The US government is encouraging the likes of Nvidia and Apple to tap Intel foundry for AI chip needs

[Skye Jacobs]

In context: The US is eager to establish domestic foundry capabilities to produce AI chips, and Intel is working hard to position itself to be the provider. It was only natural, then, for CEO Pat Gelsinger to ask US Commerce Department Secretary Gina Raimondo to put in a good word on Intel's behalf with America's chip designers including the likes of Apple, Nvidia, Amazon, and Google.

Ever since Intel announced plans to open up its manufacturing capabilities beyond in-house CPUs, the company has targeted TSMC as its top competitor in the global foundry market. Nonetheless, it's been a source of frustration that fellow US companies rely so heavily on TSMC for most of their semiconductor manufacturing needs.

Intel CEO Pat Gelsinger has turned to US Commerce Department Secretary Gina Raimondo for help, and according to sources that spoke to CNBC, she is trying to deliver.

"When we talk about semis fabrication, we tend to treat the different foundries nodes as fungible, as if a customer could easily trade Samsung for Intel for TSMC. This is not accurate. In reality, each fab has a different way of doing manufacturing. Intel's process was designed to make CPUs, and those processes are not the same as what is needed for other types of chips." This quote comes from a late 2022 op-ed by fellow semiconductor analyst Jonathan Goldberg, when discussing Intel's big bet on Foundry Services and who could become Intel's first foundry customer.

Raimondo has since met with several public market investors to persuade companies like Nvidia and Apple that it's in their best interest to support chip manufacturing in the US given the increasing geopolitical risks around Taiwan. She also emphasized the economic benefits of having a domestic foundry capable of producing AI chips, according to these sources.

Convincing these companies to switch contract manufacturers will be a significant challenge. Nvidia, for example, relies heavily on TSMC's advanced manufacturing capabilities for its latest high-performance GPU AI accelerators. TSMC is also a crucial manufacturing partner for most other big tech companies, including AMD, Apple, Broadcom, and in some more rare instances even Intel itself.

Raimondo's argument, though, holds water. Taiwan plays a vital role in the global semiconductor supply chain, and there is the potential for major disruption should China choose to invade the island nation.

Intel would be the natural alternative. The company is building new plants in four US states to strengthen its position as a foundry service provider for other chip designers. In March, the Biden administration announced a preliminary agreement to provide Intel with up to $8.5 billion in direct funding through the CHIPS and Science Act. Additionally, Intel may be eligible for up to $11 billion in federal loans under the same legislation.

The actual disbursement of these funds has not yet occurred, but government officials told CNBC that they expect to distribute the funds before the end of 2024.

Despite these efforts, Intel's foundry initiative has faced setbacks and delays. Broadcom recently determined that Intel's new 18A manufacturing process could not meet the quality standards necessary for large-scale production of its chips. This rejection from a major potential customer is a significant blow to Intel's foundry ambitions.

In its most recent quarterly earnings report, Intel's foundry division's losses deepened to $2.8 billion, up from $1.9 billion in Q2 2023 and $2.5 billion in Q1 2024. Even more concerning, Intel expects the foundry business's operating losses to peak in 2024, with break-even operating margins anticipated around 2027.

However, Intel did achieve a notable win in February when it announced that Microsoft plans to use Intel's foundry operations to manufacture a custom computing chip with its 18A technology.

At that same event, Intel revealed it expects to surpass TSMC in advanced chip production before its original 2025 target. The company also plans to extend this lead in 2026 with the introduction of its Intel 14A process. Additionally, Intel increased its expected foundry orders from $10 billion to $15 billion.

Permalink to story:

The US government is encouraging the likes of Nvidia and Apple to tap Intel foundry for AI chip needs

 

[VariableSpike]

Trying to save face by playing the "national interest" card, great....

 

[yRaz]

Trying to save face by playing the "national interest" card, great....

Look, I've alwaslys been an AMD guy going all the way back to my K6-2. However, I don't WANT Intel to be a failure. On top of that, I do think that current tensions with China meams we need to diversify our manufacturing infustructure. Intel has extra capacity, the world needs more chips, it seems pretty obvious to me what needs to happen. This is especially true if it means a reduction in cost that can get passed down to consumers.

 

[WhiteLeaff]

Even intel doesn't use its own fabs...

 

[Theinsanegamer]

Look, I've alwaslys been an AMD guy going all the way back to my K6-2. However, I don't WANT Intel to be a failure. On top of that, I do think that current tensions with China meams we need to diversify our manufacturing infustructure. Intel has extra capacity, the world needs more chips, it seems pretty obvious to me what needs to happen. This is especially true if it means a reduction in cost that can get passed down to consumers.

