Intel to restructure manufacturing business
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Intel (NASDAQ:INTC) said its manufacturing business will work like a separate unit and will start to generate a margin.
The Santa Clara, Calif.-based chip giant noted that its Internal Foundry Model will create a foundry like relationship between its manufacturing groups and internal product business units.
David Zinsner, Intel's executive vice president and CFO, said that the Internal Foundry Model will help with the incremental savings to achieving $8B to $10B the company previously committed exiting 2025 and was critical to Intel's longer term aim of 60% gross margins and 40% operating margins.
"As we transition to the Internal Foundry Model, the manufacturing group will be accountable to a standalone P&L for the first time," said Zinsner at the Internal Foundry Model Investor Webinar Conference.
Under the new structure, Intel will move from a cost allocation to a market based wafer test and packaging price from its manufacturing groups to its external and internal customers for both front end fab manufacturing and back end test and packaging services.
Pricing will be based on comparable industry benchmarks from foundries and OSATâs based on performance, power, area and cost.
The change will shift the relation from what is today a support model to a customer-supplier relationship, according to Zinsner.
The CFO noted that the pivot to give manufacturing its own P&L was critical to identifying cost reductions.
"As we transition to the IDM 2.0, the manufacturing group will have a standalone P&L. Revenue will be based on wafer sales to the business units at market pricing, while costs will continue to be based on true manufacturing costs. As such, the manufacturing business will begin to generate a margin," said Zinsner.
The CFO added that Intel's gross margins compare unfavorably to industry benchmarks. Leading fabless and foundry competitors combined into a virtual IDM would help achieve about 70% gross margins, which is 20 to 30 points higher than the company's recent results.
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