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Intel is uncertain about whether it should spin off its foundry division into a new entity, but history offers valuable lessons. Specifically, looking at AMD’s experience might be instructive.
When Intel considers spinning off its foundry division, economic and political factors play a significant role. Board members and several shareholders are leaning towards this option, while CEO Lip-Bu Tan is against it. This disagreement has created uncertainty within the company. Interestingly, to analyze how a spin-off could affect them, Intel can study AMD’s transformation into a fabless firm following severe economic issues.
### Background Context: AMD Becoming Fabless in 2008
In 2008, AMD faced massive delays with product launches, particularly in the server CPU segment. The Opteron saw a multi-month delay, and the Phenom chips also reported setbacks. These negative news impacted AMD’s financial performance significantly, while Intel was thriving.
AMD had been experiencing operating losses for multiple years, with costs related to semiconductor manufacturing being a major factor. In 2008, its foundry division was struggling with high-end nodes, showing no signs of improvement. Consequently, AMD decided to spin off its foundry division, which became GlobalFoundries (later renamed).
AMD entered into a deal with Abu Dhabi’s Mubadala Investment Company, receiving $700 million in cash and $1.1 billion in debt relief, plus a 34% stake in the company. This move allowed AMD to focus on fabless operations while benefiting from better competition against Intel.
### Was AMD’s Decision to Sell Its Foundry Division Right?
While AMD lost some revenue by spinning off its foundry division, it gained higher cash flow and more flexibility in manufacturing choices. However, divesting 34% of GlobalFoundries too early cost the company billions. Experts argue that AMD’s dependence on TSMC has led to producing some of the best processors but at a significant cost.
### Lessons for Intel
Intel must learn from AMD’s experience: operating a foundry is not sustainable and can compromise product quality. A spin-off could generate cash flow, helping Intel get back on track with its product roadmap. However, the foundry division has made significant progress toward 18A processes, which could be jeopardized by a spin-off.
Intel’s CEO Lip-Bu Tan believes that maintaining internal control over advanced chips is crucial. The division has invested tens of billions in R&D under former CEO Pat Gelsinger and faces no tolerance for subpar processes. A potential spinoff could disrupt these efforts.
### Current Situation
Intel’s foundry division losses are estimated at around $13 billion in 2024, representing almost 10% of the company’s valuation. The board members favor a complete spin-off or operation within a U.S.-backed consortium to preserve domestic chipmaking capabilities. However, CEO Tan believes that maintaining internal control is essential for future success.
### Conclusion
Intel should focus on improving its 18A process and aligning it with TSMC’s N2. A spin-off could provide immediate cash flow but risk disrupting R&D progress. For now, the foundry division looks safe under CEO Tan’s leadership.
