Intel Discloses $7 bn Loss and 31% Drop in Revenue in Foundry Business

Intel, in a disclosure, has revealed mounting operating losses within its foundry business, marking a significant setback for the chip giant in its pursuit to reclaim technological supremacy from Taiwan Semiconductor Manufacturing (TSMC).
Intel 4th Gen Xeon Scalable ProcessorsTSMC projected more than 20 percent growth in 2024 revenue on booming demand for high-end chips used in artificial intelligence (AI) applications. TSMC is aiming for capital spending of $28-$32 billion for this year, in line with 2023.

Intel reported operating losses of $7 billion for its manufacturing unit in 2023, escalating from $5.2 billion the previous year. The unit’s revenue plummeted by 31 percent to $18.9 billion in 2023, down from $27.49 billion in the preceding year, Intel said in its documents filed the U.S. Securities and Exchange Commission (SEC).

During an investor presentation, Intel’s Chief Executive Officer Pat Gelsinger projected 2024 to be the lowest point in operating losses for the chipmaking business. Pat Gelsinger indicated the company’s anticipation to achieve operational breakeven by approximately 2027.

Intel Foundry currently has an expected lifetime deal value with external customers of more than $15 billion and remains focused on its goal of becoming the world’s second-largest foundry by 2030.

Attributing the foundry business’s challenges to previous strategic missteps, including the decision against adopting extreme ultraviolet (EUV) machines from ASML a year ago, Pat Gelsinger highlighted the cost-effectiveness of these machines, despite their high initial investment.

As a remedial measure, Intel disclosed plans to reduce reliance on external contract manufacturers, such as TSMC, from which it currently outsources about 30 percent of total wafer production. The company aims to decrease this figure to approximately 20 percent.

Intel has transitioned to employing EUV tools, poised to supplant older machinery gradually. Gelsinger asserted that with this shift, Intel is poised to regain competitiveness in terms of pricing, performance, and technological leadership, Reuters news report said.

Additionally, Intel unveiled a strategic initiative involving a $100 billion investment to construct or expand chip factories across four U.S. states. This plan forms a pivotal component of Intel’s broader business turnaround strategy, which hinges on attracting external entities to utilize its manufacturing services.

As part of this initiative, Intel intends to segregate the reporting of its manufacturing operations as a standalone unit. The company has been heavily investing to narrow the gap with its primary chipmaking rivals, TSMC and Samsung Electronics.

Intel also unveiled a revamped financial reporting structure aligned with its new foundry operating model aimed at enhancing transparency and driving financial performance. This strategic overhaul seeks to bolster cost discipline and improve returns by providing increased visibility, accountability, and incentives across the organization.

As part of this initiative, Intel presented recalibrated operating segment financial results for the years 2023, 2022, and 2021, outlining a targeted path toward long-term growth and profitability for Intel Foundry, the company’s manufacturing arm.

Under the revamped reporting structure, Intel will present segment results aligned with operating segments such as Client Computing Group (CCG), Data Center and AI (DCAI), Network and Edge (NEX), Intel Foundry, Altera (an Intel Company), Mobileye, and Others.

Dave Zinsner, Intel’s Chief Financial Officer, expressed confidence in the new model’s ability to drive cost savings, operational efficiencies, and asset value. He highlighted the company’s targets of achieving 60 percent non-GAAP gross margins and 40 percent non-GAAP operating margins by 2030, underpinned by improved cost competitiveness and enhanced operational performance.