Intel's Bold Move: Spinning Off Programmable Chip Unit To Compete With Taiwan's TSMC

Driven by rising demand for chips in the pandemic era, semiconductor stocks have been one of the best-performing sectors over the past few years.

The recent artificial intelligence (AI) boom propelled the need for semiconductors further, with chipmakers such as Nvidia Corp. NVDA that cater to AI software becoming the biggest gainers. 

Intel Corp., which has long been the dominant chipmaker, has been restructuring its business to accommodate changing market dynamics. Intel has been lagging behind prominent chipmakers, including Taiwan Semiconductor Manufacturing Co. Ltd. TSM. 

Nonetheless, Intel has been spinning off its subsidiary businesses to focus on its manufacturing foundry operations to establish its dominance in the semiconductor sector. The company expects it will catch up with TSM in terms of revenues by 2026. 

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Programmable Solutions Group Spinoff

Earlier this month, Intel announced plans to operate its programmable chip division as an independent entity, with the goal of conducting an initial public offering (IPO) within the next two to three years.

Intel's Programmable Solutions Group (PSG) will establish its independent financial structure as it moves toward autonomy. Intel is expected to retain the majority equity stake in the business and have substantial involvement in its operations, as the separated business is expected to continue manufacturing at Intel's factories. 

"Our intention to establish PSG as a standalone business and pursue an IPO is another example of how we are consistently unlocking more value for our stakeholders," Intel CEO Pat Gelsinger said.

Sandra Rivera, leader of Intel's larger Data Center and AI division, is slated to assume the role of CEO for the Programmable Solutions Group. 

"We see enormous customer interest in a more secure, resilient supply chain in North America, and you could just imagine the industrial customers, the aerospace and defense base customers," Rivera said. "We're setting this up to really have a unique advantage by leveraging Intel."

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Impressive Financials And Growth Prospects 

Intel operates its Programmable Solutions Group under its Data Center and AI business division, which generated $4 billion in revenue in the fiscal second quarter of 2023. In July, Intel released a statement highlighting that its PSG unit delivered three consecutive record-breaking quarters, which offset the company's declining sales of server chips. 

Intel markets the chips under the Agilex brand, following the acquisition of Altera Corp. in 2015 for $16.7 billion. The programmable chips bridge the gap between Intel's general-purpose chips, are designed for specific tasks and find applications in a wide range of functions, from data encryption to 5G wireless telecommunications equipment.

The PSG group currently designs and manufactures field programmable gate arrays (FPGAs), which offer greater flexibility, quicker response times and improved energy efficiency. They are customized for specific applications in various sectors, such as data centers, telecommunications, video encoding and aviation after they are shipped. 

The surge in the semiconductor industry's demand for FPGAs, which can be employed to execute specific artificial intelligence algorithms, influenced Intel to spin off the business as a separate entity. 

"Over the next two to three years, Intel intends to conduct an IPO for PSG and may explore opportunities with private investors to accelerate the business's growth, with Intel retaining a majority stake," the U.S.-based chipmaker said in a statement.

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