The US chip maker Intel (INTC.O) on Tuesday disclosed deepening operating losses for its foundry business, a blow to the chipmaker as it tries to regain a technology lead it lost in recent years to Taiwan Semiconductor Manufacturing (2330. TW), the world’s biggest contract chipmaker. Intel’s manufacturing unit reported a $7 billion operating loss for 2023, a steeper loss than the $5.2 billion in losses it had the year before. The unit had revenue of $18.9 billion, down 31% from $27.49 billion the year before.
In a presentation to investors, Intel CEO Pat Gelsinger said the chip-making division is expected to experience its most significant financial losses in 2024 and will hit operating break-even sometime around 2027. The unit currently outsources about 30% of its silicon wafer production to outside manufacturers like TSMC, but Gelsinger said Intel hopes to decrease that number to about 20% in the future.
Gelsinger also attributed the foundry’s challenges to previous missteps, including a decision not to adopt extreme ultraviolet (EUV) machines made by Dutch firm ASML that can cost more than $150 million but are much more cost-effective in the long run. The new machines can produce more minor features on chips, which is crucial in developing faster and more powerful microprocessors and other chip types that will power the next generation of smartphones, tablets, and laptop computers.
In addition to investing in new manufacturing facilities, Intel is trying to attract external companies to use its foundry services by offering lower prices and better technology than rival TSMC. It is also working to master a process called 3D transistor stacking, which can make chip packages thinner and more compact while improving performance. Gelsinger emphasized that the work has been progressing well but that it will take time to build up a customer base.
Gelsinger said separating the results of the factory network and treating it as a separate business will be critical to that effort. Doing so will allow the division to operate more independently, which should help it win more client orders and accelerate its turnaround. He acknowledged much room for improvement in the unit but said the separation had already yielded significant benefits.
In its earnings filing with the Securities and Exchange Commission, Intel also recast its financial reporting segments and named Lorenzo Flores as chief financial officer of Intel Foundry. The company is shifting to a model in which the product business units report Intel Foundry’s revenues rather than treating it as a part of the primary Intel Products segment. Intel said the move would help create a clearer picture of how profitable Intel Foundry can be in the long run. The company expects the foundry to achieve a 40% non-GAAP gross margin and a 30% non-GAAP operating margin by midway through 2030. The main Intel Products business is on track to meet those targets this year.
