The chip maker says the move to an 'internal foundry system' will realize up to $10 billion in savings by the end of 2025

Intel has announced a “fundamental shift” to its operating model with the goal of saving up to $10 billion by 2025. The company says the move represents the “most significant business transformation in its 55-year history.”
In this new operating model, Intel’s internal product groups move to a foundry-style relationship with the company’s manufacturing group, a move that will increased efficiencies and profitability with the goal of achieving non-GAAP gross margins of 60 percent.
Since Intel’s founding in 1968, it has been an integrated device manufacturer, or IDM—a company that both designs and builds its own semiconductor chips.
In March, CEO Pat Gelsinger introduced the IDM 2.0 strategy, which he said includes significant manufacturing expansions, plans for Intel to become a major provider of foundry capacity in the U.S. and Europe, and expansion of Intel’s use of external foundries for some of its products.
With IDM 2.0, Intel’s product business units will work with the company’s manufacturing group in a similar arm’s-length fashion that fabless semiconductor companies engage with external foundries.
The internal foundry model is key to the IDM 2.0 strategy and Intel’s multiyear cost efficiency effort, which includes reducing costs by $3 billion in 2023, and $8 billion to $10 billion in cost savings by 2025.
Internal Foundry Model
Intel’s manufacturing groups will now be accountable to a standalone profit and loss (P&L) for the first time. Beginning in Q1 2024, the P&Ls will include a new manufacturing group segment—inclusive of manufacturing, technology development and Intel Foundry Services (IFS)—along with the company’s product groups.
The company believes this model offers significant business value beyond billions of dollars in cost savings. Intel will extend the use of market-based pricing to its internal business units, offering them the same certainty and stability as the company’s external customers while maintaining the connection between its product groups and technology development teams, preserving its competitive advantages as an IDM. The new model also creates the industry’s second-largest foundry (by volume from internal customers), allowing external customers to build off Intel’s internal scale and de-risking process.
Intel’s manufacturing groups will face the same market dynamics as their external foundry counterparts and will need to compete for volume through performance and price. This includes Intel’s internal customers, who will have the flexibility to engage with third-party foundries.
Long-Term Margin Ambitions
Intel’s long-term ambitions are to achieve non-GAAP gross margins of 60 percent and operating margins of 40 percent. In its new model, based off internal volume, the company expects to be the second largest foundry by 2024 with manufacturing revenue of more than $20 billion. The new model will force Intel business groups to work more efficiently. Expedited wafers that move through Intel’s manufacturing process are costly and reduce factory efficiency. In the new model, this service charge will be borne by the business units, which should reduce the number of expedites.
“We have identified many opportunities for optimization across both our manufacturing organizations and our business units that will lead to significant saving,” says Jason Grebe, Corporate Vice President and General Manager of Intel’s Corporate Planning Group, citing efficiency savings from fewer expedited wafers are forecast to deliver $500 million to $1 billion in savings. He also expects pre-silicon design choices to reduce test times, eventually saving $500 million annually. By reducing the number of wafer steppings—the number of physical iterations of a product’s design—the company estimates cost savings in the $500 million to $1 billion range.
Boosting Intel Foundry Service
Internal customer volume will provide scale for its Intel Foundry Service (IFS) business. By establishing the manufacturing organization as its own business to manage its own P&L, Intel will be able to “allocate clear corridors of capacity and supply commitments to external customers.”
Another benefit of the internal foundry model is that an arm’s-length approach will completely segregate foundry customers’ data and IP, increasing data security.
“As we begin retooling the company for this transformation, we are architecting with a security-first mindset, taking data separation as a key tenet into our system design,” Grebe says.
Lastly, more than five internal products are presently being developed on Intel’s latest 18A process technology, which is expected to come to market in 2025. This process node will initially ramp on internal volume, giving the company a chance to address any process issues before making it available to external IFS customers.