Intel's factory losses widen as the company plans a costly comeback – Business News (Trending Perfect)


(Bloomberg) — Losses have deepened at the chipmaker's network of factories, and the business may not break even for several years, Intel said, revealing new details about its manufacturing operations.

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Sales at Intel Foundry, a new division of the company responsible for manufacturing, reached $18.9 billion in 2023, down from $27.5 billion the previous year, the company said late Tuesday. Operating losses at the new unit widened to $7 billion from $5.2 billion.

Intel fell more than 4% in extended trading after revealing the numbers. Shares fell 1.3% to $43.94 in regular trading Tuesday, bringing their year-to-date decline to 13%.

Intel is providing a more detailed picture of its finances as part of an ambitious turnaround plan laid out by CEO Pat Gelsinger. It publishes results from the factory network as a step toward making it operate more independently. The company is seeking to make chips for other companies, and giving it some separation from the rest of Intel is vital to that strategy.

The company's new timeline and financial goals show the challenges facing this effort, which includes investing billions of dollars in new factories.

“We believe there is a need for this transparency and accountability,” he said during a presentation. “The required transformation is well underway.”

The company expects 2024 to be the peak of its losses and for Intel Foundry to be operationally profitable “halfway between now and the end of 2030.” The chipmaker also appointed Lorenzo Flores as chief financial officer of the division.

Intel's move toward outsourcing chip production — known as foundry manufacturing — is one of the biggest shifts the company has seen in its history. Gelsinger's comeback efforts also include restoring Intel's previously inaccessible technology advantage — something the chip leader lost in the years before he took the reins in 2021.

Intel's difficulties have forced it to outsource manufacturing of some critical components, Gelsinger revealed in the presentation. He said it now buys about 30% of the silicon chips it produces. But by improving Intel's technology — using a technique called extreme ultraviolet lithography — the company intends to bring more of that production back in-house.

The CEO reiterated his assertion that Intel will regain its technological superiority by next year. Over time, this will improve the capabilities of Intel's products and make them cheaper to manufacture. That would also allow the company to take orders from competitors, which would save up to $15 billion in sales by the end of 2030, Gelsinger said.

Intel said there are five such companies committed to using its latest production technology, called 18A. The company said it will be used more widely starting next year and will gain momentum after that.

Taiwan Semiconductor Manufacturing Company currently dominates the foundry market and has surpassed Intel in total revenue. That company had sales of $69.4 billion for 2023 and net income of $26.9 billion. Its gross margin — the percentage of sales remaining after deducting the cost of production — was 54%. Its sales are expected to expand by 20% in 2024 to reach $83.4 billion.

Intel's closest competitor in its traditional business is Advanced Micro Devices Inc., which had revenue of $22.7 billion and net income of $854 million last year. The gross profit margin was 50%. This year, the company is on track to achieve a 14% jump in sales, according to analysts.

Meanwhile, Nvidia has quickly emerged as the industry's star. Although it doesn't yet have TSMC's revenue, its sales more than doubled last year — and another stratospheric gain is expected this year. The company has a significant leadership in the artificial intelligence accelerator market, which helps companies develop artificial intelligence models.

Intel has embarked on a record expansion of its factories in the United States and Europe, taking advantage of government incentives such as the Chip and Science Act. But even with this support, it is an expensive project that has put investors on edge.

The company telegraphed earlier this year that its manufacturing finances were “under significant pressure” as the chipmaker tries to restore its technology capabilities and build out its infrastructure.

CFO Dave Zinsner, who joined Gelsinger in taking questions from analysts on Tuesday, acknowledged there was plenty of room for improvement. But separating the manufacturing group — and treating the company's product division as a customer — has already brought benefits, he said. He said there has been a significant decline in expensive orders for express work and test chips.

The company also received some wins from customers. In February, Intel announced that Microsoft's in-house chip design efforts would become a foundry customer. Gelsinger said he is ahead of schedule in getting other clients to sign up, but is unable to give their names because they don't want to go public.

(Updates with executive comment in sixth paragraph.)

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