The problem with this is that intel is falling further behind TSMC. Going with them means Nvidia/apple would need to kneecap their own products just to support a local industry. That kind of protectionism never ends well, intel would just become a black hole of government funding and subsidies to keep the chips cheap enough that poeple didnt complain.

Hell, intel themselves doesnt make their own GPU dies, and soon their own CPU dies. Who on earth would anyone else use them?

 

[yRaz]

The problem with this is that intel is falling further behind TSMC. Going with them means Nvidia/apple would need to kneecap their own products just to support a local industry. That kind of protectionism never ends well, intel would just become a black hole of government funding and subsidies to keep the chips cheap enough that poeple didnt complain.

Hell, intel themselves doesnt make their own GPU dies, and soon their own CPU dies. Who on earth would anyone else use them?

Are you unfamiliar with raspberryPis?

 

[SRB]

Look, I've alwaslys been an AMD guy going all the way back to my K6-2. However, I don't WANT Intel to be a failure. On top of that, I do think that current tensions with China meams we need to diversify our manufacturing infustructure. Intel has extra capacity, the world needs more chips, it seems pretty obvious to me what needs to happen. This is especially true if it means a reduction in cost that can get passed down to consumers.

I agree with you to a point. Intel has always been a chip maker driven from the top, and their marketing side has always been on the shady side with slush funds and shady tactics galore. Now, hopefully they are being honest with themselves about their glaring mistakes and fab issues, at least internally, but I doubt it. I can't recall Intel ever cancelling a node right before production started. I can't tell how big a deal this is, since they changed their node numbering from tick, then tock on each node to tick for one, tock for the next, etc.

It's hard to get foundry business when your old nodes are maxed making Intel chips, and the new ones, at least publicly, are canceled in one case and reports are 18a is questionable.

 

[Theinsanegamer]

Are you unfamiliar with raspberryPis?

Have you ever heard the tale of Darth Plagius the Wise?

Seriously, what do raspberry pis have to do with nvidia and apple building high end chips on intel's fabs?

 

[yRaz]

Have you ever heard the tale of Darth Plagius the Wise?

Seriously, what do raspberry pis have to do with nvidia and apple building high end chips on intel's fabs?

I'm sorry that you've been govn. PSTD by Disney. You poor thing, it'll never stop you from being wrong

 

[Theinsanegamer]

I'm sorry that you've been govn. PSTD by Disney. You poor thing, it'll never stop you from being wrong

Oh man, you sure got me! Congratulations?

So what does raspberry pis have to do with nvidia and apple building high end chips on intel's fabs? Care to answer the question this time?

 

[Axeia]

Intel in an attempt to stay competitive uses TSMC themselves. Trying to get NVIDIA to jump ship is extremely unlikely, they're struggling with power draw and heat every time they try Samsung for manufacturing. Afaik Intel is another step down when it comes to that.

Apple is even more unlikely, their whole thing is being on the latest TSMC node and TSMC giving it to them before anyone else.
If the price is right AMD GPUs might ironically be a good match. More likely they'll have to sell capacity to customers who don't need the highest performance and lowest power draw. Self driving cars would probably make for good volume.

 

[holydiver]

There are plenty of other players producing in the US, Samsung, TSMC etc.
Let Intel go backrupt. Nobody needs those losers anymore.

 

[Watzupken]

Maybe I will ask Pat why is Intel not using their own foundry to produce their core products? This is the most ridiculous request when Intel don't seem to have faith in their own foundry. It is like saying: From my actions, I acknowledge my foundry is inferior and I don't even want to use it myself, but please support us anyway.

I acknowledge the need to diversify, but is Intel diversifying when their new products are wholly produced by TSMC, I.e. CPU and GPUs? Are they immune to TSMC being taken out? I doubt so. That's why I said before, the way Intel is ditching their own foundry for TSMC at a time when they are trying to aggressively expand their foundry business is going to come back and haunt them. This is on the back of 13/14th Gen CPUs oxidizing issue and the yield problems with Intel 7 (Meteor Lake). The positioning is completely wrong in my opinion, and people won't want to use or pay substantial amount for questionable foundry quality. Which is why we often hear news of so and so company trying Samsung foundries as an alternative, and not Intel.

