Track Hyper | NVIDIA enjoys a feast? Intel still faces challenges

Author: Wall Street News/Zhou Yuan

Although Intel has not been able to recover the decline since the release of its financial report on January 26th, there was news on February 1st that due to the insufficient CoWoS packaging capacity of Taiwan Semiconductor and the strong demand for NVIDIA in the market, Huang Renxun sought Intel's related capacity to make up for the capacity gap of Taiwan Semiconductor.

The financial report for 2023 and the first quarter of 2024 released by Intel on January 26th fell short of expectations, causing a sharp drop in Intel's stock price from $49.55 on January 25th to $43.36 on February 1st, a decrease of 12.49%.

Intel CEO Pat Gelsinger said during the earnings conference call that the weak outlook for the first quarter of 2024 is only "temporary" because "the momentum of new products and businesses remains strong," and it is expected that "revenue and earnings per share will continue to grow both sequentially and year-on-year" in the 2024 fiscal year.

If NVIDIA does indeed purchase Intel's packaging capacity, Gelsinger's explanation for Intel's first-quarter financial data falling short of expectations will be convincing. However, both Intel and NVIDIA have not responded to this news, so it cannot be fully confirmed whether Gelsinger's optimism is based on solid grounds.

According to Intel's 2023 financial report, the revenue of Intel Foundry Services (IFS) was $952 million, with a year-on-year growth rate of over 100%, but it only accounted for 1.76% of the main business. Therefore, even if the NVIDIA incident is true, it is difficult to fundamentally change Intel's performance.

Is NVIDIA treating Intel to a meal?

On February 1st, a report uploaded by Money.UDN.com showed that NVIDIA is using Intel's advanced packaging technology to address the shortage of CoWoS packaging capacity at Taiwan Semiconductor. This can help NVIDIA produce more GPUs for AI and HPC workloads, thereby meeting the market demand for NVIDIA's existing products faster.

However, another piece of news indicates that the deal between NVIDIA and Intel has not been finalized yet, and NVIDIA is currently only considering whether to purchase Intel's advanced packaging services. Previously, it was reported that Intel is estimated to officially join NVIDIA's supply chain in February this year, with a monthly capacity of 5,000 wafers, accounting for about 10% of the total demand.

Intel has advanced packaging capacity in Oregon and New Mexico in the United States, and is also expanding its advanced packaging in Penang, Malaysia.

Intel Vice President Robin Martin revealed in an interview in Penang on August 22, 2023, that the new Penang factory will become the company's largest 3D advanced packaging hub in the future. Intel strengthens its 2.5D/3D packaging layout in the new factory in Penang. According to the plan, with the addition of the advanced packaging capacity in Penang, Oregon, and New Mexico, Intel's 3D Foveros packaging capacity will increase fourfold by 2025 (based on the 2023 capacity).

Previously, Intel stated that the new production capacity of the Penang factory is expected to be put into operation as early as 2024 and no later than 2025.

In 2021, Intel announced an investment of $20 billion for its IDM 2.0 plan, with $7 billion allocated to Malaysia. By 2032, Intel's cumulative investment in Malaysia will reach $14 billion.

Intel will have six factories in Malaysia, including the existing four, which include two test and assembly factories in Penang and Kulim, a system integration and manufacturing services factory (SIMS) in Kulim responsible for producing test equipment, and a self-made device factory (KMDSDP). There are also test and assembly factories under construction in Penang and Kulim. After completion, Malaysia will have six Intel test and assembly factory zones.

Currently, Intel's advanced packaging technology mainly consists of two types: 2.5D EMIB (Embedded Multi-die Interconnect Bridge, a horizontal integration packaging technology) and 3D IC Foveros (using heterogeneous stacked logic processing operations to stack various logic chips together).

On January 27th, Intel announced that it has achieved mass production of industry-leading semiconductor packaging solutions, including its breakthrough 3D packaging technology, Foveros.

This technology has been implemented in Intel's newly upgraded Fab 9 in New Mexico. Keyvan Esfarjani, Executive Vice President and Chief Global Operations Officer of Intel, said, "Advanced packaging technology sets Intel apart and helps our customers gain a competitive advantage in chip product performance, size, and design flexibility."

With the slowdown of Moore's Law, the semiconductor industry has entered the era of heterogeneous integration of multiple small chips in a single package (Chiplets). It is said that Intel's Foveros and EMIB (Embedded Multi-die Interconnect Bridge) and other advanced packaging technologies can integrate 1 trillion transistors in a single package. By relying on innovative packaging technology, Moore's Law can continue to play a role.

