Intel finally named a major contract manufacturing client Wednesday, announcing that it will make custom chips for Microsoft.
It’s a big step forward for Intel’s new contracting business, which the company calls Intel Foundry. Intel has been working for nearly three years to build a separate arm of the business making chips for other companies but until Wednesday hadn’t identified a major client for its foundry business.
Intel announced the Microsoft deal at a forum in San Jose designed to spotlight its foundry aspirations. It didn’t say how Microsoft will use the chips or put a dollar figure to the deal but it said last year that an unnamed client had made a large prepayment for Intel’s foundry services.
Microsoft CEO Satya Nadella briefly joined Wednesday’s event by video call. The deal between the two companies didn’t immediately excite investors. Intel shares were down 44 cents in early trading Wednesday, at $44.08.
Microsoft hired Intel to make chips using Intel’s forthcoming 18A production technology, due late this year. It’s a more advanced manufacturing process, part of Intel’s push to develop five generations of chips in four years and catch up technologically with industry leader Taiwan Semiconductor Manufacturing Co.
“There’s only a few companies in the world that can do this,” Intel CEO Pat Gelsinger said at Wednesday’s event.
Gelsinger claimed Wednesday that Intel’s 18A chips will surpass TSMC in processing speed, and he said Intel aims to be the world’s second-largest semiconductor foundry by 2030.
It’s important, Gelsinger said, for the U.S. and Europe to develop contract manufacturing for the most advanced chips outside Taiwan and South Korea.
“We do need to diversify our semiconductor supply chain, have much more manufacturing in the U.S., particularly of leading-edge chips, which will be essential for” artificial intelligence, U.S. Commerce Secretary Gina Raimondo said at Wednesday’s event, speaking by video.
Intel is spending $40 billion on new factories in Arizona and Ohio and billions more for a major upgrade to its research factories in Hillsboro. The company also plans new factories in Germany and Israel.
That new, leading-edge production capacity could help position Intel to capitalize on expected demand for new artificial intelligence chips. Even though Intel’s own chips lag in artificial intelligence capabilities, its foundry business could make chips for other companies’ AI products.
Open AI CEO Sam Altman is due to join Gelsinger later Wednesday for a talk about the semiconductor manufacturing needs associated with the rise of artificial intelligence. The Wall Street Journal reported earlier this month that Altman is seeking an extraordinary $7 trillion in funding to boost chip manufacturing all over the world.
In the near term, Intel is counting on billions of dollars in support from governments in the U.S., Europe and Israel to help offset its factory buildout. Bloomberg reported last week that the Commerce Department is negotiating with Intel for a $10 billion award from the $52 billion CHIPS Act that Congress approved in 2022.
-- Mike Rogoway covers Oregon technology and the state economy. Reach him at mrogoway@oregonian.com or 503-294-7699
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