Intel Corporation reported a $7 billion operating loss in its foundry division for the fiscal year 2023, marking a concerning downturn for the tech giant's ambitious efforts to revitalize its semiconductor manufacturing prowess. The loss, disclosed in recent filings with the U.S. Securities and Exchange Commission, surpasses the previous year's $5.2 billion shortfall and accompanies a sharp 31% revenue decline to $18.9 billion from $27.49 billion in 2022. This downturn contributed to a 4.3% slide in Intel's share price following the announcement.
Intel's CEO, Pat Gelsinger, in a presentation to investors, outlined a challenging roadmap ahead, with 2024 anticipated to be the peak year for operating losses in the chipmaking segment. However, Gelsinger projected a return to operational breakeven by approximately 2027, attributing the current financial strain to strategic missteps, notably the delayed adoption of extreme ultraviolet (EUV) lithography technology from Dutch firm ASML. This technology, crucial for advanced chip manufacturing, is now central to Intel's recovery plan, with Gelsinger expressing confidence in the company's competitiveness in the "post-EUV era."
Amidst these challenges, Intel disclosed that it has been compelled to outsource about 30% of its wafer production to external manufacturers, including industry leader Taiwan Semiconductor Manufacturing Company (TSMC). This strategy, while a temporary measure to maintain production commitments, has adversely impacted Intel's margins due to the premiums associated with third-party manufacturing.
To counteract these setbacks, Intel is aggressively investing in its manufacturing infrastructure, earmarking $100 billion for the expansion and establishment of chip factories across four U.S. states. This ambitious initiative aims not only to enhance Intel's manufacturing capabilities but also to attract external companies to utilize its foundry services, thereby diversifying its revenue streams.
The financial turbulence within Intel's foundry unit is part of a broader strategic overhaul, with the company set to implement a new operating model by the first quarter of 2025. This model will delineate the financial results of Intel's Foundry and Products units, offering greater transparency into the performance of its manufacturing operations. Historical financials have been recast to align with this new structure, revealing that despite the foundry's losses, Intel's product groups remain profitable, led by the client computing group's $9.5 billion profit in 2023.
Intel's aspirations for its foundry business are ambitious, targeting 40% non-GAAP gross margin and 30% non-GAAP operating margin by 2030. The company is banking on the successful ramp-up of new fabs in the U.S., including upcoming facilities in Arizona and Ohio, and an international expansion with a manufacturing site near Magdeburg, Germany. These developments are crucial for Intel to reduce its reliance on external foundries and improve its competitive stance in the global semiconductor industry.
Gelsinger remains optimistic about Intel's future, emphasizing the strategic importance of insourcing production to enhance cost efficiency, extend the lifespan of manufacturing nodes, and ultimately bolster the company's market position. "As we bring more of those wafers home, it will allow us to extend the life of some of the factory nodes as well," Gelsinger remarked, highlighting the multifaceted benefits of this transition for Intel's long-term viability.
Intel's journey through financial adversity toward reclaiming its leadership in semiconductor innovation is emblematic of the challenges and opportunities within the rapidly evolving tech landscape. As the company navigates through strategic shifts and hefty investments, the industry watches closely, anticipating Intel's resurgence as a dominant force in chip manufacturing.
