Intel Reveals a $7 Billion Operating Deficit for Its Chip Manufacturing Division
Intel, one of the most prominent players in the semiconductor industry, recently disclosed significant operating losses for its foundry business, representing a substantial setback in its efforts to regain a competitive edge lost to Taiwan Semiconductor Manufacturing Company (TSMC) in recent years.
The foundry division reported operating losses totaling $7 billion in 2023, a considerable increase from the $5.2 billion loss recorded in the previous year. Additionally, revenue for the unit plunged to $18.9 billion in 2023, marking a substantial decline of 31% compared to $27.49 billion in the preceding year. This revelation sent shockwaves through the market, resulting in a 4.3% decline in Intel’s shares following the filing of documents with the U.S. Securities and Exchange Commission (SEC).
During an investor presentation, Intel’s CEO, Pat Gelsinger, addressed the company’s challenges, acknowledging that 2024 would likely be the peak year for operating losses in the chipmaking division. Yet, he conveyed assurance in the company’s capability to reach a break-even point in operating costs by around 2027.
Gelsinger attributed the struggles of the foundry business to a series of missteps, including the previous reluctance to adopt extreme ultraviolet (EUV) machines from ASML despite their proven cost-effectiveness compared to earlier chipmaking tools. This decision significantly contributed to the substantial operating losses incurred by the foundry division.
As a result of these strategic miscalculations, Intel found itself in the position of outsourcing about 30% of its wafer production to external contract manufacturers like TSMC. Nonetheless, the company is working to lower this percentage to approximately 20% to reclaim authority over its manufacturing processes.
Intel has since transitioned to using EUV tools, recognizing its pivotal role in meeting its evolving production requirements. By integrating EUV tools into its operations, Intel has reestablished its competitive edge in pricing, performance, and technological leadership within the semiconductor sector.
In a proactive maneuver aimed at revitalizing its operations, Intel has unveiled ambitious plans to invest $100 billion in the construction or expansion of chip factories across four U.S. states. The success of its revitalization strategy depends on its ability to attract external companies to utilize its manufacturing services, thereby diversifying its revenue streams and enhancing its overall competitiveness.
As part of this strategic initiative, Intel intends to report the outcomes of its manufacturing operations as a standalone unit, providing investors with increased transparency and insights into the performance of this crucial segment of its operations. The company remains steadfast in its commitment to innovation and technological advancement to reclaim its status as a global leader in semiconductor manufacturing.