Intel strikes deal with Microsoft to produce a custom computing chip

Intel has now secured Microsoft as a customer for its custom chip business.

Intel strikes deal with Microsoft to produce a custom computing chip
Intel CEO Patrick P. Gelsinger speaks at an event giving new details about the firm's Intel Foundry manufacturing business, in San Jose, California February 21, 2024. REUTERS/Max Cherney

The backstory: In 2022, the US government passed the CHIPS and Science Act, which set aside around US$52 billion to boost the country's domestic semiconductor industry. The aim was to encourage chipmakers to build their factories in the US instead of outsourcing overseas. This was expected to benefit big players like Intel, TSMC and Samsung. Even Apple got in on the action, announcing plans to get chips from a new factory in Arizona owned by TSMC, a major supplier to both Apple and Nvidia.

Intel, a heavyweight in the chip industry, once dominated the market by manufacturing its own chips. But it has fallen behind Asian competitors like TSMC and Samsung, who have been setting up shop in the US. Losing that edge caused some turbulence for Intel, and the company saw a streak of declining revenue. To bounce back, Intel has been making new investments, including putting more than US$20 billion toward factories in Ohio, a US$20 billion expansion in Arizona and a US$3.5 billion investment in New Mexico.

More recently: With artificial intelligence (AI) booming, there's a huge demand for special chips that AI tech uses called accelerators. Nvidia is riding at the top of this wave with its dominance in the AI chip scene. But Intel and other big names like Microsoft and AMD are racing to make their own high-performance chips. AMD, for instance, released its MI300 lineup last June, saying it can run AI software faster than the competition.

This week, the US said it's giving US$1.5 billion to GlobalFoundries, its top custom chipmaker. Meanwhile, Intel has been reportedly chatting with the Biden administration, looking at over US$10 billion in subsidies under the CHIPS Act. That'd be the biggest award yet under the plan to bring chipmaking back to the US.

The development: At an event in San Jose, California, on Wednesday, Intel announced its launch of the "first systems foundry for the AI era" and said that Microsoft plans to use its services to cook up a new chip of its own design. Intel wants to beat out its main rival, TSMC, and set 2025 as its internal deadline to do it. But Intel said at the event that it now expects to beat this deadline, first with what it's calling its 18A manufacturing tech, then continuing its lead over TSMC into 2026 with even better 14A tech. 

This is the first time Intel has laid out its long-term plans, which align with CEO Pat Gelsinger's goal of getting the company back on top since his takeover in 2021. Intel is also inking partnerships left and right, like teaming up with Arm Holdings to make chip production using Arm's designs smoother. Plus, the chipmaker has joined forces with universities like UC Berkeley and the University of Michigan, giving students a chance to roll up their sleeves and get hands-on with its 18A tech.

Key comments:

"We are in the midst of a very exciting platform shift that will fundamentally transform productivity for every individual organization and the entire industry," said Microsoft CEO Satya Nadella in the official press release.

"We are executing well on our roadmap to regain transistor performance and power performance leadership by 2025," said Intel CEO Pat Gelsinger in a statement last year.