As Intel (INTC +7.08%) works toward scaling its foundry business, regaining its manufacturing edge, and winning back market share in its core CPU markets, the company hasn't been shy about disposing of non-core assets. Intel has exited a slew of businesses since CEO Pat Gelsinger took the helm in 2021, including memory chips, mini-PCs, and Ethernet switching chips.
In some cases, Intel has taken outside investment for non-core businesses in an effort to unlock value for its shareholders. Mobileye, a designer of chips that enable autonomous driving that Intel acquired in a $15.3 billion deal, was successfully taken public in 2022. In June of this year, Intel sold a 20% stake in IMS Nanofabrication GmbH to Bain Capital. IMS develops specialized equipment for manufacturing semiconductors.
Intel announced yet another step last week to separate out a major business unit. Beginning in 2024, Intel's Programmable Solutions Group, or PSG, will begin operating as a stand-alone business within Intel. The company intends to take PSG public within a few years, giving it independence and resources that it doesn't have as a tightly integrated part of Intel.
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Key Data Points
Going after an $8 billion market
At the core of Intel's PSG business is Altera, the field-programmable gate array, or FPGA, designer the company acquired in 2015 for $16.7 billion. Altera was and still is the largest acquisition in Intel's storied history.
At the time, Intel was dead set on expanding its presence in the data center. Intel is the leader in the server CPU market, but spending is increasingly going to other types of chips. FPGA's are a middle-ground between general-purpose CPUs and highly specialized application-specific integrated circuits. FPGA's can be reprogrammed at the hardware level, making them potentially much faster at certain tasks than CPUs and far more adaptable than ASICs.
One problem with sticking an acquired company into a sprawling business is that the acquired company will always be fighting for resources and attention. Product decisions will be made in the context of what's best for the broader company, not necessarily what's best for that acquired business. This can lead to missed opportunities.
By allowing PSG to function independently, the business should be in a better position to go after the $8 billion FPGA market. Once PSG is taken public, the new company will be an external customer for Intel's foundry business. Intel and PSG will maintain a tight partnership once they're fully separated, particularly in the area of manufacturing.
"This is a significant inflection point for the PSG business – one that will enable us to build out a leadership end-to-end portfolio of FPGA products, while also making enhancements to our go-to-market strategy that will enable us to achieve market share growth," said PSG COO Shannon Poulin.
Focusing on the core
Intel's core businesses are CPUs and semiconductor manufacturing. By separating PSG, the company removes another distraction that's taking away resources from those core businesses.
That's good news because Intel has a lot of work to do over the next few years in both areas. The company has fallen behind rival AMD technologically in the server CPU market, partly because of extended delays with its latest Sapphire Rapids chips. It likely won't be until next year's launch of Granite Rapids and the efficiency-focused Sierra Forest until Intel begins its comeback in earnest.
On the manufacturing side, Intel is working feverishly to bring five process nodes to volume production in a four-year span. That plan is currently on track, and if it goes off without a hitch, the company should regain its manufacturing edge going into 2025.
Intel's future depends on the success of its foundry business. While the Altera acquisition may have made sense back in 2015, the days of Intel aiming to be a one-stop shop for data center chips are over.
