Intel's Foundry Business Reports $7 Billion Operating Loss in 2023, Shares Fall 7%

Key Takeaway

• Intel's foundry business reported a $7 billion operating loss in 2023, deepening from $5.2 billion in 2022 despite $18.9 billion in sales.
• Shares fell 7% after the announcement, with analysts maintaining neutral and hold ratings amid Intel's strategic shift to transparent financial reporting.
• CEO Gelsinger's turnaround plan includes adopting EUV technology for better chip manufacturing, aiming for a technological edge by next year.

Foundry Business Losses

Intel's semiconductor manufacturing, or foundry business, reported a significant operating loss of $7 billion in 2023, as disclosed in a recent SEC filing. This marks a notable increase from the $5.2 billion loss recorded in 2022, despite sales amounting to $18.9 billion. The disclosure represents the first instance of Intel reporting revenue figures solely for its foundry arm, distinguishing it from the broader products business, which saw $11.3 billion in operating income on $47.7 billion in sales for the same period. Intel's CEO, Patrick Gelsinger, has outlined expectations for the foundry's losses to peak in 2024, with a break-even point projected midway between the current quarter and the end of 2030. This strategic shift is part of Intel's broader ambition to not only manufacture its own processors but also to provide foundry services to other companies, leveraging its position as one of the few American entities capable of cutting-edge semiconductor manufacturing.

Strategic Shifts and Market Response

Intel's transition towards a more transparent financial reporting structure, particularly for its foundry business, has been met with mixed reactions from the market and analysts. Following the announcement, Intel shares experienced a 7% drop, marking the most significant decline in over two months. Analysts from Cantor Fitzgerald and Stifel have maintained neutral and hold ratings on Intel's stock, respectively, acknowledging the company's new financial reporting structure but emphasizing the need for improved operating margins in both the foundry and product segments. The strategic plan, which includes substantial investments in new plants and technology, aims to position Intel as a key player in outsourced chip production, a move that is critical to CEO Gelsinger's vision for the company's future.

Technological Investments and Challenges

Intel's ambitious turnaround plan under CEO Patrick Gelsinger involves significant technological investments, including the adoption of extreme ultraviolet lithography (EUV) to enhance chip manufacturing capabilities. Gelsinger has admitted to past delays in adopting EUV technology but remains confident in Intel's ability to regain its technological edge by next year. This technological advancement is expected to not only improve the performance and cost-efficiency of Intel's products but also attract orders from competitors, potentially generating up to $15 billion in sales by the end of 2030. However, the company faces the challenge of a competitive foundry market dominated by Taiwan Semiconductor Manufacturing Co. (TSMC) and the rapid rise of Nvidia Corp. in the artificial intelligence accelerators market.

Street Views

• Cantor Fitzgerald Analysts (Neutral on Intel):

  "NOW is when the real work begins... Of course, this will take time, particularly with Intel’s planned manufacturing leadership truly ramping in 2027."

• Stifel Analysts (Neutral on Intel):

  "With a multi-year execution cycle still ahead, we continue to prefer nearer-term AI beneficiaries, NVDA and AMD."