as they previously announced they would, and as LBT [Tan] put it, they are only going to build out capacity as customers demand it and not invest in expected future demand that may not materialize.”
If Intel watchers were looking for a solid statement from Tan that he will see the Foundry strategy through, and not divest it that portion of the company, his comments fell short, though Gold added, “It's still possible they could divest the foundry business, but I see it as less likely than it was several quarters ago.”
Regarding the company’s AI strategy, it still appears to be a work in process several months into Tan’s tenure as CEO. In his comments, he stated, “We will focus our AI efforts on developing a cohesive silicon, system and software stack strategy. In the past, we have approached AI with a traditional, silicon- and training-centric mindset. This needs to change – and we have already started incubating new capabilities while attracting new talent.”
He added, “As we make this shift, we will concentrate our efforts on areas we can disrupt and differentiate, like inference and agentic AI. Our starting point will be emerging AI workloads – then we will work backward to design software, systems and silicon that enable the best customer outcomes. We have a lot of work underway, and will be sharing more about our plans in the coming months.”
The focus on inference and agentic AI is, on the surface at least, no different than what other chipmakers are saying right now, so investors and company watchers will be looking for more clarity when Intel’s third quarter and fourth quarter earnings reports roll around.
Gold believes “significant opportunities” emerging in the next year or two could hold the key to Intel's revival. “Those include edge computing with AI at the edge (not competing directly with Nvidia and AMD is the stated strategy, and I think it’s the correct path), IoT, and renewal of the PCs necessary for advanced functions like on-board AI. That will boost both the CCG [Intel Client Computing Group] and DCAI [Data Center AI] businesses, provided there are no big shocks in the international economy.”
Like many companies, Intel may need to proceed with caution and be open to the possibility such shocks could occur as overall economic uncertainty persists. Its DCAI revenue rose year over year, but the CCG unit, a much larger part of the company, saw a small year-over-year revenue drop.
“Intel continues to struggle with the PC market even as it is twice the size of its data center group, where it showed some improvements,” Gold said. “Next gen chips for laptops are due soon and that should help boost that segment for Intel, but headwinds still remain as it’s not clear how much enterprises are willing to invest in updating their devices given the uncertainty of the economy and government actions. Intel’s new server chips did give them a boost [in the second quarter], including in powering Nvidia AI systems [like the DGX systems that use Intel Xeon chips]. And they believe their revenues will gain for the next quarter, which is a good sign. We’ll see how much.”