 

[rmcrys]

Look, I've alwaslys been an AMD guy going all the way back to my K6-2. However, I don't WANT Intel to be a failure. On top of that, I do think that current tensions with China meams we need to diversify our manufacturing infustructure. Intel has extra capacity, the world needs more chips, it seems pretty obvious to me what needs to happen. This is especially true if it means a reduction in cost that can get passed down to consumers.

Correct.
Here we have to look at several issues:
1) when there is only one big player, it becomes massive and does whatever it wants and for how much it wants. If we keep most players running and competing, the consumer wins

2) if we produce everything in one place, anything can disrupt our economy and even be life/job threatening: if there is any political, health or any other issue there, they pull the plug and all others stay with the pants down. In the technology or health spheres, that is serious! If there is a pandemic and we need medical products and they are just produced in Asia, they can just keep all the production.

3) producing there means all the R&D can be stolen, we saw that in the last decades

4) keeping Intel pumping in the US and in Europe, keeping Qualcomm, Apple and AMD in business means the Asian won’t dominate (so soon) that business. The same applies to electric cars, high speed trains, etc.

Nevertheless, most western countries just put their pants down since the last 2 decades (thanks USA, thanks Germany, Netherlands, Belgium, France) and millions of jobs, companies and tech was lost forever, not to mention all the advantage we had was lost now.

 

[Starfals]

Intel in an attempt to stay competitive uses TSMC themselves. Trying to get NVIDIA to jump ship is extremely unlikely, they're struggling with power draw and heat every time they try Samsung for manufacturing. Afaik Intel is another step down when it comes to that.

Apple is even more unlikely, their whole thing is being on the latest TSMC node and TSMC giving it to them before anyone else.
If the price is right AMD GPUs might ironically be a good match. More likely they'll have to sell capacity to customers who don't need the highest performance and lowest power draw. Self driving cars would probably make for good volume.

Great points, ive been hear stuff like that for a while too. It would be fun if their biggest customer is AMD lol.

 

[WhiteLeaff]

Are you unfamiliar with raspberryPis?

Intel's processes are several times more expensive than the mature processes used to produce these chips. Perhaps 14nm is viable for this market, but the initial investment is still huge.

 

[Dimitriid]

I'm ok with anybody being in favor of this idea, I just have to let you know that you can no longer call yourself a Free Market Capitalist if you support this: You're admitting that the free market just doesn't works or isn't as important as the affairs of geopolitics and State interest: You're now a State Capitalist, just like China.

 

[gamerk2]

The problem with this is that intel is falling further behind TSMC. Going with them means Nvidia/apple would need to kneecap their own products just to support a local industry. That kind of protectionism never ends well, intel would just become a black hole of government funding and subsidies to keep the chips cheap enough that poeple didnt complain.

So...doing what every other country does when building up it's industry? Why would we want to do that?

 

[Greggs]

If Intel can get it's foundry superior to TSMC, companies will migrate to get the advanced technology. If Nvidia, Apple, or whomever believes Intel can succeed, they'll start reserving capacity to hedge their bets.

 

[Fuzzy Dunalap]

This is especially true if it means a reduction in cost that can get passed down to consumers.

Hahaha! I'm not laughing at you but the idea that Intel will pass along any savings to consumers.

 

[yRaz]

Hahaha! I'm not laughing at you but the idea that Intel will pass along any savings to consumers.

Only reason I see this as plausible is that Intel will have to price their fan capacity competitively to get clients, which they really need right now. I think this is doublely true with the recent bad PR they got for failing chips so clients would feel they're taking a risk unless they price things competitively

 

[nitebird]

Just do price/performance until Intel's fabs catch up. It is important to be customer friendly, last I heard Intel's fabs have a major case of not giving a damn in servicing clients. From contract signing to chip delivery, the fab needs to do everything it possibly can to help the client overcome technical hurdles, and be fast in iterating products. Delays kill products.

 

[Dimitrios]

Maybe INTEL should get into the "rearview mirror business?" I hope someone gets my joke.

 

[Fuzzy Dunalap]

Only reason I see this as plausible is that Intel will have to price their fan capacity competitively to get clients, which they really need right now. I think this is doublely true with the recent bad PR they got for failing chips so clients would feel they're taking a risk unless they price things competitively

I feel you. But shareholders are in this to make money not give it to consumers. Any savings will be kept and NOT passed along. It's why they are in a bind now, they won't do anything unless they believe they will profit from it.

Big difference from like, IBM who market is even more niche and violate than Intel and yet, they still pour billions into R&D (into chips not foundries).