Following the departure of former CEO Patrick Gelsinger, Intel's co-CEOs have offered further insight into the potential separation of its chip manufacturing and design divisions. While the company operates as an integrated device manufacturer (IDM), designing and manufacturing its own chips, recent market slowdowns and manufacturing challenges have spurred speculation about a potential spin-off.
Independent Operations, but Not Full Separation?
At a recent Barclays conference, the co-CEOs acknowledged the largely independent operations of the product and foundry businesses, stating that they already function "fairly independently." However, they avoided definitively commenting on a complete separation.
Co-CEO Michelle Johnston Holthaus highlighted the benefits of the current arrangement, emphasizing access to cutting-edge process technology. She expressed doubt about the practicality of a complete separation, stating that a connection between the two is crucial. Intel's primary focus, according to Holthaus, is regaining process leadership with its upcoming 18A process.
Co-CEO David Zinser elaborated on the steps already taken towards creating a subsidiary for Intel Foundry, including establishing a separate operational board and ERP system. Nevertheless, he described the question of full separation as "an open question for another day."
Investor Reaction and Industry Parallels
Intel's stock saw a rise of over 2% following the announcement, reflecting investor enthusiasm for cost reduction and a leaner business model. A full separation would fundamentally reshape Intel, aligning it more closely with companies like NVIDIA and AMD, which outsource manufacturing.
AMD's experience with spinning off its manufacturing division into GlobalFoundries in 2008 offers a relevant example. This move allowed AMD to focus on chip design and improve its financial position. The high capital intensity of chip manufacturing necessitates high utilization rates to offset costs, a factor influencing the strategic decisions of IDMs.
