Is Intel’s foundry business in trouble?

An exclusive report from Reuters on Wednesday appeared to paint a picture of the unrest Intelhis (INTC -3.33%) developing foundry. According to several sources, it is testing wafers for the semiconductor giant Broadcom that had gone through the future Intel 18A manufacturing process came back defective enough for Broadcom to conclude that the Intel 18A was not ready for high-volume production.

The water is wet

The Intel 18A process is not ready for high volume production because… it is not ready for high volume production. Intel’s timeline is to have the process, designed to beat the foundry leader TSMC technologically ready for manufacturing by the end of the year and ready for high-volume production for external customers a little later in 2025.

It should come as no surprise that a manufacturing process that is not ready for mass production produces subpar wafers. In response to the Reuters article, an Intel spokesman said the Intel 18A is healthy, performing well and on track for high-volume production next year. A Broadcom spokesman added that the company’s evaluation of the Intel 18A has not yet been completed.

Intel also revealed some information at a recent conference about how the Intel 18A process is shaping up, and the numbers look good. Intel CEO Pat Gelsinger said the defect density is now below 0.4 defects per square centimeter. A defect density below 0.5 is generally considered good, so the Intel 18A appears to be in good condition. Given that high-volume production is still months away, Intel has time to reduce that value.

Intel now has a dozen customers using its Intel 18A manufacturing toolkit and plans to launch its own products on Intel 18A next year. These in-house products include Panther Lake PC processors and Clearwater Forest server processors.

There is still a long way to go

Based on what Intel has said and the numbers it has provided, Intel’s 18A process appears to be moving on schedule. Capacity remains an open question. Once the Intel 18A is ready for high-volume production, will the company be able to handle orders from a large customer like Broadcom? Or will it take a long time for Intel to ramp up production to meet both its own and its customers’ needs?

While the headline of the Reuters article, which appeared shortly after a disastrous second-quarter earnings report from Intel, suggests that the company’s all-important Intel 18A process is in trouble, that doesn’t appear to be the case. The Intel 18A is still several quarters away from being used by external customers for high-volume production, so the fact that it’s not ready now isn’t exactly a story.

Still, Intel needs to win over customers for the Intel 18A, and it’s hard to do that when the process isn’t ready yet and the company has no track record as a foundry. Intel scored Microsoft as an Intel 18A client for an undisclosed chip earlier this year, but other client announcements have been few and far between.

It will take time for Intel’s foundry business to generate significant external revenue as customers become comfortable with Intel as a foundry. If the Intel 18A performs as the company says, the foundry business should be in good shape for the long term.