Intel’s Foundry Business Struggles as Gross Margin Goal Looks Unreachable

Intel’s shares fell 5% before the bell on Wednesday, as increasing losses in its contract chip-making business indicated that it may take years for the company to catch up to Taiwan Semiconductor Manufacturing Co.’s profitability. The new financial details for Intel’s foundry unit revealed operating losses of $7 billion in 2023, compared to $5.2 billion in 2022. Analysts predict that Intel could face significant challenges for several years.

Intel has been investing billions of dollars in regaining its position as a leading producer of cutting-edge chips, a title now held by Taiwan Semiconductor Manufacturing Co. The company has allocated significant capital investments for this purpose, with plans to spend $100 billion on plants across four states in the United States, partly funded by the U.S. Chips Act. CEO Pat Gelsinger anticipates that the contract chip-making business will reach break-even point by around 2027, with the goal of achieving a gross margin of approximately 40% by 2030.

Despite these efforts, Intel’s foundry business still lags behind TSMC in terms of revenue and profitability. TSMC’s revenue in the final quarter of 2023 was much higher than Intel’s foundry unit sales in the same year. Gelsinger acknowledged that previous decisions had impacted the foundry business, such as not using extreme ultraviolet (EUV) machines from ASML. However, Intel has since changed its approach and switched to EUV tools.

Overall, Intel faces a challenging road ahead in the highly competitive chip-making industry, with analysts warning of significant headwinds in the coming years. The company’s efforts to regain market share and profitability will require a long-term strategy and significant investments in technology and infrastructure.

In conclusion, Intel is struggling with losses in its contract chip-making business and may take years to catch up with Taiwan Semiconductor Manufacturing Co.’s profitability. Despite this setback, Intel is investing heavily to regain its position as a leading producer of cutting-edge chips. However, analysts warn that it will require significant headwinds and investments to achieve success in this highly competitive industry.