In the manufacturing process of processors, Foveros can stack computing modules vertically instead of horizontally. This technology can help Intel and its foundry customers integrate different computing chips, thereby optimizing cost and energy efficiency.

Low proportion of revenue from foundry business

In the fourth quarter of 2023, Intel achieved a quarterly revenue of $15.41 billion, higher than analysts' expectations of $15.17 billion, with a year-on-year growth of 10%. This is a rare revenue growth report from Intel after several consecutive quarters of declining revenue. In the same quarter, Intel achieved a net profit of $2.7 billion, compared to a loss of $700 million in the same period of 2022, achieving a turnaround. The gross profit margin was 48.8%, a 5% increase YoY, higher than the analyst's expected increase of 2.3%. However, Intel expects the gross profit margin for the first quarter of 2024 to be 44.5%, slightly lower than the analyst's expected 45.5%.

Kissinger said that Intel's two core businesses, personal computers and servers, are facing seasonal demand downturns, and non-core businesses such as Mobileye, the autonomous driving and automotive chip company, are also not optimistic.

In the fourth quarter of 2023, Intel's chip manufacturing outsourcing business revenue was $291 million, accounting for 1.89% of the revenue, a 63% YoY increase. This shows that the revenue from the foundry business has a negligible impact on Intel's overall revenue. However, Intel attaches great importance to this business. For example, starting from the first quarter of this year, Intel will separately disclose the financial data of the chip manufacturing department.

On June 22, 2023, Intel announced a restructuring of its organizational structure: its manufacturing business, including the existing in-house IDM manufacturing and wafer outsourcing business (IFS), will operate independently and generate profits in the future.

In this new operating model of Intel's internal foundry, its manufacturing department will be responsible for independent profit and loss (P&L) for the first time. Starting from the first quarter of the 2024 fiscal year, Intel's reportable income statement will include a new manufacturing group department, including manufacturing, technology development, and Intel foundry services (IFS).

In the press release at the time, Intel stated that the new model can provide significant inherent business value of cost savings of billions of dollars. Intel will extend the market-based pricing model to its internal business units, providing them with the same certainty and stability as external customers.

It seems that Intel is working hard to eliminate the internal gaps between departments and "maintain close relationships and deep connections between product groups and technology development teams as a competitive advantage of IDM." Obviously, Intel's move is undoubtedly a tribute to Taiwan Semiconductor.

Jason Grebe, Vice President and General Manager of Enterprise Planning Group at Intel, said, "The cost and efficiency savings brought by the reduction of expedited wafers transported through the factory are expected to save $5 million to $1 billion annually over time."

Since Intel is also a chip design company, in order to successfully achieve the business goals of chip foundry, it must make commitments to customers who accept its foundry services: that is, Intel must be able to isolate the data and IP of foundry customers, otherwise, customers will have difficulty trusting it. This is also the basis for Taiwan Semiconductor to quickly gain customer trust in the past.

Intel did do this. Grebe said, "When we started the architectural restructuring for transformation, we are designing the new architecture with a security-first mindset, and we take data separation as a key principle of our system design. It seems that Intel's goal of transforming into a foundry business is irreversible. However, looking at the revenue ratio, in 2023, Intel's revenue from foundry services (IFS) was only $952 million, accounting for only 1.76% of the total revenue. From a business perspective, it can be considered insignificant.

In 2023, Intel achieved a revenue of $54.2 billion, a 14% decrease compared to the same period last year; a net profit attributable to shareholders of $1.7 billion, a 79% decrease compared to the same period last year; an adjusted profit of $4.4 billion, a 36% decrease compared to the same period last year.

Looking at the business segments, the Client Computing Group (CCG) revenue was $29.3 billion, an 8% decrease compared to the same period last year, accounting for 54.06%; the Data Center and AI Group (DCAI) revenue was $15.5 billion, a 20% decrease compared to the same period last year, accounting for 28.60%.

The Network and Edge Group (NEX) revenue was $5.8 billion, a 31% decrease compared to the same period last year, accounting for 10.70%; Mobileye revenue was $2.1 billion, an 11% increase compared to the same period last year, accounting for 3.87%; revenue from foundry services (IFS) was $952 million, a 103% increase compared to the same period last year, accounting for 1.76%.