Intel Corporation (NASDAQ: INTC) stock plummeted 8% in intraday trading Wednesday, prompted by a grim outlook on its foundry business. The chipmaker disclosed that losses within this segment have intensified, potentially delaying the attainment of a break-even point for several years.
Intel (NASDAQ: INTC) announced a significant downturn in the performance of its manufacturing division, Intel Foundry, in its latest financial report released late Tuesday.
In 2023, Intel Foundry reported sales of $18.9 billion, marking a notable decrease from the previous year’s figures, which stood at $27.5 billion. The operating loss at the new division also widened, reaching $7 billion from $5.2 billion in the preceding year.
CEO Pat Gelsinger attributed the downturn to bad decisions within the foundry industry, particularly highlighting a choice made a year ago not to use extreme ultraviolet (EUV) machines manufactured by the Dutch company ASML.
The refusal to adopt EUV machines, despite their relatively high price tag of over $150 million, proved detrimental to Intel’s competitiveness. Gelsinger admitted that such machines, though expensive, are more cost-effective compared to traditional chip-making instruments.
Intel, partly due to these missteps, has outsourced around 30% of its wafer production to external manufacturers like TSMC. Gelsinger disclosed plans to curtail this reliance to around 20% moving forward.
Moreover, Intel is transitioning its manufacturing processes to employ EUV tools, which the company expects to address evolving market demands more efficiently.
Gelsinger said,
“In the post-EUV era, we see that we’re very competitive now on price, performance (and) back to leadership.”
He added,
“And in the pre-EUV era, we carried a lot of costs and (were) uncompetitive.”
Intel also announced plans to invest $100 billion in manufacturing facilities across four U.S. states, supported by funding from the U.S. Chips Act.
Intel’s Foundry Business Outlook
Gelsinger forecasts that operating losses in the contract chip-making business would peak in 2024 before achieving breakeven by around 2027. This segment accounted for approximately 35% of Intel’s 2023 net revenue.
Intel expects to achieve a gross margin of around 40% for its foundry business by 2030. However, this target falls short of the impressive 53% margin reported by TSMC for the fourth quarter of 2023.
TSMC’s revenue of T$625.5 billion ($19.52 billion) in the last quarter of 2023 alone far exceeds the $18.9 billion in sales that Intel’s foundry unit made in the entire year.
Intel (NASDAQ: INTC) Stock Performance
INTC stock plunged 8.22% to close at $40.33 on Wednesday. The traders had exchanged hands with 83,413,726 (83.41 million) shares compared to the average daily trading volume of 44.94 million.
