Intel Discloses $7B Loss in Chip Manufacturing Division

On April 2nd, Intel (INTC.O) revealed a widening operational loss in its foundry business, signaling significant implications for the semiconductor industry. This comes as Intel endeavors to reclaim its erstwhile technological prowess from Taiwan Semiconductor Manufacturing Company (TSMC) (2330.TW).

Intel disclosed that its manufacturing division reported an operational loss of $7 billion in 2023, surpassing the previous year's $5.2 billion deficit. The division's revenue for 2023 amounted to $18.9 billion, marking a notable 31% decline from the preceding year's $63.05 billion.

Following the submission of documents to the U.S. Securities and Exchange Commission (SEC), Intel's stock experienced a 4.3% decline.

In an address to investors, CEO Pat Gelsinger projected 2024 to be the most challenging year for the company's chip manufacturing business, with an anticipated equilibrium in operating profits and losses around 2027.

Gelsinger attributed operational setbacks to erroneous decisions within the manufacturing business, including previous reluctance to adopt Extreme Ultraviolet (EUV) machines from ASML (ASML.AS). Despite potential costs exceeding $150 million per machine, they proved more cost-effective than previous chip manufacturing tools.

Due to these missteps, Intel has outsourced approximately 30% of its wafer production to external contract manufacturers such as TSMC, aiming to reduce this figure to around 20%.

Transitioning to EUV tools, Intel anticipates meeting escalating production demands as older machines are phased out.

"In the post-EUV era, we find ourselves highly competitive in terms of pricing, performance, and reclaiming leadership," noted Gelsinger. "Before EUV, we incurred significant costs and lacked competitiveness."

Intel plans to invest $100 billion in constructing or expanding chip factories across four states in the United States. Its business turnover plans hinge on persuading external entities to avail themselves of its manufacturing services.

As part of this strategic initiative, Intel informed investors that it would commence reporting the results of its manufacturing business as a separate division. The company has been steadfastly investing to narrow the gap with its principal chip manufacturing rivals, TSMC and Samsung Electronics Co., Ltd. (005930.KS).