On Tuesday, Intel announced that its foundry business had deeper operating losses, which is a setback for the chipmaker as it tries to regain the technology lead it lost to Taiwan Semiconductor Manufacturing in recent years. According to Intel, the manufacturing unit had operating losses of $7 billion for 2023, which is a steeper loss than the $5.2 billion in operating losses the year before. The unit had revenue of $18.9 billion for 2023, down 31% from $27.49 billion the year before.
Following the disclosure, Intel’s shares fell by 4.3% after the documents were filed with the U.S. Securities and Exchange Commission (SEC). During a presentation for investors, CEO Pat Gelsinger stated that 2024 would be the year with the worst operating losses for the company’s chipmaking business. However, he expects to break even on an operating basis by around 2027. Gelsinger added that the foundry business was weighed down by bad decisions, including one year ago against using extreme ultraviolet (EUV) machines from Dutch firm ASML.
Although these machines can cost more than $150 million, they are more cost-effective than earlier chip-making tools. Partially as a result of these missteps, Intel has outsourced about 30% of the total number of wafers to external contract manufacturers such as TSMC. Gelsinger aims to bring that number down to roughly 20%. Intel has now switched over to using EUV tools, which will cover more and more production needs as older machines are phased out. Gelsinger said, “In the post EUV era, we see that we’re very competitive now on price, performance (and) back to leadership.
And in the pre-EUV era, we carried a lot of costs and (were) uncompetitive.” Intel plans to spend $100 billion on building or expanding chip factories in four U.S. states. Its business turnaround plan depends on persuading outside companies to use its manufacturing services. As part of that plan, Intel will start reporting the results of its manufacturing operations as a standalone unit. The company has been investing heavily to catch up to its primary chipmaking rivals, TSMC and Samsung Electronics Co Ltd (005930.KS)