Intel’s $25B a Year Foundry Gamble May Finally be Paying off

Key Takeaways

• Broadcom and Nvidia are reportedly testing Intel’s 18A process node.
• Microsoft and AWS have already signed contracts to use the new manufacturing technology.
• Since 2021, Intel has spent tens of billions of dollars developing its manufacturing capacity.

Since Intel announced plans to expand its semiconductor foundry business in 2021, the firm has pushed tens of billions of dollars into developing new manufacturing processes and facilities. 

Dubbed Integrated Device Manufacturing (IDM) 2.0, the initiative has been a significant drag on Intel’s bottom line. And with takeover rumors swirling, its future looks uncertain. Nevertheless, there are signs that the strategy is starting to pay off.

Novel Intel Manufacturing Process Attracts Broadcom and Nvidia

A key component of IDM2.0 is Intel’s 18A process node, a semiconductor manufacturing process that aims to increase chip density and performance per watt.

Although the technology has faced repeated delays and won’t be market-ready until at least 2026, major chip designers have expressed an interest.

In the latest development, Reuters reported on Monday, March 3, that Nvidia and Broadcom have started running 18A manufacturing tests

While the tests don’t indicate any hard commitment, they are the clearest sign so far that Intel’s foundry proposition could potentially attract major chipmakers.

Intel and AWS Reach Deal on AI Chips

In another major win for Intel, in September 2024 the company signed a multi-year, multi-billion-dollar agreement with Amazon Web Services (AWS) that will see Intel produce custom AI chips for AWS data centers.

Intel will produce an AI fabric chip for AWS using its 18A process node as part of the deal. It will also build on an existing contract for 3nm node chips, designing a new Xeon 6 processor specifically for Amazon data centers. 

While AWS deploys a range of different processors in its data centers, its in-house offering is increasingly capable and has helped the firm reduce its reliance on external suppliers in recent years.

Amazon is Intel’s second major client for the new 18A process. In February 2024, Microsoft CEO Satya Nadella revealed that the company uses Intel’s manufacturing capacity to install new chips in its data centers.

New Manufacturing Processes Gather Steam

With Microsoft and AWS now signed on as customers and Nvidia and Broadcom experimenting with the new technology, Intel’s 18A process is making the inroads IDM 2.0 is all about.

With a focus on high transistor density and improved power efficiency, the 18A process positions Intel to compete with the 5nm and 4nm processes used by Samsung and the Taiwan Semiconductor Manufacturing Company (TSMC).

As Intel ramps up production of the new semiconductors, other chip makers will be paying close attention. And for other fabless chipmakers like AMD, the 18A process could offer a compelling alternative to existing solutions.

However, Samsung and TSMC aren’t resting on their laurels either. Both foundries have started manufacturing more advanced 3nm chips and expect to launch the first 2nm chips later this year.

Too Little Too Late?

With 18A finally attracting attention from chip designers, it may be too late to save Intel’s struggling foundry business.

As reported by CNBC, the unit cost the chipmaker roughly $25 billion in each of the past two years. Intel’s own forecasts project the foundry to continue losing money until around 2030.

After an abysmal 2024, Intel shareholders have increasingly pushed for the company to spin off its contract manufacturing arm. And without former CEO and IDM2.0 champion Pat Gelsinger to defend the project, potential buyers have started to circle.

According to the latest rumors, TSMC could acquire Intel’s manufacturing facilities, with Broadcom stepping in to buy the design business.

If such a deal goes through, TSMC would presumably acquire the rights to the 18A process, cementing its position as the market leader and consolidating the world’s most advanced chipmaking technologies under a single company.