Bank of America named Intel (NASDAQ: INTC) one of its preferred semiconductor stocks for the fourth quarter, citing potential foundry customer wins as a key catalyst. However, Intel’s latest results show that external revenue excluding Altera accounted for just 1.9% of its second-quarter Foundry revenue.
Intel shares closed Friday at $119.33, down 0.6% for the session. The stock slipped in both trading days after BofA’s Q4 call became public.
Intel Foundry generated $5.765 billion in second-quarter revenue, including $293 million from external customers, or about 5.1% of the segment total. Of that amount, $181 million came from wafer-manufacturing services for Altera, which Intel deconsolidated after selling a 51% stake but still owns 49% and classifies as a related party.
Excluding Altera, external Foundry revenue was $112 million, equal to about 1.9% of the segment’s revenue.
Altera Drove Most of the External Revenue Increase
Intel Foundry revenue rose about 31% year over year in the second quarter from $4.42 billion, while external revenue increased by $271 million from $22 million a year earlier.
Intel said the increase in external Foundry revenue was primarily due to Altera’s transition to external-customer status. Altera accounted for roughly 67% of that year-over-year increase.
The revenue mix shows that Intel’s external foundry business remained limited in the second quarter as the company works to expand beyond manufacturing chips for its own products and win business from outside chip designers.
Intel Is Tying Expansion to Customer Commitments
Intel has said in its second-quarter Form 10-Q that the scale and pace of its manufacturing expansion projects will ultimately depend on committed demand for 14A from its own product roadmap and design wins with potentially significant external customers.
Since quarter-end, Intel has provided additional indications of external foundry activity. At Deutsche Bank’s Aug. 26 technology conference, CFO David Zinsner said Intel had greater conviction around external customers for 14A. He also said external foundry engagements had increased significantly, with some customer discussions advancing to questions about available production capacity.
Intel has also announced a collaboration with Fortinet to develop its SP6 security processor using Intel’s design, packaging, and manufacturing capabilities, a project the company included in its “Foundry Momentum” update.
