Intel factory losses widen as company plans costly recovery

(Bloomberg) — Intel Corp said the chipmaker’s network of factories is experiencing mounting losses and the business may not reach a break-even point for several years, revealing new details about its manufacturing operations.

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Intel Foundry, Intel’s new unit responsible for manufacturing, will have sales of $18.9 billion in 2023, down from $27.5 billion the previous year, the company said late Tuesday. The new unit’s operating loss widened to $7 billion from $5.2 billion.

After disclosing the data, Intel’s stock price fell more than 4% in after-hours trading. The stock price fell 1.3% to $43.94 in regular trading on Tuesday, and has fallen 13% so far this year.

Intel is providing more details on its financials as part of Chief Executive Pat Gelsinger’s ambitious turnaround plan. He released the results of the factory network as a step toward making it operate more independently. The company is looking to make chips for other companies, and keeping it separate from the rest of Intel is critical to that strategy.

The company’s new timeline and financial goals illustrate the challenges facing the effort, which includes investing billions of dollars to build new factories.

“We believe this transparency and accountability is necessary. The required transformation is well underway,” he said in his speech.

The company expects 2024 to be the peak of its losses, and that Intel’s foundries will become profitable at an operational level “between now and the end of 2030.” The chipmaker also named Lorenzo Flores as the unit’s chief financial officer.

Intel’s move into outsourced chip production, known as the foundry industry, is one of the biggest transformations in the company’s history. Gelsinger’s comeback also involves restoring Intel’s once unassailable technological advantage that the chip pioneer lost in the years before he took the helm. Take power in 2021.

Gelsinger revealed in his speech that Intel’s difficulties have forced it to outsource the manufacturing of some important components. About 30% of silicon wafers are now purchased, he said. But by improving Intel’s technology – using a technique called extreme ultraviolet lithography – the company said it plans to bring more production back in-house.

The CEO reiterated that Intel will regain its technological edge by next year. Over time, this will improve the performance of Intel products and reduce their manufacturing costs. It would also allow the company to win orders from rivals, which would provide sales of up to $15 billion by the end of 2030, Kissinger said.

Intel said there are five such companies working on its latest production technology, called 18A. The technology will become more widely available starting next year and gain momentum thereafter.

TSMC currently dominates the foundry market, with overall revenue exceeding Intel. The company’s sales in 2023 will be US$69.4 billion and net profit will be US$26.9 billion. Its gross profit margin (the percentage of sales remaining after deducting production costs) is 54%. By 2024, its sales are expected to grow 20% to $83.4 billion.

Intel’s closest competitor in its traditional business is Advanced Micro Devices Inc., which last year had revenue of $22.7 billion, net profit of $854 million, and a gross profit margin of 50%. The company’s sales are expected to grow 14% this year, according to analysts.

Meanwhile, Nvidia Corp. has quickly become an industry star. Although its revenue has not yet reached the level of Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC), its sales more than doubled last year and it is expected to do so again this year. Dominate the artificial intelligence accelerator market and help companies develop artificial intelligence models.

Intel took advantage of government incentives like the Chip and Science Act to begin a record expansion of its factories in the United States and Europe. But even with that support, it’s an expensive undertaking that has investors nervous.

The company cabled earlier this year that its manufacturing finances were “under significant pressure” as the chipmaker attempts to restore its technological capabilities and build infrastructure.

Chief Financial Officer Dave Zinsner, who took questions from analysts on Tuesday alongside Gelsinger, acknowledged there was plenty of room for improvement but said it would be wise to separate out manufacturing and treat the company’s product divisions as Customers have already accrued benefits. He said the need for expedited work and expensive testing of wafers has been significantly reduced.

The company also won some customers. In February this year, Intel announced that Microsoft’s internal chip design work would become a foundry business customer. Kissinger said he has other clients signing up in advance, but nothing has been confirmed yet. Their names cannot be revealed because they do not want to be made public.

(Updated with executive comments in sixth paragraph.)

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