Intel’s Slide in Stock Value Highlights Gap with Rival TSMC in Foundry Business Loss.

Intel’s Foundry Business Faces Financial Challenges in the Years to Come Amid Profitability Gap with Taiwan Semiconductor Manufacturing Co.

Intel’s shares dropped by 5% before the bell on Wednesday after the company announced significant losses at its contract chip-making business, indicating that it may take years to catch up with the profitability of Taiwan Semiconductor Manufacturing Co. This news came as Intel disclosed new financial details for its foundry unit, reporting operating losses of $7 billion in 2023 compared to $5.2 billion in 2022. Analysts like Bernstein’s Stacy Rasgon anticipate several years of challenges ahead for the foundry economics.

Intel has been investing heavily to reclaim its position as a leading producer of cutting-edge chips after losing ground to Taiwan Semiconductor Manufacturing Co. The company’s capital investments under “construction in progress” amounted to $43.4 billion as of December 30, 2023, up from $36.7 billion the previous year. Additionally, Intel plans to spend $100 billion on plants in the U.S., with assistance from the U.S. Chips Act.

Intel’s CEO, Pat Gelsinger, projected that operating losses for the contract chip-making business would peak in 2024 before breaking even around 2027. This sector represented about 35% of Intel’s total net revenue in 2023. The company aims for the foundry business to achieve a gross margin of approximately 40% by 2030, still behind TSMC’s 53% margin reported in Q4 of 2023. Although Intel’s foundry unit had sales of $18.9 billion in 2023, TSMC’s revenue reached $19.52 billion in the final three months of the same year.

Gelsinger noted that past decisions, like not using extreme ultraviolet (EUV) machines from ASML, had impacted the foundry business negatively

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