Intel’s Foundry Unit Faces Steep Losses Amidst Market Challenges
Intel’s recent financial disclosures have revealed a challenging path ahead for the tech giant, as its contract chip-making business, or foundry unit, reported significant operating losses. The division’s losses widened to $7 billion in 2023, a steep increase from the $5.2 billion loss in 2022. This downturn in profitability caused Intel’s shares to drop by 5 percent on Wednesday, reflecting investor concerns over the company’s ability to compete with industry leader Taiwan Semiconductor Manufacturing Co. (TSMC).
Bernstein analyst Stacy Rasgon commented on the situation, noting the “bad” economics of the foundry and predicting “several years of substantial headwinds” for Intel. The company’s market value is poised to shrink by over $9 billion if the premarket losses persist.
Intel has been aggressively investing in an effort to reclaim its position as a top producer of advanced chips—a title now held by TSMC. The U.S. chipmaker’s capital investments, earmarked as “construction in progress,” reached $43.4 billion at the end of December 2023, up from $36.7 billion the previous year. Additionally, Intel has unveiled plans to invest $100 billion in manufacturing plants across four U.S. states, with support from the US Chips Act.
CEO Pat Gelsinger has projected that the foundry unit’s operating losses will peak in 2024 and aims for a break-even point by approximately 2027. This segment contributed to around 35 percent of Intel’s total net revenue in 2023. Despite these efforts, Intel anticipates a gross margin of about 40 percent for the foundry business by 2030, which lags behind TSMC’s impressive 53 percent margin reported in the fourth quarter of 2023.
TSMC’s financial performance starkly contrasts with Intel’s foundry unit, as it boasted a revenue of T$625.5 billion ($19.52 billion) in the last quarter alone, surpassing Intel’s annual foundry sales of $18.9 billion. Gelsinger acknowledged that Intel’s foundry business suffered due to past decisions, such as initially opting out of using extreme ultraviolet (EUV) machines from Dutch firm ASML. However, Intel has since transitioned to utilizing EUV technology.
The road ahead for Intel is one of strategic realignment and investment as it works to regain its footing in the competitive chip-making landscape.
