November 22, 2024

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Intel CEO Pat Gelsinger introduces Intel Foundry during the Intel Foundry Direct Connect event in San Jose, California on Feb. 21, 2024. (Intel)

Facing its worst earnings crisis in its 56-year history, Intel is reportedly reconsidering its lackluster foundry business, where it has set the goal of beating Samsung Electronics to become the industry's No. 2 by 2030.

For Samsung, which is seeking to carve out its share in the foundry market dominated by Taiwan-based TSMC, Intel's exit could be beneficial, removing a potential threat, according to experts here.

On Sunday, Bloomberg reported that Intel, the world's leading chipmaker, is reviewing various scenarios to recover from losses, including a potential separation or sale of its foundry division.

In the second quarter of this year, the company reported operating losses of $2.8 billion in the foundry business alone, and it is projected to have an even worse year.

The company restarted its foundry business in 2021 under incumbent CEO Pat Gelsinger, after having previously withdrawn from the market in 2018. With the company taking over 70 percent share in the global central processing unit market, it would be able to secure orders to match those of Samsung merely by making its own chips, the company leadership believed.

Despite its small market share, the company has been aggressively investing in the foundry business, reportedly acquiring all of ASML's stock of the most advanced High Numerical Aperture NA Extreme Ultraviolet chipmaking equipment manufactured this year.

In January, it also announced it will be building the world's most advanced chip production facility with a 1.5-nanometer process node in Germany.

But the high cost of chip manufacturing and with their CPU sales shaken by surging demand for graphic processing units in the era of artificial intelligence, the company has been reporting consecutive losses.

In 2021, Intel posted operating losses of $2.1 billion, followed by $7 billion in 2023. In the first half of this year, the accumulated operating losses amounted to $5.3 billion.

Intel is also struggling with securing big tech clients. Its biggest client remains Intel itself.

According to Counterpoint Research, Samsung Electronics took 13 percent of the global foundry market to stand as the No. 2. TSMC maintained its dominant lead with 62 percent. Intel is out of the top 10.

With TSMC having ties with major tech giants, Samsung also faces similar difficulties in attracting new clients for its foundry business. The company is seeing increasing orders from startups and automotive firms, but not big tech firms.

One breakthrough could be AI chips, experts say.

On Aug. 26, IBM introduced its new AI chips for servers -- the IBM Telum II Processor and IBM Spyre Accelerator -- and said the upcoming chips are to be manufactured by Samsung, at Hot Chips 2024. The chips will be built on Samsung's 5nm process node, IBM said.

"It is not easy for Samsung to catch up on all fronts of the logic chip sector. Instead of overtaking TSMC's clients, it would be better for the company to identify the potential clients in the AI sector and secure their orders," said Kim Yang-paeng, a researcher at the Korea Institute of Industrial Economics and Trade.

In the event that Intel decides to sell its foundry business, Samsung could expand its foundry business as the buyer. TSMC and Samsung are viewed as likely potential buyers, given they are the only firms capable of handling the microlevel processes in advanced chip manufacturing.

Being an Integrated Device Manufacturer, doing both design and manufacturing in chips, some industry observers say Samsung's goal to beat TSMC by 2030 is an unrealistic goal.

Samsung has been seen slowing down investments in its foundry business and concentrating its resources to boost its footing in the memory chip sector. The company is expected to increase memory chip production facilities at its plant in Pyeongtaek, Gyeonggi Province, scrapping the original plan to build a foundry facility there.

By Jo He-rim (herim@heraldcorp.com)