Intel decides to continue relying on a competitor to build some of its chips
Even though Intel has started building integrated circuits for others, a business it calls Intel Foundry Services, the chipmaker remains a top customer of the world's largest foundry TSMC. An Intel executive said at the Morgan Stanley Technology, Media & Telecom Conference yesterday that Intel plans to continue using TSMC to produce some of its chips even though it would like to make as many as possible internally.
John Pitzer, vice president of corporate planning and investor relations at Intel admitted that a year ago Intel said that its plan was to drop TSMC completely and not rely on the Taiwan-based foundry at all. But Pitzer says that it is better for Intel to have some of its wafers with TSMC and called them "a great supplier." At the same time, the executive said that continuing to do business with TSMC "creates healthy competition between them and Intel Foundry."
Intel was originally going to use its 20A node to produce its "Arrow Lake" and "Lunar Lake" processors for desktops and laptops. Instead, Intel has farmed out the work to TSMC to manufacture the silicon using its 3nm node. Intel then uses its Foveros 3D advanced packaging technology at its U.S.-based packaging operations. Using TSMC like this doesn't come cheaply and it costs Intel as its gross margins shrink once the cost of using TSMC is worked into the overall costs of building these processors.
For the "Panther Lake" processors designed for notebooks, Intel will handle the entire manufacturing process from soup to nuts using its 18A node. Since Intel makes the "Panther Lake" processor all by itself, the company will report higher gross margins with this product. Right now Intel outsources about 30% of its products but this figure is expected to decline sharply in the future.
Intel's Pitzer said that the company isn't sure what percentage of its products should be outsourced. "Is it 20%? Is it 15%? We are working through that. But we will use, I think, external foundry suppliers longer under this new strategy," he said. One thing is for sure. Intel will not outsource production of its most advanced products since these have the highest margins. This would include the Xeon processors that are used to power devices like servers that are known for their high-performance computing.
Intel would also prefer to keep in-house the high volume production of CPUs for its clients who use the components for their PCs.
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